Developing Sweeter Tomatoes

[rgiridhar]

Wall Street Journal, October 2, 2007

Heinz Develops New Tomatoes To Reduce Syrup in Its Ketchup

The plump, oval tomato Rich Ozminkowski held in his hand here at H.J. Heinz's experimental farm resembled the common Roma variety, yet it was anything but. The tomato -- whose very name is proprietary information -- is 5% to 10% sweeter than the variety now used in Heinz ketchup, and it is a weapon in the company's war on spiraling costs.

With prices for corn syrup and other ketchup ingredients going up faster than Heinz can raise its own prices, the Pittsburgh-based condiment king is overhauling its breeding operations to help compensate. Heinz is developing sweeter tomatoes that could cut down on its need for corn syrup, as well as varieties that resist disease, stay fresh longer and produce a thicker consistency. "The new seed work is all about creating the perfect tomato," says Mr. Ozminkowski, the company's manager of agriculture research.

The ethanol industry's consumption of corn is just one factor driving up its price. Rising global demand for meat is also boosting prices, since corn is a key ingredient of animal feed. The cost of a bushel of corn has risen to around $3, about 40% higher than it was a year ago, putting pressure on many food companies. Meats producer Tyson Foods Inc. recently lowered its fiscal-year earnings forecast due, in part, to high corn prices.

At Heinz, overall costs for ingredients rose 4.7% in the quarter ending Aug. 1. The company responded by raising prices, on average, 2.8% during that time, and it expects to hike prices further as commodity costs continue to rise.

The soaring price of high-fructose corn syrup is particularly troubling for Heinz. The syrup accounts for about 10% of the cost of producing a bottle of ketchup. Heinz is now paying 25% more for corn syrup than it did two years ago.

Tomatoes, which account for a third of the cost of making the bottle of ketchup, have also become more expensive. The recently buoyant real-estate market in California, where Heinz gets all of the tomatoes used in its U.S. ketchup, increased the cost of farmland, and higher petroleum prices boosted the costs of cultivating the crops. Between 2000 and 2005, the price of California tomatoes used in ketchup, tomato paste and tomato sauce hovered around $50 per ton. In 2006, it shot up to $58 per ton and this year reached $63. Hal Robertson, a third-generation grower of tomatoes for Heinz at a farm a few miles from Stockton, recently installed an underground irrigation system to save water. "It used to cost $1,800 an acre to grow tomatoes," he says. "Now it costs $2,300 to $2,400 an acre."

To help keep its own costs down, Heinz, one of the few food producers that breeds its own crop varieties, is stepping up efforts to develop new tomato varieties. It plans to sell them to its contract growers, who will be required to use the seeds to grow tomatoes for Heinz. These growers won't be allowed to sell the tomatoes to other companies.

Over the past three years, Heinz increased its budget for seed research by 40%. The company won't disclose the size of the budget but says the added funding has allowed it to purchase more land adjacent to its Stockton research farm and to double the size of its seed research team to 30 people, including breeders, agronomists and a plant pathologist. Company officials predict the investment will pay off as new breeds of tomatoes help lower their ingredient costs by millions of dollars a year.

The company had long focused on increasing yields, seeking varieties that grow more tomatoes per plant. But two years ago, as corn prices began rising, the company began putting an emphasis on developing sweeter tomatoes, Mr. Ozminkowski says.

He spends much of his time shuttling among Heinz's 21 research fields in California's Central and Sacramento Valleys. His car has become his office for his frequent travels along the 400-mile stretch.

Carrying a clipboard to log information, he walks the fields to determine which hybrids to advance into further stages of testing. For two weeks each winter he goes to Australia to study how the tomatoes grown for use in the ketchup and sauces Heinz sells overseas perform in a more rainy and humid climate. Heinz also has research fields in Poland, where the tomatoes tend to contain more sugar. Mr. Ozminkowski, who has a doctorate in plant breeding and horticulture, isn't yet sure why that is, but surmises it could have something to do with the area's cooler nights.

Squatting in a row of tomato plants at Heinz's Stockton farm, Mr. Ozminkowski scraped pollen from one plant with a knife and rubbed it onto another, demonstrating how a breeder creates a hybrid. He emphasizes that Heinz uses traditional breeding techniques to create tomatoes with the desired traits -- not genetic modification, which involves introducing DNA from another species into the seed. "We select a parent tomato with high sugar content and then breed until we get the right hybrid," he explained.

In an effort to speed up the process, Heinz scientists are testing seedlings for the presence of certain DNA segments, or markers, that are associated with particular traits, such as sweetness. The seedlings with the right markers are then cultivated, improving the odds of producing tomatoes with the desired characteristics.

Heinz began breeding tomatoes in 1935 and about 60 years later began selling its seeds to competitors including Del Monte Foods Co. and ConAgra Foods Inc. But two years ago, Heinz decided to keep certain varieties to itself. "We are holding back those that we think offer us a competitive advantage," says Reuben Peterson, Heinz's director of global tomato supply chain.

The sweeter tomato varieties Heinz has already developed could be used in its ketchup in another year or two. The company is in the early stages of developing tomatoes even 5% to 10% sweeter than those.