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North AmericanGreenhouse

Tomatoes Emergeas a Major

Market Force

ECONOMIC RESEARCH SERVICE/USDA

Linda Calvinlcalvin@ers.usda.gov

Roberta Cookcook@primal.ucdavis.edu

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Eurofresh, Inc.

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The rapidly growing greenhousetomato industry has become an importantpart of the North American fresh tomatoindustry. Greenhouse tomatoes now rep-resent an estimated 17 percent of U.S.fresh tomato supply. Even though green-house tomatoes still constitute a minorityshare of the U.S. fresh tomato market,their influence is concentrated and grow-ing in retail channels, which representabout half of U.S. tomato consumption.Around 37 percent of all fresh tomatoessold in U.S. retail stores are now green-house, compared with negligible amountsin the early 1990s.

Greenhouse tomatoes can be seen asjust one more development in a trendtoward more differentiated fresh tomatoofferings, including more variety in field-grown tomatoes. New types of tomatoes,improved varieties and handling, and posi-tive health benefits associated with eatingtomatoes have all contributed to a 30-per-cent rise in U.S. consumption of freshtomatoes since 1985, with estimated 2003annual per capita consumption levelsaround 8.8 kilograms (19.4 pounds).Growth in the greenhouse industry haschallenged growers of fresh field tomatoes.With rising consumption of all tomatoes,field tomato sales in the U.S. retail marketincreased through 2001, in part due to new

fresh field products, such as grape toma-toes. But in 2002, the combined retail salesvolume of all field tomato types began toslip. Field tomatoes still dominate thegrowing foodservice market (restaurants,schools, hospitals, etc.) where greenhousetomatoes are scarce. Foodservice sales areincreasingly essential to the health of thefield tomato industry.

While greenhouse tomatoes havehigher per unit costs of production andgenerally higher retail prices than fieldtomatoes, several other characteristicshave contributed to the growth in this sec-tor. Since they are protected from weatherand other conditions affecting open fieldproduction, greenhouse tomatoes general-ly have a much more uniform appearancethan field tomatoes. They are also lessprone to swings in production volumes.These factors lead to greater consistencyin quality, volumes, and pricing—issues ofparticular concern to the retail and food-service industries.

The United States, Canada, andMexico have all developed major green-house industries. The United States is thelargest North American market for green-house tomatoes, and U.S. imports fromCanada and Mexico are larger thandomestic production. In recent years, thegrowth in U.S. imports has exceeded the

growth in U.S. production. In 2003,Canada accounted for an estimated 46percent of U.S. imports of greenhousetomatoes. Mexico’s share was 45 percent.As the greenhouse tomato industry hastransitioned from niche to mainstreamstatus, it has become part of a more inte-grated North American market, followingthe pattern established by the field toma-to industry.

The greenhouse industry is facinggrowing pains. With rapid growth inCanada and the United States during the1990s, greenhouse tomato prices declined,causing financial problems for some grow-ers. More recently, as the industry hasexpanded in Mexico, heterogeneity in pro-duction methods has increased. Growersin the United States and Canada, andsome Mexican growers, have high-technol-ogy and high-cost greenhouses. Many ofthese growers view the growth of lowertechnology greenhouses and shade housesin Mexico with some alarm. This has ledto a debate in the industry about how todefine a greenhouse tomato (see box,“What Is a Greenhouse Tomato?”).Regardless of how this issue is resolved,higher expected year-round productionvolumes in Mexico portend greater com-petition in all seasons, and continueddownward pressure on prices.

ECONOMIC RESEARCH SERVICE/USDA

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Seasonality DrivesMarket Integration

Seasonality is a major factor shapingthe North American fresh tomato indus-try. Consumers increasingly demand asteady year-round supply of an ever-greater variety of tomato products. Thegreenhouse industry has seasonal produc-

tion patterns similar to the fresh fieldindustry, despite the fact that greenhouseproduction takes place indoors.Greenhouse supplies vary over time andacross geographical regions, and marketersoften try to extend their seasons to peri-ods typically marked by lower tomato pro-duction and higher prices, sometimes by

sourcing from more than one location.The result has been the development ofan integrated North American greenhousetomato industry that can provide the vari-ety of tomato products that consumersdemand throughout the year. While thereis some overlap, Mexico is the primary for-eign winter supplier to the U.S. marketand Canada the primary foreign summersupplier.

