The Tomato Magazine

The Tomato Magazine
October 2006

Florida Tomato Industry Looks at the Impact of Rising Energy Costs

Rising energy prices have had a signifi cant impact on growers, including those involved in the tomato industry. Some are managing to remain competitive but others are teetering on the brink of going out of business.

In a report given during the Florida Tomato Institute Sept. 6 in Naples, Fla., John J. VanSickle delivered a presentation, “Impact of Energy Issues on the Florida Tomato Industry."

An agricultural economist with the Department of Food & Resource Economics, IFAS, University of Florida, VanSickle also serves as executive director of the International Agricultural Trade and Policy Center.

The study reported here was done in conjunction with Santiago Bucarum, a graduate student in the Department of Food & Resource Economics.

“Since the end of 2002, U.S. retail diesel prices have been generally increasing, with a maximum of $3.15 per gallon in October, 2005, as a result of Hurricane Katrina further tightening supplies,” Van Sickle told the group.

“But the hurricane is only one factor, albeit a dramatic one, which has caused diesel prices to rise in 2005,” the researcher added.

A major factor infl uencing diesel prices in 2005 was the increase in crude oil prices, Van Sickle said, noting that crude oil started the year at around $42 per barrel and reached $70 by early September.

An additional factor, he explained, was the devastation from Hurricane Katrina which initially took out more than 25 percent of U.S. crude oil production and 10 to 15 percent of U.S. refi nery capacity.

On top of that, major oil pipelines that feed the Midwest and East Coast from the Gulf of Mexico area were shut down or forced to operate at reduced rates for a signifi cant period. The result was a 94 percent increase in diesel prices during the period 2002 to 2005, the economist said.

Boosted Competitive Position
After studying the situation, particularly the impact of such changes on horticultural growers, VanSickle and Bucaram concluded that increases in fuel costs have helped the competitive position of Florida and other East Coast suppliers at the expense of Mexico and California producers.

“These results are not all that surprising,” VanSickle said. “An increase in fuel costs of 94 percent should make it more expensive for California and Mexico to get product into the large northeast markets.

Because the harvest of fresh market tomatoes can take place over several harvests (weeks), increases in one production area will impact other producing areas even if the bulk of their harvest would occur in other market windows. Florida should be expected to gain ground against Mexico, and higher energy prices will impact Mexican producers more as they battle for the winter fresh tomato market.”

As production in Florida increases, it also will impact fall, winter and spring market window supplies, he added. Historically, the fall and spring periods have been good markets for California. It is the dynamic nature of the fresh vegetable market, harvesting product over several weeks of the season that causes the competitiveness of the market to change so drastically.

“The loss of profi table markets in the fall and spring market windows will make it more diffi cult for California to maintain market share in the summer market window,” the economist predicted. “Unless technologies change or energy prices decline relative to other costs, it would be expected that Florida would regain some of its prominence in the market that it had in 1989 when it produced 62,500 acres of tomatoes.”

The model used assumes that growers are able to make adjustment in planting decisions as changes in competitiveness occur, VanSickle cautioned.

“Some resources are fi xed, however, and it may be diffi cult to adjust acreage in response to these changing marketing conditions,” he said. “Packinghouses require a certain volume of product to remain efficient, and packinghouse owners may encourage production to keep facilities open over short durations to see if adjustments occur in the market.”

Expansion in other areas may be constrained because certain resources may not be able to be added, the researcher said. However, the results can be used to gain insight on where expansion may occur.

“If current energy prices are sustained, East Coast producing areas are expected to increase their presence in the market at the expense of foreign suppliers and California,” Van Sickle said, adding that Florida also “would benefit from this situation.”

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