Tomato Growers Seeing Red

Tomatoes_generic

In June, USDA published its outlook for vegetables focusing on the problems of the fresh tomato market¹. They argue that the rising diversity of tomato types/substitutes and the growth of tomato production from protected agriculture have depressed prices for tomatoes and removed much of the volatility that has always been a part of these markets.

I have written that growth in greenhouse vegetable production is depressing prices and taking opportunity away from field producers. The aspect USDA adds is that the loss of volatility reduces the potential to capture off-season high prices. The greenhouse industry has added a steady volume to the market and reduced the likelihood of production shortfalls that cause prices to spike. In other words, increased competition from greenhouse production is causing injury to traditional field producers of vegetables. The old business model of producing not to lose money so that you are in position to capitalize on the market when prices spike because of someone else’s production failure may never work again.

Growers are going to need to develop a new model that creates opportunity, understanding that the likelihood of counter-seasonal higher prices and profits will be diminished. What will the new model look like? It all depends on the producer.

Staking A Claim

It starts with an inventory of strengths in the organization and focusing energy where you hold the advantage in a resource needed to succeed. For many years, that was technology development and implementation for U.S. growers. The U.S. has been the leader in developing new technologies that allowed them to stay one step ahead of the competition and compete against lower-priced imports. That meant the business model required a relationship with the scientists who worked on new technologies for their products. The struggling U.S. economy has hindered that strategy. The U.S. now struggles to maintain their advantage in technology development because cuts in government spending fall hard on the institutions that develop this technology.

Successes like the Tasti-Lee tomato developed at the University of Florida need to occur more often and be focused where U.S. growers hold an advantage. The biggest competitor to U.S. growers in tomato production is Mexico, followed by Canada. Mexico has competed in the U.S. market because they capitalize on their resource advantage in labor. Canada was able to compete in the market because they were the early entrants in producing greenhouse vegetables and created a niche for their products that stood up for more than a decade.

Seeking Stability

The good weather that led to an abundant crop in field grown tomatoes contributed to a market that saw prices in the last year hovering around the reference price in the suspension agreement negotiated by the U.S. Department of Commerce with Mexico. That resulted in Florida growers petitioning the U.S. Department of Commerce and U.S. International Trade Commission for withdrawal from the suspension agreement.

Withdrawal from that agreement could lead to another petition alleging unfair trade practices from Mexico with injury sustained by U.S. growers. That could provide a short-term solution to the current oversupply of fresh market tomatoes, and provide the time needed for U.S. growers to adopt a more profitable model for selling fresh market tomatoes in the U.S. That will only be one step however, as investments will need to be made in technology development. Research funding in the 2008 Farm Bill helped this industry further capitalize on technology development. The new 2012 Farm Bill needs the same stimulus.

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