In 2003, total production of NorthAmerican greenhouse tomatoes was esti-mated at 528,078 metric tons. Canada’sshare of this total was 42 percent, fol-lowed by the United States with 30 per-cent, and Mexico with 28 percent. Thoughgreenhouse tomato production soared inall three countries from the early 1990s, ithas been stabilizing in the United Statesand Canada. In Mexico, the industry isstill growing rapidly. Mexico’s growingarea exceeds the combined total area ofU.S. and Canadian greenhouses, but withmany Mexican growers using extensiveproduction methods with relatively sim-ple low-yielding technology, output islower than in the other two countries.

Canada was the first big greenhousetomato producer in North America and stillhas the highest yields and total produc-tion. The Canadian industry is centered insouthern British Columbia and Ontario.Long, relatively mild, summer days inthese regions generate high yields. Duringthe March to December period, Canadianproduction is a market force. U.S. andMexican tomato producers, both field andgreenhouse, have to compete with thehigh Canadian summer volume.

The Achilles heel of the Canadiangreenhouse tomato industry is its lack ofwinter supply. As greenhouse tomatoeshave become a mainline commodity,retailers are increasingly demanding con-sistent year-round volumes from theirsuppliers. Given current greenhouseprices, it is uneconomical for mostCanadian producers to provide light and

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There is no official USDA orFederal definition of a greenhousetomato. Here, we define green-house tomatoes as those grown infixed structures, as opposed toopen fields or temporary struc-tures, such as shade houses. Bothshade houses and greenhouses arereferred to as protected culture,offering advantages relative toopen-field production. A shadehouse is a temporary structurethat supports shade cloth, a type ofscreen that provides some passiveenvironmental control, such asshading the plants from excessivesunlight and wind. Growers usingfixed structures can choose thedegree of environmental control toadopt and whether to grow in soilor use hydroponics, a productionsystem where plants are grown in anutrient solution with an artificialmedium to provide mechanicalsupport to the root system. Active

environmental control could include heating, cooling, humidity control, and use of carbondioxide to boost yields. Growers select technologies based on environmental and eco-nomic considerations.

All the large commercial greenhouses in the United States and Canada use active climatecontrol and hydroponics, and many U.S. and Canadian growers would like to define a green-house tomato as one grown in that type of greenhouse. Although some greenhouse grow-ers in Mexico have similar technology levels, others produce in greenhouses with lowertechnology systems, perhaps without fully active climate control, hydroponics, or both.Lower technology systems are less costly than high-technology greenhouses, but they pro-duce lower yields and a less consistent product. However, this article uses a broader def-inition of greenhouses (not requiring active control and hydroponics) in order not toexclude expanding production volumes in Mexico. While this definition excludes shadehouses, in reality all of protected culture will impact the North American fresh tomatoindustry, since shade houses are becoming more common in Mexican export-oriented fieldproduction regions, and it is becoming increasingly difficult to distinguish greenhouse andshade house production in the marketplace.

What Is a Greenhouse Tomato?

Eurofresh, Inc.

heat for winter production. To betterserve their customers, Canadian mar-keters supplement their winter supply bysourcing from U.S. and Mexican produc-ers. But this pattern could change. MoreMexican producers may become year-

round suppliers and decide to markettheir tomatoes independently. Foreigndirect investment in growing operationscould become more common as a strategyfor controlling supply. For example, onelarge British Columbia grower built a

greenhouse in California to help supple-ment winter supplies.

Much of the U.S. greenhouse toma-to industry began in the northeast in theearly 1990s, with production in thesame months as Canadian producers.

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United States Canada Mexico

1998 1999 2000 2001 2002 20030

1,000 metric tons

North American greenhouse tomato production

Sources: Statistics Canada, Ontario Greenhouse Vegetable Producers’ Marketing Board, British Columbia Vegetable Marketing Commission,and interviews by Cook and Calvin.

