CURRENT SITUATION, CHALLENGES AND OUTLOOK OF CHINESE PROCESSING TOMATO INDUSTRY June 2012

I.

CURRENT PRODUCTION & SALES SITUATION, CHALLENGES AND OUTLOOK OF CHINESE PROCESSING TOMATO INDUSTRY

II.

CURRENT CONSUMPTION SITUATION, CHALLENGES AND OUTLOOK OF CHINESE TOMATO PRODUCTS

I. GROWING SITUATION
It is being widely promoted to organize the neighboring growers to plan and grow together in order to materialize Ag mechanization and Ag-info management. And the whole industry is upgrading.
Growing Situation of COFCO Tunhe

Establish GAP system Integrated pest management(IPM) Chemical residue control system Traceability system with agricultural Information IT Management network Standard growing brochure

Control land and promote quality varieties

Promote scientific growing and management model Promote single/double row growing model with population reduced from 3,000/mu to 2,0002,300/mu In 2011, 520,000mu transplanting area, accounting for 79% of total contracted acreage; Irrigation area expanded to 380,000mu in 2011
Bed growing double row

Own 4 farms and control

land of over 100,000mu Quality hybrid variety application rate increased

from 46% in 2005 to 95% in

2011 (630,000mu)
Tray seedling

Self-controlled land

Bed growing single row

I. GROWING SITUATION
It is being widely promoted to organize the neighboring growers to plan and grow together in order to materialize Ag mechanization and Ag-info management. And the whole industry is upgrading.
Since 2005, COFCO Tunhe has strengthened the cooperation with.J Heinz to learn from California agriculture practices. Up to now COFCO Tunhe has purchased over 1,000 sets of machinery. Mechanization has been realized in part of self-controlled land for seedling cultivation, bed making, transplanting, field management and harvesting. COFCO Tunhe has set an example to Chinese tomato processing industry, especially in the process of industry upgrading .

I. GROWING SITUATION
In 2012 , with the support of Unilever, COFCO Tunhe founded Farmers Field School, focusing on GAP training in Changji (Northern Xinjiang)and Bohu(Southern Xinjiang) and promoting sustainable agriculture.

School organization chart

Outdoor and indoor training

II. PRODUCTION SITUATION

Chinese processing tomato industry has been expanding since 2000 and 2009 saw the production hit the historical high. Currently the whole industry is in a stage of brewing changes and adjustment.
Output of Chinese tomato processing industry over the years

Unit1,000mt
8660 6410 6790

6210

4500 2300 1000

4300 3200

4600

2800

540

600

470

770

790

1580

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

SourceWPTC, Tomatoland 8

II. PRODUCTION SITUATION

In 2012 it is hard to conclude contracts with growers due to the depressed market and low profitability. It is estimated produce 5.0 million metric tons of processing tomatoes.

Items
Fresh tomatoes (MT) Tomato paste (MT) Planting acreage (ha) Average yield (MT/ha) Raw tomatoes - RMB380/MT

Crop 2012
5,000,000 676,000 62,100 80.5 USD60/MT (Ex-field)

SourceTomatoland,,Industry Research 9

II. PRODUCTION SITUATION

Cofco Tunhe and Chalkis are the major processors in China. In 2011, the production of top 10 Chinese processors added up to 5.65 million metric tons, accounting for 83% of the total.
Ranking Company Processed volume in 2011 (10,000 mt) Volume share 34% 21% 11% 5% 4% 2% 2%

1
2 3 4 5 6 7 8 9 10

Cofco Tunhe
Chalkis Haohan Guannong Tianye Taishun Fuyuan Changji Fruits & Vegetables co., Ltd. Bohua Lvxiang Regiment 142 Tomato Processing Factory Total China
10

231
140 72 35 29 15 13 12 9 9 565 679

2% 1% 1%
83% 100%

SourceIndustry Research , WPTC, Tomatoland

III. EXPORT SITUATION

Chinese export of tomato paste continues increasing. 2011 saw the export volume hit a historical high of 1.128 million MT.
Unit1,000mt

1025
850 602 632 818 806

1128

2005

2006

2007

2008

2009

2010

2011
SourceChina Customs

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III. EXPORT SITUATION

COFCO Tunhe and Chalkis are the major exporters in China. Export volume of top ten exporters occupies 68% of the total.
Ranking 1 2 3 4 5 6 7 8 9 10 Total China Company COFCO Tunhe Chalkis Haohan Guannong Export volume in 2011(10,000MT) 34.0 19.9 8.8 3.5 Occupation ratio of total Chinese export volume 30% 18% 8% 3%

