Despite water shortages in California, a new Rabobank report, “U.S. Processing Tomatoes,” finds that tomato processors won’t face supply shortages in 2009; however, are likely to face softer consumer demand, especially in foodservice.

“The impact of California’s drought is expected to have limited impact on processing tomato acreage this year because processors took steps to secure supplies,” said Marieke de Rijke, vice president of Rabobank’s Food & Agribusiness and Advisory department. “In fact, we’re seeing some farmers shift to growing processing tomatoes because of the higher expected returns than they are receiving from crops grown for the dairy and other sectors badly hit by the economic crisis.”

While California, which produces 95 percent of the processing tomatoes in the United States, has entered its third year of drought, the supply of tomatoes should not be affected.

“In the end, what matters most to growers is how input costs compare to the market price of a commodity. Processing tomatoes will continue to be the growers choice if net profits are competitive with those of other crops,” said de Rijke.

Over the past three decades, domestic demand for processing tomatoes has grown. Increasing pizza, pasta and salsa consumption has driven sales higher. However, as the recession bites and consumers eat out less, demand has softened for those products at the foodservice level, which accounts for approximately one-third of all processed tomato product sales.

At the retail level on the other hand, consumers are increasingly trading down to less expensive grocery products that still meet quality and health requirements. There is a shift from consumption of fresh-cut produce to whole commodities as well as frozen and canned. In general, sales volumes are expected to keep up, but sales values show a shift to less expensive alternatives – such as private label products.

• Trade

While water shortages, and changes in consumer demand at the foodservice level affect the U.S. market, export opportunities have been a great support to the industry and appear set to continue into the longer term as an important outlet for US product. Changes to the European Unions’ Common Agricultural Policy are likely to force producers away from processing tomato production, and this presents new trade opportunities for other globally competitive export suppliers such as California. Additionally, consumption increases in urban Asian markets in particular offer room for market growth.