Future prospects for tomato processing in South America

26/09/2018 - François-Xavier Branthôme - 2018 WPTC congress , Future prospects for tomato processing in South America (Sept. 2018) - Read in french
(From the presentation given by Mr. Juan Manuel Mira Velasco during the 13th World Congress held in Greece in June 2018)

At the invitation of the worldwide organizations representing the tomato processing industry (AMITOM, WPTC) and of the organizing committee of the 13th World Tomato Processing Congress (Greece, June 2018), Juan Manuel Mira Velasco, the General Director of Sugal Chile, came to present the development prospects of the tomato processing industry in the southern hemisphere.
In a brief introduction, Mr. Mira described the general situation of the demographics and economy of the 13 countries that make up South America, and he accentuated some of the most notable contrasts of the region: 422 million people live in this subcontinent (approximately 6% of the total worldwide population), of which almost half (207 million) live in Brazil alone (12% in Columbia and 10% in Argentina), while the seven smaller countries of the region only comprise slightly less than 15% of South America's total population.

The region also features a number of big disparities in terms of wealth, linked to the size of the countries as well as to their history and development, as demonstrated by the recent evolution of gross domestic product results in several of these nations: over the past three years, most of the countries in South America have seen their GDP increase, particularly after years of continued depression, for some of them. Total GDP for the region is close on USD 4.5 billion in 2018, which is a 7.8% increase compared to the GDP recorded in 2015 (USD 4.12 billion). It is important to note the impressive progression of the GDP in Brazil (+14.5%), Bolivia (+15.8%), Argentina (+11.7%), etc.

The Sugal Chile President also underlined the wide diversity and existing contrasts between the different types of climate found on the subcontinent, from the desert conditions of Peru to the humid tropical regions of Brazil, right up to the Mediterranean climate of Chile and the humid Mediterranean conditions recorded in Argentina. He then commented the political and economic situation of the region's five main tomato processing countries (Brazil, Argentina, Chile, Peru and Venezuela), underlining with insistence the importance of the negative effects of political instability on inflation and on the cost of investments (see infographics at the end of this article). All of these parameters – and a number of others (legislation, logistics, yields, etc.) – also determine exchange rates of each nation's currency with regard to each other and to the US dollar, a fact that affects the price of raw materials for tomato processing and conditions the competitiveness of the derived products manufactured by the different industries.

This subject is sufficiently complex for it to be necessary to examine each country in detail. Juan Manuel Mira explained that in terms of notable progressions, the southern hemisphere currently accounts for 10% of the world's processing volume, against 5 to 6% eight years ago, which means that approximately 3 to 4 million metric tonnes are processed between South America and Australasia.

Brazil's production is distributed very unequally between four different regions: 3% in the Nordeste, 72% in the state of Goiás, 10% in Minas Gerais, and 15% in the state of Sao Paulo. The volumes processed amounted to 1.4 million mT in 2017 and approximately 1.32 mT in 2018 (editor's note), respectively harvested from 17 000 hectares of fields in 2017 and 15 000 hectares in 2018, all of which are equipped with central pivot sprinkler irrigation systems. About 125 to 150 growers are using approximately 120 to 135 hectares each, obtaining yields of approximately 82 mT/ha. The field gate price of raw tomato amounted in 2017 to USD 73 /mT, but the big distances covered result in high transport costs (approximately USD 25 /mT), which negatively affects the price of raw materials (USD 98 /mT) in the final count. The soluble solids content has improved in recent years but, at 4.2 to 4.5, the Brix remains lower than the worldwide average.

Almost all of the products manufactured are intended for the Brazilian domestic market, but they are complemented by imports of whole-peeled or diced tomatoes, as well as premium quality tomato pastes, which in some cases are justified by price opportunities. The country benefits from wide expanses of available land, but the cost of transport and currency exchange rates represent obstacles for the industry's development, with recent changes in legislation (lower minimum levels of soluble solids in finished products) also leading to a drop in consumption. Given the current balance between offer and demand, Juan Manuel Mira has said that he is not expecting any great changes in Brazil.