Sanhe
Taishun Jintudi

2.7
2.4 1.9

2%
2% 2%

Hongbao
Tianye Provence

1.6
1.4 0.6 76.7 112.8
14

1%
1% 1% 68% 100%
SourceChina Customs

IV. CHALLENGES AND PROBLEMS

The price of raw material and labor cost keep going up and tomato paste cost increases accordingly.
PRICE FOR RAW TOMATOES (RMB/MT 420

Labor CostRMB/Day
120

236

261

35
20

2000

2005

2011

2000

2005

2011

SourceIndustry Research, COFCO Tunhe 15

IV. CHALLENGES AND PROBLEMS

The RMB continues appreciating against the US dollar, and this has brought negative impact on the exportation of Chinese tomato paste. RMB against US Dollar USD/CNY

16

SourceFinancial Times

V. OUTLOOK
Looking into the future, we should carry out the following points to sustain the longterm development of Chinese processing tomato industry: Improve the efficiency of the whole industry Establish and regulate a refined market competitive mechanism Cut down output and control the price of raw material Improve quality and diversify market channels; Develop and cultivate domestic market for processed tomato products

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I.

CURRENT PRODUCTION & SALES SITUATION, CHALLENGES AND OUTLOOK OF CHINESE PROCESSING TOMATO INDUSTRY

II.

CURRENT CONSUMPTION SITUATION, CHALLENGES AND OUTLOOK OF CHINESE TOMATO PRODUCTS

I. CURRENT MARKET SITUATION

There are four major types of cuisine with fresh tomatoes and processed tomato products: Instant Food, Soup, Cold Dishes and Hot Dishes.
Traditional Chinese Cuisines with tomatoes/tomato products

Instant Food
Tomato Soup

Stewed Fish in Tomato Juice

Soup
Diced Tomatoes with sugar Onions and Tomatoes in Sauce

Salad with Vegetables and Tomatoes

Cold Dishes
Scrambled eggs with tomatoes Diced Apple in Tomato Sauce Beef Brisket Braised Noodles in with diced Tomatoes Tomato Sauce

Hot Dishes
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I. CURRENT MARKET SITUATION

Tomato sauce, tomato paste and ketchup are the main categories, accounting for over 97% of the total.
Consumption Volume of Processed Tomato Products in China Items
Tomato sauce Tomato paste

Market Share of Tomato Products

Diced Tomatoes 1%

Consumption 10,000mt
9.2 5.2

Pizza Sauce etc. 2%

Proportion
48% 27%

Ketchup 22% Tomato Sauce Tomato Paste 27%

Ketchup
Diced tomatoes others

4.2
0.2 0.3

22%
1% 2%

48%

Total

19.1

100%

SourceIndustry Research 22

I. CURRENT MARKET SITUATION: MARKET PROMOTION

In order to guide and influence the choice and preference of consumers, Chinese companies are engaged in market promotion through tomato cooking contests, newspaper, magazines and websites.
Example: Market Promotion by COFCO Tunhe

Tomato Cooking Contests

Organize the Tomato Cooking Contest in 2010 with support from WPTC and CCFIA, new dishes with tomatoes have been presented

Newspaper
Promote the tomato products on newspaper.

Magazines
Published Chinese Tomato Magazine from 2011.

Websites
Promote through SOHU, SINA, and other domestic well-known website.

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I. CURRENT MARKET SITUATION: MARKET PROMOTION Chinese companies are actively participating in various food exhibitions so as to familiarize the consumers with tomato products.
Example: COFCO Tunhe participation in a lot of domestic food exhibitions Shanghai World Expo
Zhengzhou Food Expo

Beijing Condiments Expo

Xian Investment &

26

Trade Fair

I. CURRENT MARKET SITUATION: MARKET PROMOTION Chinese companies are using vivid advertisements to attract consumers.
Example: Advertisement by Yong Yi Food Co., Ltd

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I. CURRENT MARKET SITUATION: MARKET PROMOTION Chinese companies are using vivid advertisements to attract consumers.
Example: Advertisement by Heinz Qingdao

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I. CURRENT MARKET SITUATION: BRAND ENTERPRISES

Chinese condiment enterprises are divided into local and foreign companies. In the top seven companies, foreign companies such as Heinz, McCormick occupy 40% market share while local companies like Phoenix & Earth and COFCO Tunhe occupy 30%.

Market Share of Top 7 and Other Companies

30%
40%

Ratio of Foreign

Companies Among Top-7

Ratio of Local Companies Among Top-7 Others

30%

29

SourceIndustry Research

. MAJOR BRANDS: YONG YI Yong Yi Food Co., Ltd was established in 1995, and it is the biggest tomato condiment manufacturer in China. The products include tomato ketchup, tomato sauce, abalone sauce, chicken powder, oil and etc. The tomato ketchup and sauce are mainly sold to restaurants through traditional wholesalers and super markets. In 2011, its total sales volume of tomato products is around 45,000 tons. It has three major brands:Hong Xi, Phoenix & Earth and Wei Shun. which are quite famous. It is featured with competitive cost, mature marketing model, and sales network.