United NorthItem States Canada Mexico America

Greenhouse tomato production (1,000 metric tons) 160 220 148 528

Greenhouse tomato area (hectares) 330 446 950 1,726

Average greenhouse tomato yield (metric tons/hectare) 484 494 156 378

Fresh field tomato production, excluding processing 1,594 27 1,804 3,425(1,000 metric tons)

Average fresh field tomato yield (metric tons/hectare) 32 15 28 25

Greenhouse share of total fresh production, by country (percent) 9 89 8 13

Estimated greenhouse exports to U.S. (1,000 metric tons)1 NA 130 126 256

1Official imports of greenhouse tomatoes are thought to be underreported for Mexico due to tariff code misclassification; 58,357 metric tons of green-house tomato imports from Mexico were reported by the U.S. Department of Commerce in 2003. The figure shown here includes estimated addition-al miscoded imports, based on information from industry sources obtained by Cook and Calvin. This figure may include some production from shadehouses.NA=Not applicable.

Sources: Statistics Canada, Ontario Greenhouse Vegetable Producers’ Marketing Board, British Columbia Vegetable Marketing Commission, U.S.Department of Commerce, interviews by Cook and Calvin, USDA’s National Agricultural Statistics Service, USDA’s Foreign Agricultural Service.

Canada leads North American greenhouse tomato production in 2003

Eventually, several producers moved westand south, lured by the prospect of pro-ducing tomatoes year-round and capturinga slice of the high-priced winter market.The four largest greenhouse tomato firmsin the United States are now located inArizona, Texas, Colorado, and coastalsouthern California, and account for 67percent of domestic production. Smallergreenhouses are located throughout theUnited States but these are frequently sea-sonal producers and local marketers. Theprofitable winter market helps the year-round U.S. producers withstand the verylow prices during the summer seasonwhen Canadian volume inflates supplies.However, southwestern greenhouses facespecial challenges posed by the summerheat and often need expensive coolingsystems to produce high-quality tomatoes.Furthermore, expanding winter produc-tion in Mexico will likely reduce green-

house tomato prices and increase compet-itive pressure on year-round U.S. growers.

The Mexican greenhouse tomatoindustry is the fastest growing in NorthAmerica and the most varied. In Mexico,large field tomato grower-exporters inSinaloa on the northwest coast and theBaja California peninsula are experiment-ing with protected culture, either shadehouses or greenhouses, near their fieldoperations. In contrast, U.S. field tomatogrowers usually have no connections tothe greenhouse industry. This givesMexican growers a foot in both camps andpotentially reduces market and othertypes of risk. Because of its hot, humidsummers, Sinaloa, the principal fresh fieldtomato-exporting region in Mexico and aleading greenhouse exporter, is a winterproducer only. Growers there have lessincentive to invest in the highest technol-ogy greenhouses because the limited ship-ping season reduces the return on invest-

ment. Nevertheless, the technology levelsand yields in coastal areas are improving,with more growers moving into midleveltechnology systems to improve yields,quality, and marketing.

Several clusters of greenhouses arealso emerging in temperate, higher alti-tude areas in central and north centralMexico, and in Imuris in northern Sonora,near the U.S. border. With the exception ofthose in Imuris, most of these firms arenew entrants to agriculture and have noconnection with field tomato growers.Their advantage is the ability to produceyear-round, in some cases with invest-ment in summer cooling required. As aresult, more growers in these areas areinvesting in high-technology greenhousessimilar to those in Canada and the UnitedStates. As greenhouse production in tem-perate, noncoastal areas expands, Mexicowill become more of a competitive force inall seasons.

The Mexican greenhouse tomatoindustry has both advantages and disad-vantages over the U.S. and Canadianindustries. Mexico’s major advantage isits ability to produce during the wintermonths—the same edge it holds in fieldtomato production. Its major disadvan-tage is the much higher cost of capital, aproblem given the capital-intensivenature of greenhouse production. As aresult, many growers find it difficult toinvest in technologies that generate thebest yields and consistent quality. Mexicois also hampered by lack of local green-house input industries, public research,and experienced management. High heat-ing costs in many temperate locations arealso a problem. Although hourly laborrates are much lower in Mexico, typicallylower labor productivity means that totallabor cost savings are less than the differ-ential in labor rates. Overall, at this stage,Mexico’s greenhouse tomato industrydoes not appear to have a clear advantagein unit costs.

