Ketchup supply chain: rotten tomatoes in China

SOMO’s Chinese partner SRI researched the Chinese production of tomatoes and their subsequent processing into paste for ketchup. Ketchup lovers the world over may associate the tangy condiment with American brands and Mediterranean-grown tomatoes. However, it is in fact China, the world’s biggest tomato producer that grows more tomatoes than the USA and Italy combined.

Domestic demand for tomato products in China is very low since tomatoes are not popular in the Chinese diet, yet tomatoes have become big business for China – the world’s top exporter of tomato paste. In 2011, the country fetched almost a billion dollars in tomato paste exports (Source: FAOSTAT).

Chinese tomato paste – tomatoes boiled down to a thick, red paste and strained of seed and skin – is exported in industrial quantities and sold in Europe and North America to fast food restaurant chains, supermarkets and small food manufacturers as well as to multinational food companies such as Unilever and Heinz that produce their own brands of ketchup, passata, pasta sauces and salsa.

SOMO’s Chinese partner Social Resources Institute (SRI(opens in new window) ) investigated ketchup’s supply chain in Xinjiang, Ningxia and Inner Mongolia regions of China and discovered that the most pressing problems for tomato farmers involve the transportation and delivery of the fruit to the processing plants, which often result in truckloads of rotten tomatoes.

Complex supply chain

Tomatoes are grown in the western and northern provinces of Xinjiang, Gansu, and Inner Mongolia and are processed in large processing facilities owned by Chinese state-owned companies.

Chinese tomatoes destined for processing are grown by different types of farmers. Some small-scale farmers lease their land from the government whilst others are employed by the Xinjiang Production and Construction Corps (XPCC).

The XPCC is a state-owned company, employing around 2.5 million people. In addition to growing tomatoes it owns and operates defence forces, farms, mines, hospitals, universities and thousands of manufacturing, transport, industrial and commercial enterprises. The XPCC provides loans to tomato producers for the procurement of seeds and pesticides, allocates land, sets sales targets and decides on the species of the crops which are grown by the producers.

The tomato processing facilities are owned by large, state-owned corporations. Xinjiang Chalkis Tomato, an XPCC company, owns and operates 23 tomato processing facilities in northwest China and in France. Food processing company COFCO Tunhe plants and processes tomatoes and is part of COFCO Group, one of China’s largest companies that is active in food production, retail and trade, as well as in other industries including real estate, tourism, and finance. Together, Chalkis and COFCO Tunhe produce 70% of China’s tomato products.

Environmental and infrastructural problems

Both XPCC producers as well as independent farmers are faced with major challenges. Yields are regularly lost due to drought and other extreme weather conditions, pests and disease. In addition, chemical pesticides affect soil fertility.

However, the SRI investigation has revealed that transporting and delivering the ripe tomatoes to the processing facilities is the most risky step in the supply chain and the source of most of the urgent problems tomato farmers in China face. Poor road conditions, problems with transportation licenses, traffic congestion leading to the processing plants, and the lack of storage facilities, routinely results in farmers losing up to 60% of their delivery – and the equivalent revenues – as tomatoes rot and decompose before they can even be processed for export.

Low profitability

Chinese tomato producers must juggle paying high costs for the farmland, seedlings, pesticides, water, laborers and transportation with limited and often inconsistent revenues Often these tomato farmers depend on loans to help them stay in business. Local credit cooperatives provide loans to smallholders and producers working for XPCC depend on company loans with an interest rate of 9.8%, according to SRI.

The sustained and extreme difficulties in the transportation and delivery of Chinese tomatoes for processing combined with the inconsistency in revenues have led to recent reports of tomato producers committing suicide, according to the SRI investigation.

CSR includes fair prices

SRI demonstrates in the ‘Made in China‘ report that whilst Chinese tomato producers are struggling to survive, their end-buyers – multinational food companies, retailers, fast food restaurant chains – are making huge profits. According to SRI, these companies should integrate fair pricing in their Corporate Social Responsibility policies.

Exports and food insecurity

Overall, SRI researchers question the benefits of China’s tomato processing industry. SRI highlights some persisting problems in the industry including environmental degradation, low profitability of the sector, economic insecurity and the continuous financial problems for tomato producers. The researchers also stress the fact that China is having difficulties feeding its own population, and suggest that the country’s resources should better be used to produce staple food for the Chinese population.

OneWorld magazine 2, issued on 11 March 2014, has published an article in Dutch about ketchup production(opens in new window) , based on SRI’s research.

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Made-in-China (2411 downloads )