Another summer and fall crop cycle is almost complete. The summer season in China started with dehydrated tomatoes. Plantings were a little larger in the areas where we typically see dehydration, but we saw some strong competition from the paste industry. With the implementation of UFLPA and supply chain integrity trends globally, we are seeing planting of tomatoes moving out of Xinjiang and into other provinces in China. This is accompanied by increased demand from the paste industry. We have thus seen marginally higher costs on air dried tomatoes, but generally expect quantities to be sufficient to cover global demand.
The bell pepper production in China was significantly smaller this year compared to last season. This was driven by a multitude of factors, including smaller planting area, weather related damage to fresh fruits, and a slight reduction in overall availability of dehydration capacity. However, healthy carry-over stocks and some weakness in overall global demand allowed for some moderating effect on price increases. Production is Uzbekistan saw disappointing yields from the fields as well as high fresh demand from neighboring Russia, driving prices significantly higher.
Europe and China Partnerships Remain Strong
Despite a volatile COVID situation in China, the Silva team operating in that region has been able to engage with our raw material partners throughout the season. Our efforts include working with the farmer base to ensure good agricultural practices are being followed, ensuring global quality standards are being followed during dehydration, raw material quality inspections and auditing together with 3rd parties and including certification bodies, as well as customer audit teams.
The main crop for Silva during the fall season is carrots. This includes significant production both in China and Europe. In Europe price levels are significantly higher in 2022, most notably due to an unprecedented increase in energy costs. This also impacted the cost outlook for other crops out of Europe such as spinach and kale. The Chinese carrot market is exhibiting some more stability. There is some upward pressure on fresh raw material prices as demand from fresh markets have increased due to poor performance of carrot plantings in the south of China, but we are seeing less pressures in this market compared to Europe.
What’s on the Horizon
As we look to 2023, we anticipate continued upward pressure from inflationary factors. We expect energy costs to remain relatively high, with the most notable effect on European origin product. While food commodity prices in some instances have softened from peak levels, we do expect continued competition for farmland as well as continued competition from other product value chains such as canning and IQF, driving fresh produce prices higher. Additionally, we expect continued high price levels for agricultural inputs such as fertilizers and crop protection chemicals. With continued global uncertainty we anticipate a continued strong U.S. dollar to offset some of the price pressure alongside downward pressure on the cost for container-based freight. We are already seeing significant softening and unwinding of delays on trans-Pacific routes and expect easing on trans-Atlantic freight later in 2023.
Silva continues to rely on our industry-leading inventories of raw material here in the U.S., combined with our state-of-the-art finished goods processing at our 400,000 sq. ft. facility in Momence, IL, to best serve our customers. With over 40 years of experience and a diversified raw material partner base using around 30 different global countries, you can rely on Silva to provide you with the high-quality ingredients you demand and expect, all part of our good-for-you promise!