-November 18,2019-
Singapore-based Olam International is buying into one key California ag business while it is exiting another. They recently announced the purchase of almond processor Hughson Nuts even as they plan to shutter their big processing tomato business up and down the state.
The difference in a nutshell, one crop is making money and the other is apparently not.
Lemoore layoffs
Olam said they will close two north Valley tomato processing plants and last week put workers at their big Lemoore facility on notice that they would lay off 79 workers in December and look to sell off the plant before next years season begins. The harvest is over now.
The company filed a state required WARN notice to that effect on November 16. The Kings County facility employs 230. Also WARN notices in October announced layoffs by Olam of 102 in Woodland and 102 in Williams California – each to close by mid-December, just in time for the holidays.
Between all three Olam plants they are the largest processing tomato producer in California. In the past few days Olam released this statement regarding Lemoore.
“Olam has taken the difficult decision to cease its industrial tomato operations and to scale-back its retail operations at the Lemoore plant.
This has been a very difficult decision, taken only after careful consideration of the future of the business which is facing higher costs in a very competitive marketplace. Regrettably, this decision will result in some layoffs. We extend our gratitude to every employee for all their hard work and dedication to the business and we are speaking directly with each individual who is impacted.
We are assessing multiple options for the future of the Lemoore plant including exploring interest from other parties who may wish to take over operating the plant from 2020.
Ahead of planning for the new season, we are communicating with our growers and suppliers, and working with customers to enable them to transition to alternative arrangements.”
A few weeks ago the company announced its decision to cease all operations at its canning plant in Williams. “The plant will ramp down operations until all shipments are fulfilled by the middle of 2020, after which we will close the site.”
The 3 company plants were all former SK Foods facilities that went bankrupt in June 2009, owned by Kings County businessman Scott Salyer.
Olam bought the facilities out of bankruptcy.The Lemoore plant does not can tomatoes here unlike the Williams plant, but processes tomatoes for the food service industry in industrial containers, glass and plastic jar retail sizes.
The most recent California tomato harvest was said to be a million tons less than expected, down to 10.07 metric tons. California produces about 95% of US supply and about one third of the world supply used for ketchup, salsa, tomato paste and sauces.
Source say the industry has a perennial oversupply problem in what has been a boom and bust business. Meanwhile costs continue to go up including water, labor and regulation even as competition worldwide is tough.As yield per acre has gone up in the past decade the industry can produce the same amount on fewer acres.The industry average yield has more than doubled in the past few decades. It was under 20 tons per acre in the mid 60s and in the 30s as recently as 2006. In 2019 the yield come in at 50 tons an acre. But the price per ton in the $80s a few years ago is around $75 per ton today.
Demand issue
Olam said in a news release” that it has taken the decision to cease all operations at our canning plant in Williams. This has been a very difficult decision, but regrettably the Williams plant is unable to compete in a marketplace, which continues to face cost pressures and a falling demand for canned food.”
Fresno,Kings and Merced counties are the most productive on a yield basis for processing tomatoes but now someone will have to step up to keep this industry viable.
In the past, companies have mothballed older food processing plants as they face competition from new new state of the art plants.
Recipe for red ink
An issue at the Lemoore plant over the years has been their wastewater problem and the odor that everyone who drives on the Avenal Cutoff road knows. Olam processes approximately 750,000 tons of tomatoes annually at this plant and this requires lots of water.
The City is in the process of building new water treatment facilities and a new well at a total cost of more than $30 million and the tomato plant will soon have to pay a higher rate.
New water rate for Lemoore industrial users will go up from $1.47 per unit in 2017 to $3.61 in 2020 when the facilities begin operating – a 2.5% jump.
The town’s biggest industry, cheesemaker Leprino will have to pay higher rates as well.The company employs 1300 full time here.
Higher costs for water is being driven by upcoming pumping restrictions and the need to reduce arsenic in drinking water in Kings County.
So water related processing rates are going up and product prices for tomatoes remain flat. Sounds like a recipe for red ink