(1) Higher quality fresh tomatoes;
(2) Faster and gentler handling of fresh tomatoes from field to hot-break tank;
(3) Good hot-break temperatures followed by lower evaporation and sterilization process temperatures;
(4) Faster movement of product through the process, decreasing the time product is exposed to elevated temperatures, and;
(5) Maximum blending of fresh tomato loads and product through a dedicated process line to equalize the naturally varying quality of incoming fresh tomatoes.

(B) Tomato Product Price that provides a competitive edge in favor of the user.

(C) A Tomato Product Supplier intently responsive to the user's need for:

(1) prompt, accurate invoicing and shipping service;
(2) sound technical support service for product issues;
(3) quick, authoritative decisions on issues impacting the business relationship;
(4) knowledge of technologies and industry forces impacting their business and the structure of the tomato industry, and;
(5) personnel and ownership intent on maintaining themselves at the forefront of tomato processing--as innovators and true professionals.

(A) Tomato Paste Quality.

The best quality is that which consistently meets the customer's specifications. However, most customers' specifications have acceptable parameters rather than absolute targets. For example, viscosity may be specified as 5 to 7 cm. Bostwick, instead of 6 cm. This is due primarily to historical technological limitations, as well as the relative acceptance of product variability by the consumer. However, if such technology and ability were available to the producer, a specific or narrower range of targets would be advantageous in most users' manufacturing environments. Furthermore, with a narrow range of targets, manufacturing would benefit from using tomato paste that is consistent from container to container during the daily manufacturing process, be it a 5.2 cm. or a 6.5 cm. Bostwick specification.

Aside from individual user's unique specifications for particular finished products, "high quality" tomato paste is considered to have high color, nutrient retention and serum viscosity (assuming "hot-break" paste), plus low mold and defect levels.

How is the level and consistency of quality achieved by the tomato paste producer?

The tomato paste manufacturing process utilized by Morning Star is shown in Exhibit 1. All manufacturers of tomato paste have similar processes; however, each is unique in the type of equipment utilized and manner in which the equipment is combined to form a "process." A more consistent and higher level of tomato paste quality will be produced with:

(1) Most critical tomato paste quality attributes are inherent in the fresh tomato. The tomato paste manufacturing process can only be designed and operated with the objective of not deteriorating the natural quality of the fresh tomato--the process can not improve quality attributes not present in the fresh tomato. Therefore, it is critical that "high quality" be present in the fresh tomato in order to obtain "high quality" in the tomato paste.

Given the importance of quality in fresh tomatoes, Morning Star purchases tomato varieties based on their potential for (a) satisfying customers' specifications, and (b) cost effective manufacturing. These are the sole incentives Morning Star has in directing its tomato variety program. The personnel and ownership of Morning Star have their primary interests and assets focused on processing.

(2) Assuming a given level of quality in the fresh tomatoes, shorter time and gentler methods of handling, from the growers' fields to initial processing, will result in a minimum of deterioration of the fresh tomato's quality. The standard method in the industry is to detour loads of tomatoes to a grading station somewhere between the fields and the facilities, increasing distance and delays. At Morning Star, as well as about 50% of the facilities, tomatoes are hauled directly from the fields to our facility where the weighing and grading of tomatoes takes place by State supervised inspectors, saving precious time.

When tomato loads are weighed and graded, the information is entered into our computer, and a special program operates to blend loads by assigning an unloading order for each load based on its potential viscosity and mold level. Tomatoes are unloaded in a covered shed, elevated over twenty feet above grade, and transferred by gravity between wash systems, eliminating severe handling, which is inherent in processes using elevators. This unloading and handling system is unique to the Morning Star facilities.

(3) The specific impact the tomato paste manufacturing process has on the color and viscosity of tomato paste is in the quantity of heat units applied to the product. This is a combined function of time and temperature. Shorter holding times and lower evaporation and sterilization process temperatures (beyond the initial high temperature "hot-break" stage), result in higher quality tomato paste.

The process times and temperatures in each facility should be compared. Most new facilities have installed four-effect (utilizing steam energy input four times), four or five stage evaporators. We have installed triple-effect evaporators to accomplish ninety percent (90%) of the evaporation task and double-effect finishing evaporators for the balance. The advantages of lower temperatures, less maintenance, and higher operating efficiency with triple and double effect evaporators considerably outweighs any steam energy savings. Morning Star has steam injection sterilizing and standard flash cooling. This sterilization process is very efficient in achieving a rapid increase to sterilization temperature and an immediate decrease in temperature upon achieving sterilization in the flash cooler. Low fill temperatures arrest chemical degradation of the product once packaged.

4) Fast movement of product through the process to minimize the residence time of product at elevated temperatures is achieved by: (a) high and continuous product flow rates, plus (b) a minimum of product "tankage." One should review facilities for simplicity of design and process, characterized by low energy and low labor input per unit of production as an indication of the amount of work required by the process. This translates into high and continuous flow rates due to fewer breakdowns and complications.

The best measure of residence time is the throughput rate relative to the total tankage in the facility. With a relatively small increase in tankage, Morning Star's throughput rate is the highest of all facilities producing for the industrial tomato paste market.

