Troubled hot-house operation illustrates complexity of the industry
Troubled hot-house operation illustrates complexity of the industry
In 2003, a group of Nebraska investors built a 10-acre, state-of-the-art, hydroponic hot-house tomato operation in O'Neill, named the company 21st Century Growers and began selling tomatoes to the local community as well as wholesalers across the country.
In its mission statement, the group believed that the central location of its operation offered a freight advantage with "affordable and convenient access" to 50 million people within a one-day shipping time frame.
The facility consists of 70 miles of heating tubes and 35 miles of irrigation pipe carrying 80,000 gallons of water heated by boilers with 60-foot smokestacks. Virtually every aspect of the greenhouse is monitored by computers, which control temperature, irrigation and carbon dioxide levels.
On June 5, the company closed its doors as a result of its inability to restructure its loan with a local bank. The bank -- TierOne -- reopened the facility a day later with a receivership team in place to continue to run the operation on a temporary basis until a buyer can be found.
Ron Cheffer, who has no background in produce, is currently in charge of the operation and trying to ascertain what went wrong. "I have only been here since last Wednesday [June 6], and I have been busy trying to keep the place operating," he told The Produce News June 13. "I haven't figured out the economic piece yet."
But tomato industry veterans don't think it is a big mystery, citing the difficulty to make a living in this business.
Paul Mastronardi of Mastronardi Produce Ltd. in Kingsville, ON, said that the failure is not remarkable how difficult it is to succeed in the greenhouse tomato business. "It's no secret that this is a difficult business," he said. "In order to survive, you have to be a good operator."
He said that there are many factors that separate successful businesses from the unsuccessful businesses, but like any operation, the key is to keep costs down and volume up.
While 10 acres under glass might seem like a big operation to the local residents in O'Neill, Mr. Mastronardi said that in reality, it is a very small greenhouse facility - and probably too small to survive.
"You have to create economies of scale to survive," he said. "And right now the starting point is at least 24 acres."
Mastronardi Produce has 110 acres of its own greenhouses and manages another 900 acres. "At 10 acres, they are only producing a couple of truckloads a week. That's not enough," he said.
Ironically, another negative factor for the operation was its location -- something the investors called an advantage. While the owners of 21st Century Growers thought they were centrally located, Mr. Mastronardi said they are really "in the middle of nowhere."
The middle of Nebraska, with very little commercial fresh produce production anywhere in the state, is not the place to be producing less-than-truckload quantities of an item. Virtually no produce truck is going to be passing through Nebraska without a full load of produce. There is basically no advantage in shipping less-than-full loads anywhere, no matter the location. As such, 21st Century Growers and Tomato Plus -- the name under which the receivership firm is operating - has to sell much of its product locally, which means within the small town and the surrounding communities.
Mark Munger, vice president of marketing for Andrew & Williamson Sales Co. Inc. in San Diego, CA, also is not surprised that a 10-acre hot-house tomato operation is finding it difficult to make ends meet. The tomato business, he said, is going through some profound changes that have affected its profitability.
"The tomato industry is going high-tech," he said.
Andrew & Williamson does not produce greenhouse tomatoes, but it is converting much of its field-grown tomatoes to shadehouses, which is a hybrid growing technique that falls between open-field growing and greenhouses. With shadehouses, entire fields are enclosed, but the tomatoes are still grown in the dirt.
Mr. Munger said that this technique gives the grower more control over pests, which results in fewer problems, less pesticide use and a better-looking tomato. He said that as the field-grown tomatoes improve, it has led to a narrowing of the gap in f.o.b. prices between a field-grown tomato and a hot-house tomato.
"There hardly is a differential between a hot-house tomato and a vine-ripe any more," he said. "Hot-house tomato prices have come down significantly [in the last couple of years]."
Because the shade fields are still located in areas conducive to tomato production, the shadehouses do not need energy inputs to produce the crop. Hot-house tomatoes grown 12 months a year in Nebraska, Canada or other such climates do need heat in the winter and often an air-cooling system in the summer to create the proper growing temperatures. This, of course, costs money and increases the cost of production.
Mr. Mastronardi acknowledged this disadvantage and said that energy costs are rising, but he added that a good greenhouse operator always is learning ways to increase production to offset those rising costs.
Mr. Munger said that many tomato fields in Spain have already been converted to shadehouses, and he expects Mexico to follow suit in the not- so-distant future.
"We [Andrew & Williamson] are ahead of the trend, but I won't be surprised if most of the fields are converted in the next few years," he said. "Already there are many growers doing this."
He added that over the years, greenhouse growers have been able to maintain their advantage by producing newer and different varieties, such as the popular and smaller Campari tomato, under their controlled conditions. So far, Andrew & Williamson has grown only field tomato varieties in its shadehouses, but Mr. Munger said that the firm is starting to experiment with the hot-house-specific varieties.
He said that hot-house producers thrive by producing high-end products and developing new items, but their exclusivity on those products has a shrinking time frame as field growers improve their techniques -- such as through the development of the shadehouses.