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. MAJOR BRANDS: HEINZ (QINGDAO)

Heinz (Qingdao) was established in 1999, and their products include frozen food, condiment and baby food, and it is the main tomato sauce supplier of KFC China. In 2011, its total sales volume of tomato products is around 40,000 tons. Its 3kg package of 22-24% hot break tomato paste is for high-end western food restaurants and hotels, 10g tomato sauce for KFC, and glass bottles of ketchup for households.

31

. MAJOR BRANDS: McCORMIK

McCormick was founded in 1889, its the worlds first spice manufacturer, marketer and distributor that serves the entire food industry. The customers of McCormick include retailers, catering and food processing factories. Since 1989, McCormick has set up two factories in Shanghai and Guangzhou. Main products include tomato condiment, spice and many other hundreds of varieties. McCormik is superior in brand and marketing network. In 2011, its total sales volume of tomato products is around 25,000 tons.

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. MAJOR BRANDS: COFCO TUNHE

As a leading producer and supplier of fruit and vegetable products in China, COFCO Tunhe is one of the world's largest tomato and apricot puree concentrate processors. The main products include tomato seeds, tomato paste, ketchup, tomato sauce, tomato juice, lycopene, and etc.

COFCO Tunhe seeks to become an enterprise with fully integrated value chains to cover all links of the food industry, i.e. from origination to consumption. And this includes seed research and development, planting, harvesting & delivery, processing, logistics, brand promotion and food sales.

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. MAJOR BRANDS: UNILEVER(KNORR) Knorr is the most famous condiment brand under Unilever. The main processing tomato product in China is Knorr Tomato Sauce. Knorr has invited professional chefs involved in product development and research, so that the products absorb the essence of local professional cooking skills and meet the needs of local consumers.

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. MAJOR BRANDS: MALING

Shanghai Maling Aquarius Co., Ltd is a subsidiary company of Bright Food (Group) Co., Ltd. It is also a listed company since June 1997. The products include tomato sauce, chili oil, canned meat, vegetables, fruits and so on. The Bright Food Group has two Chinese Well-known Trademark as Guan Sheng Yuan and White Rabbits, and Shanghai famous trademark as Malin, Hua Tuo, SF and so on. The barnd Maling is shared with COFCO Corporate.

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. MAJOR BRANDS: OTHERS In China, there are Qin Xing, Hunts, Xiao Chu, Shing Kee and other brand of ketchup. With the increase of domestic tomato products consumption, the number of brands and manufacturers will increase as well.

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. CHINESE CONSUMPTION OUTLOOK

Due to traditional food preference of Chinese people, compared with the consumption of fresh tomato in China and that of tomato products in developed countries, the consumption of processed tomato products in China is still low, but its development presents huge potentials.

Tomato Product

Fresh Tomato 27

36
12

21
20

20

24

1
China EU-15
37

U.S.A.
Source: WPTC

. CHINESE CONSUMPTION OUTLOOK

Processed tomato products are produced through standardized process, and featured with good quality and relatively low cost, therefore, highly welcomed by catering business. With the rapid development of catering market in China, the consumption of processed tomato products will be increased rapidly.
ProsNaturally matured, safe and healthy; the consumption capacity of catering market is huge and has lots of potential to further grow; high acceptance of tomato products ConsStereotype on tomato products: expensive, containing food addictives; few choices

Processed Tomato Products

ProsFresh, bright in color; traditional vegetable and easy to be accepted by Chinese. ConsOff-season fresh tomatoes are likely to have high content of ethylene, which is harmful to health; expensive (off-season tomatoes);taste not so good.

Fresh Tomato

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. CHINESE CONSUMPTION OUTLOOK

According to the growth in recent years, if we take 15% as the average annual growth rate as, the Chinese tomato products consumption will be nearly 442,000 tons in 2017, and the sales revenue will be RMB 4.25 billion yuan. The market is very promising.

Forecast of Tomato Product at Domestic Market

500 450 400 350 300 250 200 150 100 50 0

Volume1,000 MT

RevenueMillion RMB
CAGR 15%

442
384 334 321 370

425

191

220 184

253 211

290 243

280

2011

2012(F)

2013(F)

2014(F)
40

2015(F)

2016(F)

2017(F)

Source: Industry Research

. Conclusion
The sustainable development of Chinese processing tomato industry in a long-term largely relies on the further expansion of the domestic market. The healthy development of the world processing tomato industry will be further triggered by the sound development of Chinese processing tomato industry

Both domestic and overseas counterparts should work together to develop the Chinese domestic market!

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THANK YOU

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