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Interview Martin Stilwell

11/03/2024 - Madeleine Royère-Koonings
In this interview, Martin gives us his views on the Portuguese tomato market, the challenges we are facing, as well as the global market and the current forecast.

Transcript of the interview

Could you say a few words to introduce yourself? Because even though most of the people in the industry know you, maybe for the newcomers, just a few words.
My name obviously is Martin Stillwell. I've worked all my professional life, which has been a long one, linked in some way to tomatoes, doing most of the things involved with tomatoes, from breeding tomato varieties to processing to selling. So virtually everything involved with tomatoes in one way or another.
And you started directly in the tomato processing industry? 
Yes I joined Heinz originally in 1971. 

Okay! I was a little kid at the time ;-)
So now you're working for HIT. So what do you do, what is your job, and can you introduce the company and how it relates to Kagome?
Well HIT is a company which was formed to buy the company I was previously running called Italagro which was involved indirectly in the Parmalat bankruptcy. We were owned by Parmalat and, as most people will know, Parmalat went bankrupt and I, together with our major customers, we then bought the operating businesses from Parmalat and under the name of a company called HIT, which we founded for the purpose.
Okay, but now, HIT is linked to Kagome, right?
Yes, Kagome has 54% of the shares of HIT.
So there was some news that we saw recently, two weeks ago or so about the newest investment that HIT is making. Can you say a few words about that?
Yes. We are making significant investment in two areas. One is energy, trying to save energy. One of the key objectives of our investments is the reduction of "energy use". We will be installing a second Apollo evaporator. The first one was a joint venture between ourselves and CFT. And we built the prototype and now we will install a second one. The other investment, which is probably the larger part, is the automation of many of our lines, our production lines. We have over the years focused on developing businesses outside the commodity tomato paste business. And we are now a significant producer of tomato sauces in food service formats. And essentially the other part of the investment is a further expansion of capacity and automation of the line. We face increasing difficulties in recruiting personnel. So automation is important. 
Okay. But will you be adding lines, or modernizing lines or both?
This is part of an investment which started 2 years ago, and basically we are doubling the capacity to produce food service (horeca) tomato sauces.
How about the processing tomato production in Portugal? How do you see it evolving in the next few years? 
I would say first one thing about Portugal itself. Portugal is in a fortunate position that the growing areas are relatively close to the sea. And so we have a less extreme climate than our neighbor Spain. The weather is cooler and it rains more in winter. So generally we've not faced issues with drought. And also the quality of our product is different. It tastes sweeter. It's recognized around many parts of the world. There is a very good balance between acidity and sweetness in our product. 
And this is mostly thanks to the weather?
It's basically thanks to the location, yes. Okay now looking forward, I think we see it happening not only in Portugal, but in other countries as well. There is a gradual move up the value chain. It's particularly obvious in Italy where the process is almost complete, where the processors who process tomatoes now produce finished products, products which end up being sold to consumers either with their own brands, with supermarket brands, or in general avoiding the production of Industrial products.
And you see the same trend happening?
I see the same trend, maybe not the same product being produced, but the same trend, a trend towards lower concentration products. Lower concentration products have a better taste and more tomato taste because they are less processed. And the market generally has been growing in that area. And so I think we will see Portugal moving gradually towards those sorts of products. 
What would you see maybe as the main challenges for Portugal in the next few years? 
The biggest challenge I think we all face, not only Portugal, is what people call climate change or climate instability. And so the ability to adapt to changing circumstances is probably the biggest challenge we face. Generally, most of the industry around the world has specialized in, as it’s a very competitive industry, in systems which reduce costs, particularly irrigation. And this has meant that, quite often there is less and less rotation of the crop. And so the crop is repeated on the same land year after year, and that is giving rise to a number of problems. It is particularly obvious in California where they have buried drip irrigation and therefore cannot move. But it's happening in general in most places. And the ability to overcome that I think is going to be one of the keys for the future in the tomato industry. I could say particularly in Portugal but it's a problem which occurs throughout our industry. 
And do you think we are going to find solutions for that?
Yes, I think so. Generally we found solutions for most things. The varieties have been created which have better disease resistance. We in our partnership with Kagome are doing some basic research on soil fertility and how you can restore soil fertility faster. And we are making progress in that work. So I think we will see progress over the next few years. 
So you said that was the main challenge. I am just wondering, what about the prices continuously rising and the price of raw materials and so on? Do you think that's going to kind of stop or slow down a bit?  