The tomato category has gone through tremendous growth at retail recently, as there are now many more fresh SKUs than there were just a decade ago. And it appears as if that growth will continue, fueled by increased competition at the grower level.
In its mission statement, the group believed that the central location of its operation offered a freight advantage with "affordable and convenient access" to 50 million people within a one-day shipping time frame.
The facility consists of 70 miles of heating tubes and 35 miles of irrigation pipe carrying 80,000 gallons of water heated by boilers with 60-foot smokestacks. Virtually every aspect of the greenhouse is monitored by computers, which control temperature, irrigation and carbon dioxide levels.
On June 5, the company closed its doors as a result of its inability to restructure its loan with a local bank. The bank -- TierOne -- reopened the facility a day later with a receivership team in place to continue to run the operation on a temporary basis until a buyer can be found.
Ron Cheffer, who has no background in produce, is currently in charge of the operation and trying to ascertain what went wrong. "I have only been here since last Wednesday [June 6], and I have been busy trying to keep the place operating," he told The Produce News June 13. "I haven't figured out the economic piece yet."
But tomato industry veterans don't think it is a big mystery, citing the difficulty to make a living in this business.
Paul Mastronardi of Mastronardi Produce Ltd. in Kingsville, ON, said that the failure is not remarkable how difficult it is to succeed in the greenhouse tomato business. "It's no secret that this is a difficult business," he said. "In order to survive, you have to be a good operator."
He said that there are many factors that separate successful businesses from the unsuccessful businesses, but like any operation, the key is to keep costs down and volume up.
While 10 acres under glass might seem like a big operation to the local residents in O'Neill, Mr. Mastronardi said that in reality, it is a very small greenhouse facility - and probably too small to survive.
"You have to create economies of scale to survive," he said. "And right now the starting point is at least 24 acres."
Mastronardi Produce has 110 acres of its own greenhouses and manages another 900 acres. "At 10 acres, they are only producing a couple of truckloads a week. That's not enough," he said.
Ironically, another negative factor for the operation was its location -- something the investors called an advantage. While the owners of 21st Century Growers thought they were centrally located, Mr. Mastronardi said they are really "in the middle of nowhere."
The middle of Nebraska, with very little commercial fresh produce production anywhere in the state, is not the place to be producing less-than-truckload quantities of an item. Virtually no produce truck is going to be passing through Nebraska without a full load of produce. There is basically no advantage in shipping less-than-full loads anywhere, no matter the location. As such, 21st Century Growers and Tomato Plus -- the name under which the receivership firm is operating - has to sell much of its product locally, which means within the small town and the surrounding communities.
Mark Munger, vice president of marketing for Andrew & Williamson Sales Co. Inc. in San Diego, CA, also is not surprised that a 10-acre hot-house tomato operation is finding it difficult to make ends meet. The tomato business, he said, is going through some profound changes that have affected its profitability.
"The tomato industry is going high-tech," he said.
Andrew & Williamson does not produce greenhouse tomatoes, but it is converting much of its field-grown tomatoes to shadehouses, which is a hybrid growing technique that falls between open-field growing and greenhouses. With shadehouses, entire fields are enclosed, but the tomatoes are still grown in the dirt.
Mr. Munger said that this technique gives the grower more control over pests, which results in fewer problems, less pesticide use and a better-looking tomato. He said that as the field-grown tomatoes improve, it has led to a narrowing of the gap in f.o.b. prices between a field-grown tomato and a hot-house tomato.
"There hardly is a differential between a hot-house tomato and a vine-ripe any more," he said. "Hot-house tomato prices have come down significantly [in the last couple of years]."
Because the shade fields are still located in areas conducive to tomato production, the shadehouses do not need energy inputs to produce the crop. Hot-house tomatoes grown 12 months a year in Nebraska, Canada or other such climates do need heat in the winter and often an air-cooling system in the summer to create the proper growing temperatures. This, of course, costs money and increases the cost of production.
Mr. Mastronardi acknowledged this disadvantage and said that energy costs are rising, but he added that a good greenhouse operator always is learning ways to increase production to offset those rising costs.
Mr. Munger said that many tomato fields in Spain have already been converted to shadehouses, and he expects Mexico to follow suit in the not- so-distant future.
"We [Andrew & Williamson] are ahead of the trend, but I won't be surprised if most of the fields are converted in the next few years," he said. "Already there are many growers doing this."
He added that over the years, greenhouse growers have been able to maintain their advantage by producing newer and different varieties, such as the popular and smaller Campari tomato, under their controlled conditions. So far, Andrew & Williamson has grown only field tomato varieties in its shadehouses, but Mr. Munger said that the firm is starting to experiment with the hot-house-specific varieties.
He said that hot-house producers thrive by producing high-end products and developing new items, but their exclusivity on those products has a shrinking time frame as field growers improve their techniques -- such as through the development of the shadehouses.
The tomato category has gone through tremendous growth at retail recently, as there are now many more fresh SKUs than there were just a decade ago. And it appears as if that growth will continue, fueled by increased competition at the grower level.