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Canada

United States

British Columbia

Ontario

Baja California Sur Sinaloa

Sonora

Mexico

ImurisBaja California

Greenhouse production spreads to achieve year-round supply

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Greenhouse Tomato Prices Falling

Despite rising demand for green-house tomatoes, the industry is facingdownward price pressures, as demandgrowth has sometimes been outpaced byexpanding supply. Two periods of verylow producer prices had significant effectson the industry. In 1999, low growerprices for beefsteak tomatoes (a large,round, red tomato and the leading green-house product at the time) stung growerswho had invested in greenhouses whenprices were much higher. In response,greenhouse expansion faltered and someless profitable greenhouses were closed.Growers diversified their product mix byshifting to more tomatoes-on-the-vine, orcluster tomatoes. Between 1999 and 2003,the share of beefsteak tomatoes in thetotal retail quantity sold of fresh tomatoesfell from 18 to 13 percent, while the shareof cluster tomatoes rose from 13 to 24 per-cent. But the rapid growth of cluster toma-toes led to overproduction in this segmentand extremely low prices by the summerof 2004. The price drop is slowing furtherexpansion in cluster tomatoes.

Production of the leading greenhousetomato products—beefsteak and cluster—has now grown to the point where theyare becoming mainstream commodities.For specialty niche products with limitedsupply, it is generally easier to commandconsistently high prices, in part becausebuyers place less emphasis on aggressiveprice negotiations for products that arenot major contributors to the bottom line.But sales of greenhouse tomatoes are nowcritical to the profitability of overall retailtomato sales, and prices play a more influ-ential role in purchasing transactions.Increasing competition drives down grow-er margins.

As the industry matures, greenhousetomato growers strive for continual prod-uct innovation as a strategy for addingvalue, stimulating consumer interest, andmaintaining margins and profitability. Theexpanding product line currently consistsof smaller cluster tomatoes (such as cock-tail tomatoes, including Campari), romaand mini roma cluster tomatoes, heir-loom, and different-colored tomatoes.Greenhouse tomato producers tend to becloser to the pulse of consumers becausethey market a retail- and consumer-readyproduct. In addition, they increasinglymarket directly to retailers, rather thanthrough intermediaries, such as repackersand wholesalers, as is the case for mostfield tomato shippers.

Impacts on Field Tomatoes Mixed

Competition from greenhouse toma-toes has brought major changes in thequantity and composition of field tomatosales. While total retail quantity sold of allfresh tomatoes increased from 1999 to2003, the volume of field tomatoesdeclined after 2001, with the share fallingfrom 69 to 63 percent. Over the sameyears, the share of all round tomatoes(mature green and vine ripe) declinedfrom 43 to 31 percent (see box, “Field

Tomato Variety Expands”). The roma sharefell from 23 to 19 percent, but the grapeand cherry category grew from 3 to 13 per-cent. Most grape and cherry tomatoes arefield grown, mitigating the impact ofgreenhouse tomatoes on the field-growncategory. Within the declining round cate-gory, the share of mature green tomatoesfell from 78 to 39 percent, with vine ripetomatoes benefiting.

While mature green tomatoes arebeing forced out of the retail market bycompetition from both greenhouse andother field tomato types, they still domi-nate the expanding foodservice market,which represents about half of U.S. toma-to consumption. With declining retailsales, the mature green industry isincreasingly dependent on the foodservicemarket, where greenhouse tomatoes havenot yet made significant inroads.However, this could change since somegreenhouse firms have recently begun toexperiment with developing an acceptableproduct for foodservice users.

If foodservice demand falters, maturegreen tomato growers would need to con-sider other alternatives, with seriousindustry structural adjustments likely.Growers could continue to attempt toreposition field tomatoes through newvarieties, products, and packaging withmore commercial appeal. Alternatively,the industry could diversify into thegreenhouse industry, either throughalliances with existing producers orthrough direct investment. However,greenhouse tomato production is very cap-ital- and technology-intensive, creatingbarriers to entry. In addition, the rapidgreenhouse expansion in the UnitedStates was accompanied by mixed prof-itability results; thus, most field tomatogrowers did not consider the greenhouseindustry an attractive alternative. Butrecent profitability in the California fieldindustry caused by weather-induced highprices may provide the financial where-

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withal for some field growers to exploregreenhouse production. If they were toinvest, they would be new entrants in amaturing industry.

