Oh Dear: How the food industry is coping with costly tomatoes

Experts said that food companies such as Dabur, Kissan, Nestle, Veeba, etc, that use tomatoes ramp up production once prices start rising, and halt manufacturing when costs become unviable. The products are sold till the stocks run out, and production is resumed once prices stabilise

Tomatoes are currently selling at Rs 220 per kilo in Delhi, up from Rs 30 per kilo just over a month ago. While high inflation around monsoons is a common phenomenon, the hike in prices this time has been unusual. The sky-high prices are forcing FMCG firms and restaurants to work around the humble tomato.

Global fast food chain McDonald's dropped tomatoes in north and east India about two weeks back. It cited supply shortages and quality concerns, after prices of the vegetable soared to record highs.

“Despite our best efforts, we are not able to get adequate quantities of tomatoes which pass our stringent quality checks. Hence, for the time being, we are forced to serve you products without tomatoes,” a statement by the fast food giant read.

A Reuters report published on July 22, 2023, said that a Subway outlet at Delhi airport had announced the "Temporary Unavailability of Tomatoes" in a sign, and added that the restaurant could not get enough supplies that passed its quality checks.

Meanwhile, restaurant owners have been able to find a way out, either by passing on the price rise to customers or by  removing this luxury berry from their recipes, and substituting it with other vegetables or tomato puree.

``We have had to drop fresh tomatoes from our recipes, and are using tomato puree instead for our curries, pastas, etc.,” the owner of a prominent chain of cafes in Delhi told Moneycontrol.

“We have completely dropped tomatoes from our preparations and are substituting it with onions. We are using deggi mirch (chilli) to add colour to the food. There’s a slight difference in taste,  but we have no option. The price of a kilo of tomato is what we charge per dish,” said Pandit Om, the owner of a dhaba Noida’s sector 76.

FMCG companies such as Dabur are reporting a surge in demand for tomato puree, a company spokesperson told Moneycontrol.

Brands generally take various steps to not run into losses or lose customers due to the steep hike, FMCG sector analysts from the Boston Consulting Group and Deloitte pointed out. These measures include, but are not limited to:

Reducing the size of small packets

“Products such as tomato sauces, which require a large amount of fresh tomatoes, are the ones that feel the effect of such a spike  in prices. Brands generally de-gram for ‘magic price points’ — e.g., Rs. 10 packs — that help buyers stay within budget,”  Namit Puri, MD and Senior Partner, Boston Consulting Group, told Moneycontrol.

Eliminating discounts

Big brands generally run promos or discounts on large packages, say 1 kg, especially in emerging channels. But once prices rise, they pull back these promos and sell the products at the MRP, Puri explained.

That way, brands manage to pass on the price hike to consumers without raising prices at their end.

Imports of tomato concentrate

Tomato concentrate is basically tomato pulp which can be stored for a much longer duration than fresh tomatoes. According to Anand Ramanathan, Partner and Consumer Industry Leader, Deloitte India,  FMCG companies extensively use this to keep their supplies  flowing.

“Tomatoes are an internationally traded commodity. India generally imports tomato concentrates from Thailand, which continues to sell it at normal prices,” Ramanathan said.  Tomatoes are grown throughout the year in tropical areas, and it is only for a month or so that its price rises, he added.

Production ramp up

Experts said that food companies such as Dabur, Kissan, Nestle, Veeba, etc, that use tomatoes ramp up production once prices start rising, and halt manufacturing when costs become unviable. The products are sold till the stocks run out, and production is resumed once prices stabilise.

Price drop in Aug-Sept?

``There is a usual, cyclical drop in supplies due to heavy rains in the regions where tomatoes are grown. This often results in a spike in the retail price of fresh tomatoes and other vegetables,’’ Nestle told Moneycontrol in a written statement. However, this is believed to be a short-term phenomenon, which should correct in Aug-September as the monsoon abates, the statement added.

Sanjay Gupta, MD and CEO, National Commodities Management Services Limited (NCML), concurred that tomato prices could begin stabilising towards the end of August or early September with the arrival of fresh produce from Nashik, Narayangaon, and Aurangabad in Maharashtra.

Also read: Tomato to get even costlier in weeks ahead; relief only by September