April 2008 - Crop Update - USA
For the past several years Sensient Dehydrated Flavors has made every effort to effectively communicate the changing landscape of the dehydration industry. Our industry, along with the rest of the food and ingredients industry, continues to face overwhelming challenges, as the impact of crop displacement, food safety and rising fuel and energy costs have become global in nature.
These factors have directly impacted the dehydration vegetable industry, causing unprecedented cost impacts throughout the supply chain. For example, the price of fertilizer has escalated, over 400%, from $300 per ton in 2006 to $1,200 per ton at the end of 2007. The cost of diesel fuel has climbed sharply over the past two years and is up 45% from where it was roughly two years ago. Farm and grazing lands, all over the world, continue to lose acreage to corn grown for fuel. This shift has displaced other farmlands in order to grow staples such as wheat, soybeans, and alfalfa, driving up land costs and prices.
Water is a scarce commodity on the world market, but it has become more limited in California this year than ever before. California’s arid climate depends on a series of aqueducts, canals and basins for irrigation, which are supported by snow runoff and rains. Rain and snow levels over the past several years have been lower than average, putting more pressure on water used for consumer demand and farmland. As water becomes restricted to California growers it becomes extremely regulated. The San Joaquin Valley growing area received only 45% of its water allocation for the season. These growers, many whom produce for Sensient, have turned to buying water from costly sources. To ensure we are able to maintain a stable supply of products for our customers, Sensient has established a water addendum with our growers to help defray a portion of these costs; making sure they are able to source enough water needed to grow our crops and provide a steady flow of raw material for dehydration.
Dehydrated Onion
The Onion harvest is expected to begin at the end of April and at this time the early crop appears to be developing normally. The expectation for this year’s crop is equal to that of the 2007 crop by volume, barring any adverse impacts from inclement weather, disease, etc. Raw material costs will increase this year, assuming the harvest will come in as planned. Due to the cost impact factors discussed above, we expect growers to continue to demand higher contract prices for fresh onions.
Dehydrated Garlic
As with onion, garlic was impacted by the same input cost pressures in addition to a seed shortage. The seed shortage was largely a result of last years freeze damage of the California garlic seed crop. Demand for U.S. grown garlic is also increasing due to food safety concerns. Similar to onion, and assuming the harvest comes in as planned, raw material costs will increase as well this year.
Capsicums
The capsicum market had a very difficult year with the New Mexico 2007 crop falling short of plan by 40%. The short fall was a result of 4,000 fewer acres planted coupled with increased disease pressures. These factors resulted in the smallest U.S. crop harvested in 10 years.
The production of Peruvian chili has continued to decline since 2005 by an estimated 10,000 metric tons coupled with an increase in costs.
For 2008, New Mexico contracting saw prices increase by $.20 per pound. Most of this increase was attributed to a rise in grower costs. The industry will face the full impact of this cost increase beginning in 2009.
