The global COVID-19 pandemic continues to affect our business, our customers, and our raw material partners. Silva is uniquely positioned to respond to disruptive events with our diversified supply chain, significant U.S. based raw material inventories, and 20 production lines at our U.S. facility working for our customers.
We recognize the disruptive nature of the current pandemic, including a transportation market facing significant challenges, with U.S. and international logistics operating at high capacity resulting in cost increases and limited availability. In addition, the U.S. dollar has lost significant value against our raw material source currencies further complicating procurement operations.
Silva’s raw material base, however, has been resilient during the pandemic with only minor temporary disruptions. We are not currently anticipating any long-term material issues as a result of the COVID-19 pandemic within Silva’s supply. In addition—and specifically to the region of China—our Silva-China team has been fully operational since April and they have, as is customary, spent significant time in the growing regions of northwest China for summer/fall harvest of tomatoes and bell peppers.
Competitive Pricing of Bell Peppers and Fresh Tomato
We have seen a largely favorable bell pepper season with dehydration ending in early October. Total quantities produced were relatively healthy and the producing areas were not affected by any pandemic restrictions. Fresh material pricing was competitive with average costing slightly above last year. Fresh material costs gradually increased throughout the production season, with peak pricing during the last two weeks of dehydration. The domestic market in China was quite active in late September and early October while international markets have seen limited activity. Current pricing is slightly above last year’s level. We hold a positive outlook for the bell pepper market expecting general stability, which is a positive considering the weaker USD and significant increases in sea freight.
Fresh tomato pricing was also favorable this year. However, as the early fresh bell pepper pricing was very competitive, we saw an early switch in favor of bell peppers reducing the overall production of tomatoes. We anticipate supply to tighten gradually throughout the remainder of 2020 and into 2021 with firming prices as a result.
Carrots, Cauliflower, and Broccoli
Carrot dehydration has also started in China and Europe. In China we are faced with a smaller planting this year as farmers opted for other cash crops. In addition, we see strong competition from fresh markets. Material grown for fresh use in the south of China saw disappointing yields and overall availability, creating significant upward cost pressure on material grown in the north of China, which is the main source of material for dehydrated raw materials. We expect to see pricing soar in excess of 10% compared to 2019. The European market has had a number of challenging years with very dry conditions. This season looked to face similar issues but sufficient rainfall during the summer months allowed for conditions to improve. We are expecting modest increases in costing most notably due to currency effects and freight related increases.
As we look forward to harvest and dehydration of our winter crops such as cauliflower and broccoli, we do expect to see continued upward pressure on costing. For both cauliflower and broccoli, we have seen strong demand during the current pandemic and expect minimal carryover/safety stocks. In combination with a weaker dollar we expect cost increases in the range of 5-10%.
Confidence in the Process
Silva remains more committed than ever in providing our customers with the highest quality ingredients as you have come to expect. Our U.S. based processing, large inventories, and deep global sourcing presence allows Silva to respond quickly to changes in demand brought by the pandemic; at the same time, we’re providing our customers the needed flexibility and confidence of continued quality control throughout our supply chain during these unprecedented times. As already mentioned, there are various market pressures taking up the costs of producing these ingredients. We remain committed to mitigate cost increases for our customers wherever possible.
If you would like to review the fall crop harvest conditions further, please connect with our customer relationship team.