The production of processing tomatoes in Chile is concentrated in the central region of the country, within a 300 km zone that stretches south of Santiago. The volumes processed in 2018 have amounted to approximately 1.2 million mT, harvested on surfaces of 12 550 hectares, including 20% that are equipped with drip irrigation systems, while the remaining 80% are still watered by furrow irrigation. Agricultural yields in this area reach 96 mT/ha on average, with an average soluble solids content between 5.0 and 5.1 Brix. Last year, about 500 growers supplied the processing plants of three companies (Sugal Chile, Patagonia Fresh and Carozzi), from crops grown within an average distance of 50 km from the processing factories. The price of raw materials (in Chilean pesos) amounted to the equivalent of approximately USD 80 /mT, but the cost of land is currently very high in Chile, up to USD 60 000 or 65 000 per hectare on a number of farms, due to the competition from other fruit and vegetable crops that are very profitable.
Chile is the main tomato paste exporter of the southern hemisphere, and ranks eighth, worldwide, for this sector. Despite stable weather conditions and high quality standards, Chile suffers from limited availability of land surfaces able to support tomato crops, due to competition from cherries, walnuts and other crops.
In conclusion, if the Chilean industry wants to increase the surfaces planted with processing tomatoes, operators will need to develop micro-irrigation and call on more advanced technology in order to face competition from alternative crops: "This is a difficult challenge," stated Mr. Mira.

In Argentina, 78% of the processing tomato crop is grown in the region of Cuyo, between Mendoza and the San Juan area. The Rio Negro region, in the South, accounts for 8% of the national total, La Rioja for 6%, and the NOA region ("North of Argentina") for the remaining 8%.
The volumes processed in 2018 amounted to 436 000 mT, down 8% against the average of the three previous seasons, largely because of hailstorms that hit the crops this year. About 275 growers cultivate a total surface of some 6 000 hectares, of which 45% are equipped with micro-irrigation systems. Average agricultural yields in Argentina amount to approximately 70 mT/ha, but with wide disparities between regions (from less than 60 mT/ha to more than 100 mT/ha). Eight companies operate in Argentina (AgroAndina, Golden Harvest, Unilever Argentina, Angiord, la Campagnola, etc.). The price of processing tomatoes during the recent season varied from the equivalent (in Argentinian pesos) of USD 85 /mT field gate at the start of the harvest to the equivalent of USD 70 /mT by the end of the season, due to the sharp devaluation that has hit the Argentinian currency. The cost of transport is estimated at approximately USD 8 or 9, paid by processors.
Processed products, mainly canned tomatoes (but also some purées), are mostly distributed on the domestic market (whole peeled), while chopped tomatoes are also exported. Argentina imports shipments from Chile, the USA, China and Peru.
With regard to future prospects, it is important to observe that both yields and the mechanization of operations have been increasing regularly. Nonetheless, agricultural yields remain lower (53 mT/ha in 2011) than the average levels of neighboring countries. Adverse weather conditions like storms and hail can sometimes affect the crop. The cost of land is among the lowest in the whole region, but operating costs are very high. Growers and processors only have limited access to credit, in an economic context that features major instability in exchange rates. Juan Manuel Mira pointed out that the Argentinian consumption of tomato products is amongst the highest of the entire subcontinent, and processed volumes are likely to increase as long as agricultural yields continue progressing and if currency exchange rates recover a certain level of stability.

The total production of Peru, which amounts to approximately 100 000 mT, is grown in the desert valley of Ica, 250 km south of Lima. The harvest season generally lasts from October to April, and planted surfaces cover slightly less than 800 hectares, all of which are equipped with drip irrigation systems. Yields reach 120 mT/ha, destined solely for one company (Icatom), which is both the only grower and the only processor in the country. The price of raw materials – or its cost, according to viewpoint – amounts to the equivalent of USD 80 /mT. Agricultural conditions are among the most demanding of the region, with major health issues (insect infestations, diseases) caused by difficult weather circumstances. So crops are costly in terms of irrigation and limited because of available land surfaces, leading to very high production costs and the necessity of obtaining high yields, without which the price level of raw tomatoes would be completely noncompetitive. Peruvian cooking does not use a lot of processed tomato products, so 80% of the crop – which is entirely used for making tomato pastes – is shipped to foreign markets (Argentina, Brazil, Colombia, Ecuador, etc.).
In the future, the limited availability of agricultural land and the lack of water resources, in a valley where competition from other fruit crops (grapes, blueberries) or vegetables (avocados) is very high, mean that no major development is expected over the coming years.

For the leader of Sugal Chile, the future of tomato processing in South America will largely depend on the general political climate and on the capacity of the different countries to bring together conditions that are essential to the economic and financial stability of the region.

The video of this complete presentation is available on the website of the 13th Congress, under the "Conferences" tab:
Or on YouTube:

Some complementary data
The companies mentioned in this article can be found in the Directory available on the Tomato News website, and they can be localized using the "Map" feature.

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