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The 2022 Tomato News Conference: The 2022 Crop in China

04/01/2023 - François-Xavier Branthôme - The 2022 Tomato News Conference - Parma
Transcript of the presentation by Peng He (China Chamber of Commerce) during the 2022 Tomato News Conference held in Parma on 25 October 2022

 “My name is Peng He, I am representing the China Chamber of Commerce, imports, exported foodstuffs, native goods, and animal by-products. All the data for today’s presentation has been prepared by Cofco-TunHe.

In this slide, we see processing tomato volumes in China, on the grey line (second from the top). World production estimates of processing tomato this year are around 37 million tonnes, which compared to last year, are is down by about 5.1%. Last year, the figure was 39.18 million tonnes. China’s production is 6.2 million metric tonnes, which is about 16.7% of the worldwide crop. Compared to last year 2021, our production of processing tomatoes increased by about 29% (the volume last year was 4.8 million tonnes).
There are several reasons why China’s production has increased to this extent. 30% is not a small number. The first reason is the market. The tomato paste market has been going up since last year, providing more incentive to Chinese farmers – they are motivated to plant tomatoes this year. The second reason is that the prices of competing crops have dropped. The major competing crop for tomato is cotton, and the price of cotton in China has dropped by about 30-40%, giving more room to tomatoes. The third reason is that in the past five to ten years, the use of planting machines and harvesting machines has increased a lot in China. Right now, the Chinese crop is 100% machine-planted and 100% machine-harvested, which is saving a lot on labor. So compared to five-ten years ago, the labor part of the processing tomato industry has decreased a lot. And the fourth reason is the good cooperation between farmers and processors. They can follow each other, providing advice for each other before the season. So in the end, processors obtain the required volumes of tomatoes to process, and farmers are getting paid pretty well on time.

In the last ten years, China’s share of the trade market accounted for about 26% of global trade volumes. The red column is China’s export volume. We can see that in the past twelve years of Chinese tomato paste exporting, the peak volume was reached in 2011/2012 with 1.2 million metric tonnes (mT) of finished-product tomato paste, and the lowest point was in 2013/2014, with as little as about 600,000 mT of tomato paste.
From 2014 to 2020, export volumes remained stable in the range of 750,000 to 800,000 mT of tomato paste every year. After several big processors restructured and some went bankrupt, between 2014 and 2021, only about 70-80% of the industry’s tomato processing capacity was actually in use. Two big processors underwent restructuring procedures.
Before 2011, processing capacity was much larger than justified by the planting area, which pushed tomato processors to compete on the price of tomato raw materials, and caused them to lose money. So big processors faced major financial problems. But from 2014 to 2021, the industry was running in a more stable way, and step-by-step, the processors regained the faith of the farmers and paid them well, and the farmers followed the advice from processors on operations linked to planting, harvesting and processing. So we can see a stable cost-effective pattern of supply that kept these plants processing over the 2014-2021 period. Due to the low cost of tomatoes, the Chinese production has always kept a very competitive position on the world market, to the advantage of China’s export activities.

This chart shows tomato prices in California, Europe and China over the past twelve years. Just in the past three years, tomato prices in China have increased about 21% on average, but we are still very competitive in price compared to California and Europe. The price of tomato mainly increased due to the cost of renting the fields, which is considered to account for about 30% of the cost of planting tomatoes. Today, in 2022, the rental cost of the fields is about 50% of planting costs. Other costs like water, pesticides, or energy don’t change much in China. They have undergone an increase of only maybe 2 or 3%.
Planting techniques for the farmers have developed a lot. Before 2015, our yield was below 90 mT per hectare, but in the last three years – 2019, 2020 and 2021, even 2022 –, our yield has increased to some 120 to 130 mT per hectare. That is an average, and the highest yields recorded reached some 195 mT per hectare.
Also government has instituted a lot of rules to protect farmers. Many processors have financial problems, have gone bankrupt, and local governments will give them collateral to borrow money from financial institutions to make sure all farmers who deliver tomatoes to processors can be paid. From 2014 until now, no farmers have lost money. That is why farmers and processors are maintaining good mutual relationships, and farmers are motivated to plant more tomatoes, and their relationships are more sustainable.

