Fruit and Vegetable Processing
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Industry Overview
The fruit and vegetable processing industry in the US includes about 2,000 companies with combined annual revenue of $40 billion. Large companies include Heinz, McCain, Del Monte, JR Simplot, grower cooperatives like Ocean Spray and Diamond, and divisions of large food companies like ConAgra and General Mills. The industry is highly concentrated: the 50 largest companies hold more than 75 percent of the market. Smaller companies have local or regional operations that don't require the large distribution systems of the big companies.
Competitive Landscape
Demand is driven by food consumption, which depends on population growth. The profitability of individual companies depends on efficient operations because products are commodities subject to intense price competition. Companies compete largely based on cost and their ability to distribute the finished product. Large companies have advantages in distribution operations. Small companies can compete effectively in local or regional markets.
Products, Operations & Technology
The major processed crops in the US are tomatoes (solid tomato and tomato paste products), potatoes (French fries, potato chips), and oranges (orange juice). Other important processed products include corn, cucumbers (pickles), beans, grapefruit, apples (apple juice, applesauce), grapes (raisins), strawberries, pineapples, and nuts. The two major types of operation are canning and freezing. Canned goods account for about 60 percent of industry revenue. A typical canning operation has 100 workers and produces annual revenue of $250,000 per worker. Some processing plants have more than 1,000 workers. Freezing operations are similar in size, but produce slightly less revenue per worker, about $180,000.
Raw materials are usually acquired from contract growers, who grow specific varieties of plants according to processor requirements. In Maine, for example, farmers grow Russet Burbank and Shepody potatoes for French fry processors, and various specialty varieties for potato chip processors. Grower contracts are usually for one year and typically specify product quality, a base price, and various price adjustments. While growers contract for a certain acreage, quantities of product can't be specified because crop yields can be sharply affected by weather and other factors. Almost all tomatoes are grown under contract because of their high perishability, whereas a large open market exists for oranges and potatoes. Supply contracts for some fruits can extend up to ten years. Because fruit trees may not produce for several years, growers need long commitments. In long-term supply contracts, prices are negotiated annually.
Some canning operators produce their own cans, but most buy them from outside suppliers. Del Monte, the largest US canner, buys most of its cans under a ten-year contract with renewable five-year terms. Plant operations are usually highly seasonal, coinciding with the growth cycle of the crop; for many fruits and vegetables, this means harvesting and processing ("packing") from June to October. Temporary workers are hired and inventories grow substantially during the "pack" season. Some crops, such as potatoes, can have several harvests per year (although fall potatoes are by far the largest crop). To use plants most efficiently, many companies handle more than one crop, contracting for crops with differing harvest seasons.
While French fry, potato chip, and fruit processing plants produce a finished product, orange juice processors may produce bulk frozen concentrated orange juice (FCOJ) sold to remanufacturers that either package it as frozen orange juice or mix it with water and flavorings and package it as reconstituted, ready-to-serve (recon RTS) orange juice. About 70 percent of tomato processing is in the form of concentrated tomato paste (31 percent natural tomato soluble solids, or NTSS) that is shipped to remanufacturers. Economies in transportation generally favor the location of fruit and vegetable processing plants near production fields, but FCOJ is more cheaply shipped to processors near customer markets, and potato chip processors are usually located near customer markets because their finished product is fragile.
The technology to produce tomato products, French fries, potato chips, and orange juice is well-known and simple. Most processing operations are highly automated, but fruit sorting is still largely done by hand.