Fruit & Vegetable Processing
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Industry Overview
The US fruit and vegetable processing industry includes about 1,300 companies with combined annual revenue of about $64 billion. Major companies include Del Monte, Heinz, JR Simplot, and Ocean Spray; and divisions of large food companies such as ConAgra and General Mills. The industry is concentrated: the 50 largest companies generate about 70 percent of revenue.
Global export revenue of processed fruits and vegetables totals about $45 billion, according to the Food and Agriculture Organization of the United Nations (FAO). Major exporters and importers of processed fruits and vegetables are China, the EU, and the US. Major companies headquartered outside the US include McCain Foods (Canada); Bonduelle (France); AGRANA (Austria); Pinguin (Belgium); and La Doria (Italy).
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 purchasing and distribution. Small companies can compete effectively in local or regional markets. The industry is capital-intensive: average annual revenue per employee is about $375,000.
Imports of fruit and vegetable preserves and specialty foods account for about 10 percent of the market. Major sources of imports include Canada, China, Mexico, Thailand, and Brazil. Exports, mainly to Canada, Japan, and Mexico, account for less than 10 percent of US production.
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); pineapples; peaches; jams and jellies; baby food; and soup. The two major types of operations are canning and freezing. Canned goods account for about 60 percent of industry revenue; frozen goods, 40 percent.
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 they are highly perishable, 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. 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. Concentrated tomato paste shipped to remanufacturers accounts for a significant share of processed tomato products. 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.