This chart shows export volumes and prices over the past three years. The blue column is the volume for bulk tomato paste, the orange is for canned tomato products, the green line is for the price of bulk products, and the yellow line is for the price of canned tomato products. We can clearly see that after November 2021, export volumes of bulk tomato paste increased considerably in prices and volume, very quickly. This price is the average export price as published by China Customs – it doesn’t specify what kind of Brix or distinguish between different products – it is just an average price. This average price has increased to over 1,000 USD FOB since March 2022. The canned products category has remained stable in terms of volume, and the prices also increased, following the pattern of bulk tomato paste. The decrease in bulk volumes since April 2022 means that in April 2022 we almost sold out everything. In the following several months, only products for ongoing contracts were shipped.
The dramatic price increase is for last year’s crop, as a November 2021.

Here we can see China’s processing volumes and inventory data. China has four main processing areas: southern Xinjiang, northern Xinjiang, Inner Mongolia and Gansu. Xinjiang accounts for about 80% of the production. We can clearly see how production is quite low, compared to 2017 and 2018 when inventories were at their highest level. After 2019, when the inventory reached a lower level, production increased slightly. In 2020, the inventory is almost nothing, so we observe a pretty good production. We have had some carryover from the 2021 inventory, so we adjusted the production a little bit. In 2022 we observe almost “zero” inventory, and we processed much higher volumes than last year – about 30% more. It looks like these two numbers added together are kept stable. The reason for this is that farmers and processors communicate with each other, with processors promising farmers fair prices before they start planting. Also, farmers follow processors’ suggestions – they plant what they are told to plant, resulting in final numbers that are not disappointing. Both farmers and processors are happy with the final outcome.
The Chinese tomato industry has been improving its relationships between farmers and processors since 2015.

There is another big advantage in terms of recent ocean freight trends. Because China exports about 80% of its products, ocean freight is a major consideration. In 2021, the maximum freight index was 3500 – this is a containerized freight index published by the China Ocean Freight Association. This number does not indicate the volume per container, it is just an average number. As of November 2021, which was the peak period, our freight going to Europe was about 9,000 USD per container. But this figure has dropped a lot, and is now at 7,000. That is a good advantage for China’s exports of tomato paste this year.

This shows Chinese currency versus US Dollar exchange patterns. It is another advantage for Chinese processors because the exchange rate has developed a lot – over 30% in the past six months. When we began packing in 2022, the exchange rate was about 6.4, but today it reaches 7.3, which provides an additional margin of about 15% for China’s processors. We expect from our current government and our current financial situation to see the exchange rate for the US Dollar remain between 7.1 to 7.3, or in this range, for the next six to eight months.

Now I just want to talk a little about China’s domestic market. Chinese domestic consumption has been growing pretty fast. About ten years ago, we exported about 900,000 metric tonnes of tomato paste, while domestic consumption only amounted to 100,000 mT. But today, we consume 150,000 mT to 180,000 mT. It has almost doubled. There are three reasons for this. First, China’s restaurant chains have been well set up – you can find the same restaurants in Beijing, in Shanghai, in Guangzhou, in Urumqi, with the same name restaurants doing dishes that taste the same, which are called “pre-made dishes”. All these pre-made dishes have to keep the same flavor wherever you are. This is done by using stable ingredients, like tomato paste, which is something that cannot be avoided. The second reason is that western dishes are very popular – like pizzas and hamburgers. A lot of McDonald’s, KFC, and Pizza Hut have opened in China everywhere. Compared to ten years ago, I think the number has gone up like 500%, or more than that. And the third reason is that many famous local brands of sauces, dipping sauces, barbecue sauces, have been developed and launched to market for twenty years now, accumulating a very good market share. These products use a lot of tomato paste made in China. So speaking of our domestic market, it has grown very rapidly.

Even though everybody has talked about increasing costs for energy and everything else, and we have also confronted the same situation, we still believe that China’s tomato products are in a competitive position, and the Chinese tomato processing industry should continue developing over the coming years.
Considering the rising pattern of costs globally, the price of tomato products will inevitably increase to ensure the sustainable development of the tomato industry

Peng He’s presentation

You can find all the other presentations and slides from the 2022 Tomato News Conference held in Parma on 25 October 2022 by clicking here.

Source: Tomato News
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