This is article is from our food commodities coverage.

South Italian processors are privately negotiating contracts for the 2020 season, after failing to reach an agreement to set a guide price across the whole sector.

After the break-off in negotiations announced in May by the organisation representing the industrial part, Anicav, and the repeated failure to reach a compromise in the following meetings, processors and growers organisations (OPs) have started to sign contracts independently.

All organisations involved in the negotiations found a common ground for the producing and delivery conditions, but the lack of agreement on prices has jeopardised the tomato market, with processors reporting different increases in both prices paid to growers and contracted with buyers.

Some processors have followed Anicav's latest indications, increasing prices by 5%, but other sources processing for the retail channel have reported price increases starting from 10% and up to 30% including premiums for growers and niche products.

Last year prices agreed were EUR95 (USD106) per tonne the price for round tomato and EUR105/tonne the price for plum. Sources reported that in the south prices seems to thrive toward EUR105/tonne for the round and EUR115/tonne for plum tomatoes, which is what growers requested in the latest meeting with industrial representatives.

The request came following the information that Princes would have paid its growers EUR121/tonne. Some sources explained that Princes' contracted prices range between EUR99-121/tonne and to get the highest quote, "The raw material has to meet a long list of characteristics and certifications, so the price paid might below this threshold," they stated.

Processors' attitudes toward the agreed price increase differ widely. Some pointed out that it aims to help growers to cover for all Covid-related additional costs they have to face adding: "This does not mean that those will be the starting prices for the 2021". The south Italian tomato industry has repeatedly denounced the fact that raw material prices there are among the highest worldwide and that the industry should try to close the gap with the north of Italy, where the raw material is 10-13% cheaper.

Others believe that this is a long-time due price increase for growers but also for the industry.

It is worth to recall that Italy comes from two consecutive years of low industrial yields. A sharp increase in prices comes with little surprise following the high retail demand for processed food, including canned tomato, recorded during the pandemic. The orders spiralled up so quickly that some processors struggled to meet demand and had to start rationing deliveries to ensure product availability until the start of the new season.

Sources contacted by IHS Markit have confirmed an increase between 5-10% for the finishes product for the industry, but for the retail product the increase is much wider and differs depending on the product. The largest increase was recorded for passata with contracts closed with supermarket at prices up to 24% higher than last season due to a 15% increase in glass costs. Canned products prices should rise to a lower extent and in the range of 18-20% as production costs are at the same level of last season.

The tomato season is going particularly well in the south of Italy. The crop is between four and five days ahead and, if conditions remain stable, harvesting might start by July 20..

Some issues related to water shortages were reported in the area of the Occhito dam resulting in a contraction of the cultivated area in the north of Apulia. However, favourable weather conditions coupled with a prospected increase in raw material prices have encouraged production with an extension of the cultivars in the south of Apulia and Campania.

Italy is expected to harvest 5.0 mln tonnes this season as no major issues were reported across the country. Sporadic bacteriosis infections were reported, but nothing serious that couldn't be easily managed, and this is not expected to affect yields or fruit quality.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.