Victorian processer takes pasting on high water prices

Kagome diversifies from core tomato growing and processing business

Agribusiness
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Kagome's Japanese directors confused over Murray River flows.

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HIGH COSTS: Kagome chief executive Jason Fritsch has expressed concern about high water and energy prices.

HIGH COSTS: Kagome chief executive Jason Fritsch has expressed concern about high water and energy prices.

The head of one of Australia's biggest growers and manufacturers of tomato-based products says the country's environmental watering practices are confusing the company's Japanese parent.

Kagome, which grows and processes tomatoes and vegetables in northern Victoria, is part of the Japanese multinational company, which has eight manufacturing locations around the world.

Kagome Australia chief executive Jason Fritsch said since July 2016, the company had seen a $6milllion increase in the price of water and utilities.

"It's killing our business," Mr Fritsch told the Waterpool Water seminar, in Moama.

He told seminar participants there was unease about the amount of water, going down the Murray River, for environmental watering and to supply downstream users.

"I'm talking about the fact Murray Darling Basin Authority data shows for 26 days in October, more than 10,000megalitres a day flowed out into the ocean.

"I have a board of directors, sitting in Japan, who are wondering what the hell is going on?"

Read more: Forest flooding replicates natural conditions: CEWO

Mr Fritsch said Kagome's directors "just don't get it.

"There is an increasing reluctance for the parent company to further invest in our business in Australia," he said.

Kagome was number three in the world, when it came to the production of ketchup and tomato-based products.

"We do not have a retail brand, we are a major ingredients supplier," Mr Fritsch said.

It supplied leading producers of pasta sauce, as well as pizza and other fast food manufacturers.

Mr Fritsch said Kagome leased 2000 hectares of farming ground, producing 250,000 tonnes of tomatoes, 30,000 tonnes of carrots and 10,000 tonnes of apples.

It produced 32,000 tonnes of tomato paste and between 14 and 15,000 tonnes of diced tomatoes.

"We are in a very difficult market, the major point of differentiation has really been around price," Mr Fritsch said.

"Any impact on the cost to your business, like high water prices, means you are pretty much dead in the water."

He said the company had installed 2000ha of subsurface irrigation.

Diversification plans

It was also diversifying away from being a tomato grower and processor, to concentrate on vegetables.

In 2011, Kagome didn't harvest tomatoes in the Boort district, due to floods.

"When your business is 91 per cent based on bulk sales, that's a big impact," he said.

He said in 2019 Kagome was expecting revenues of about $84m, but had reduced its reliance on tomatoes and corn.

"Assuming the drought breaks, and water prices come off, we are forecasting to go more than $100m in 2022.

'But the main core of our business, bulk tomato paste, will only by 40pc and we are not going to stop until we get to 30pc.

"We are not sitting back, blaming governments, or water policy, we are trying very hard to manage our own business."

He said Kagome didn't own any water, preferring to employ its capital elsewhere.

"We have a lot of money tied up in processing and purchasing raw material," he said.

The company was diversified over several irrigation districts, so pre-purchased water and carried it over.

"That allows us to manage our supply risk and price; it's been a very useful tool for us, providing certainty, within our business."

In 2018, Kagome grew tomato, garlic, corn and carrots, using a total of 16,500 megalitres of water, at an average of $148/ML.

"If you look towards 2020, we have dropped corn out, but we'll use 9121ML of water, at an average of $605/ML, or $5.5m.

"In 2019, when we did grow corn, we used a total of 19,294ML, at $300/ML and had a total spend of $5.8m."

In 2018, the company used 16,252, at $148/ML, or a total cost of $2.4m.

Growers were subsidised to plant tomatoes.

"We can't get any growers to grow tomatoes this year, without providing some support," Mr Fritsch said.

"It's too much of a risk, and we are mindful of the impact the drought is having."

In 2020, growers would get a subsidy of $36/tonne, at a cost to the company of $1.3m.

"It's necessary, we understand to get the growers, we don't have a choice.

"If we step out, our domestic customer base will go elsewhere, so we have to maintain market share."

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