I think to a certain extent it has stopped this year. Costs are very similar to last year. And there is an effect happening at the moment as we speak. And it's been involved in the growers negotiations with industry in all countries, which is that the agricultural products in general have, prices have decreased significantly this year compared to last year. And so the competitor crops for tomatoes are much cheaper. People want to grow tomatoes, growers want to grow tomatoes, and we are seeing the price to the grower decreasing this year. They have decreased in Portugal, they have decreased or are decreasing in Spain, although they are having very difficult negotiations in Spain. California is fairly close to reaching an agreement between growers and processors. And the price will drop significantly. So I think we will see a partial reversal in our area of tomatoes, of the effects we've seen over the last three-four years.
Well I was thinking, because where I am in France, some prices continue to grow, like electricity has gone up again and fuel is going up again, So to me that is like it never stops. But…
Yes, I mean there are those issues which we don't know, They go up and they go down. On the other hand, emissions for tomatoes, which are an important part of our costs, emission costs have descended very significantly in the last three months. Price of natural gas is down, down below the levels it was at this time last year. So I think electricity prices will fall. It's difficult to guess. We live in an unstable world as well with two major wars and partial blockade of the Red Sea. Life is not simple.
No, and time will tell. Definitely.
So I have another question about the forecast for 2024. Can you say a few words about it?  I heard that the number for China was going seriously up this year.
Yes, the number from China. China has announced a number atypically early. China typically announces the size of its crop or its first forecast at the end of March, the beginning of April. China has a rather different climate from other countries, a climate very continental, it's cold until quite late. So they can't plant seriously until late April. Whereas most other countries plant during March, and certainly during April and May. And China is restricted in how early it can plant by cold weather, by the risk of frost. And also the other end of the crop is limited by cold weather. The frosts in late September finish the crop usually. But China has in fact announced a number which is 40 percent larger than last year, which is an enormous increase, and we shouldn't forget that last year’s increase was 25% higher than the year before. So we are looking at an increase, if it comes to be, an increase, which is nearly double. China will nearly double its production in two years. Now the Chinese have said for some time now that consumption within China is increasing very rapidly. And this could be a partial explanation for what is happening, that internal consumption has increased very significantly. And of course China has a very large population, so if they do start eating products, there is one in particular which they always say is doing extremely well which they call hotpot, which now uses tomato paste in its manufacturing or its list ingredients, they could become a very significant consumer. We shouldn't forget that. If we look in comparison at the United States, the United States processes 10-12 million tons of which about 9 million tons are consumed within the US, and the population in the US is significantly smaller than China. So if the Chinese start consuming in a serious manner, they could easily accommodate these large crops. But if it hasn't increased at that rate and China is hoping to export the excess, I think that both the Chinese and principally the Chinese, but all of us will suffer in consequence. So we'll see. I expect a more moderate forecast at the end of the month of March.
Okay thank you so maybe last question: how do you see the global market evolving over the next few years? So yeah we talked about China specifically but…
We used to have a very predictable but very difficult market in which there was a cycle and everybody gradually became aware of where we were in the cycle. And they adapted their strategies to fit the cycle. And basically the cycle was that prices were low, we planted less, until there wasn't enough. And then prices rose, and we planted more until we planted too much, and then prices would drop. But since 2014, more or less so, about the last 10 years, partly because of the awareness of the deciders, the people who make decisions in this crop, the awareness of where we were in the cycle and what sort of balance existed between supply and demand. there was a limitation to both ends, to producing too little or to producing too much. It is so that a five-year cycle now has turned into what looks like a 10-year cycle, which is a lot better than five years. It does mean that within it, we have a fair degree of stability. This up and down cycle of five years was extremely destructive. It led to an enormous reduction in the number of players globally, not only in Europe and the US, and all the major producers but also, in China itself, many companies closed down. There are fewer companies now producing more. So we'll see whether this year we end up producing too much. I do think there is one big difficulty with this, it's that we can never be sure of what consumption is, looking back backwards. And so it is what has happened. We can work out what consumption is, but of course predicting the future is difficult.
Yeah definitely and as you say at least in China, there is a lot of potential for growth for internal consumption.
 Yes, if internal consumption is genuinely growing very fast then we could see quite a different scenario globally. 
Thank you very much Martin, I haven’t been in the industry for that long, so you really brushed a good picture for me.

The interview can be seen here:

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