Greenhouse and Field TomatoMarket Interactions Increase

In the early days of the evolution ofgreenhouse tomatoes, the greenhouse andfield tomato sectors operated on a relative-ly independent basis. Now that they are amajor market force, greenhouse tomatoesare increasingly influenced by supply anddemand trends in the fresh field tomatoindustry, and vice versa.

In fall 2004, a weather-induced peri-od of short supplies of fresh field toma-toes enabled greenhouse producers tobenefit from a brief period of extraordi-narily high prices as buyers substitutedgreenhouse for field tomatoes, where pos-sible. In contrast, earlier in summer 2004,

a record-high supply of greenhouse toma-toes caused greenhouse prices to decline,making them even more attractive toretail buyers, and placing a damper ondemand for fresh field tomatoes. Withgreater supply has come an increased will-ingness on the part of consumers, retail-ers, and foodservice users to experimentwith tomato types.

Developments in Mexico WillShape the Future

Notwithstanding brief periods ofabnormally high prices, average growerprices for greenhouse tomatoes have beentrending downward. If this trend contin-ues, some parts of the North Americangreenhouse tomato industry may becomeless viable. Growers will continue to seekthe lowest cost production regions andform marketing alliances to build year-round supply. Greater competition means

that new entrants have less room forerror; the learning curve is shorter than inthe 1990s, when the industry was in itsinfancy and average prices were higher.The greatest source of uncertainty for thefuture of the North American greenhousetomato industry will be the changingstructure of the Mexican industry, whichis still seeking out the best locations, tech-nology packages, and management prac-tices. U.S. and Canadian growers will befollowing developments in Mexico closelywhen making their future investment and

marketing decisions.

This article is drawn from . . .

Greenhouse Tomatoes Change the Dynamicsof the North American Fresh TomatoIndustry, by Roberta Cook and Linda Calvin,ERR-2, USDA/ERS, April 2005, available at:www.ers.usda.gov/publications/err2/

There are two types of round field tomatoes—mature green and

vine ripe. Mature green tomatoes are the backbone of the U.S. fresh

field tomato industry and are the major type of tomato grown in

Florida and California, with minimal production in Mexico. They are

harvested at an early stage; while still green, they are sufficiently

mature to ripen after harvest when treated with ethylene gas, the

plant’s natural ripening agent. Mature green tomatoes are firm, have

a long shelf-life, and slice well.They are also one of the lower cost

tomatoes. Mature green tomatoes are the dominant tomato in food

service, particularly in the fast food industry.

Vine ripe tomatoes are harvested at a slightly riper stage and ripen

fully without ethylene treatments. During the winter, most of the

vine ripe tomatoes consumed in the United States come from

Mexico, with Florida as a minor supplier. During the summer,

southern California and Baja California are the main suppliers.

Mexican round tomato exports are almost entirely vine ripe.While

the vine ripe tomato may appeal to some high-end foodservice

firms, most sales have traditionally been to the retail market, in part

due to a generally higher cost than mature greens. However, with

short supplies of mature green tomatoes in fall 2004, foodservice

buyers were more willing to try other types of tomatoes as substi-

tutes.This may lead to shifting foodservice preferences over time.

Fresh roma tomatoes (also known as plum tomatoes) grew

rapidly in the 1990s, in part due to retail demand from the

expanding Mexican consumer segment, and more recently due to

their expanding use in foodservice menus.They are grown prima-

rily in Mexico, with California and Florida also garnering part of

this market.

Other types of field tomatoes growing in popularity include such

specialties as cherry, grape, pear, organic and heirloom tomatoes

(older, often misshapen, varieties recognized for their flavor).While

some of these tomatoes are grown in greenhouses, most are field

grown. Grape tomatoes, in particular, represent a very important

new product offering in field tomatoes.

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