(5) A thorough blending of tomato loads from the fields and through the process is absolutely critical in the production of tomato paste that is consistent from container to container! Consistent quality ingredients are required for a using manufacturer to produce consistent quality finished products with minimal formulation changes, resulting in lower costs.

The viscosity (as well as other quality attributes), inherent in each load of fresh tomatoes, varies widely. This is due not only to the many different varieties grown, but to the irregularities within a variety resulting from variable growing conditions. From 20 to 40 different varieties are purchased by a given processor, in a given year, from over 160 commercially grown varieties in California today. Normal variation in the viscosity potential of fresh tomatoes from load to load is one to two centimeters Bostwick.

Morning Star's tomato load management from field to processing facility is described in the second paragraph of (2), above. Exhibit 1 describes the process of product flow within the facility, showing multiple blending processes in a dedicated product flow line. During normal operations, each of our facilities processes eight to twenty tomato loads per hour. At this rate of production, the potential for blending tomatoes as they are unloaded is excellent. Morning Star has in place and utilizes a system that maximizes this potential.

(One load of fresh tomatoes will produce approximately 8,700 pounds of 31% NTSS tomato paste. Therefore, over five loads of tomatoes are necessary to fill an order for a truck load and 17 tomato loads for a railcar of finished tomato paste. Unloading eight to 20 loads per hour, a truck load of tomato paste is produced every twelve to 35 minutes and a railcar in 0.7 to two hours. Blending throughout the system will result in excellent consistency of quality from container to container. The higher the throughput capacity, the less each fresh tomato load impacts the variability of finished product quality. If one load is high viscosity and the next low viscosity, the production process has enough capacity for blending and the result is higher consistency of the finished product.

Care is required in evaluating process flow lines as an indication of the potential for production consistency, since a few "large" facilities actually consist of a number of smaller process lines, giving a false indication of process flow rates and capacities--appearing high when they are, in fact, quite low.

As one studies tomato paste manufacturing processes, an understanding of the variations and differences between each manufacturing system will be realized. In order to rigorously evaluate the potential of a manufacturer to produce a high quality tomato paste, a number of issues must be analyzed. These issues should include the incentives present for the selection of tomato varieties, tomato handling techniques, and process characteristics such as flow pattern, temperatures, tankage, and rate of throughput.

(B) Tomato Paste Price.

An understanding of pricing in the tomato paste industry entails understanding production economics, price history, and the position and goals of each manufacturer in relation to the industry. The price of tomato paste behaves as that of most other commodities. The price is directly related to immediate supply, prospective supply, and consumption (please see our Industry statistics). Different factors come into play in the short run versus the long run. In the short run, the price historically does not go below the industry average variable cost to produce on an annual average basis (please see our report "The Impact of In-Season Economics of Processing Tomatoes on Annual Production Stability in California"). As a practical matter, if a producer does not perceive a price that would even cover their variable costs, the producer's incentive is to not produce at all. Since all of the tomato industry's customers, and many of their customers, could not produce their products without a necessary ingredient, it is not in the supplier's, nor the user's, interest to see the price fall below the variable cost of production, resulting in no production at all. It is inconceivable not to have catsup, pizzas, spaghetti, and other tomato sauces (and many other tomato based items) in the homes and restaurants of America.

The elements of the cost to produce tomato paste and an approximation of the industry average percentage structure of those costs is found in our Industry Statistics publication. Understanding this enables one to evaluate the impact of various cost changes, such as fresh tomatoes or energy, on the total cost to produce tomato paste.

Our Industry Statistics publication also traces the history of tomato production since 1918, exhibiting the cyclical nature of production. The current cycles of expansion and contraction are running four or five years in length.

In the long run, if a producer cannot cover its total cost to produce (i.e., receive an appropriate return on investment), its incentive is to not produce at all (i.e., "shut down"). This was the case for a number of businesses in the years from 1977 to 1979, 1985 to 1987, 1992 to 1993 and 1996 to 1998. Two major suppliers to the industrial tomato paste market about fifteen years ago were California Canners and Growers and Tillie Lewis Foods--neither exist today.

Another exhibit in the Industry Statistics traces the history of tomato paste prices. These prices act as a surrogate for costs. An indication of the average variable cost to produce would be the lowest prices over each cycle. An indication of the average total cost to produce would be the average tomato paste price over a full cycle.

Combining the analysis of an individual tomato paste supplier's production process for quality purposes with an analysis of their cost of production, would determine the strategic long-term viability of a given supplier.

To determine which supplier is more likely to offer their product for a lower price over a reasonable period of time, there are two important questions.

First, what is the ability of a supplier to sell their product for less? While no person wants to sell products for less and will, in fact, always attempt to obtain the best price possible, the supplier with the lowest cost structure will have the ability to sell for less when the situation warrants--and stay in business.

Suppliers with the lowest cost structure will be those who provide the most reliable supply of tomato products and provide their customers with better value over time. In periods of oversupply, there exists a higher possibility of older, less efficient suppliers terminating the production of tomato products, while the opportunity is greatest to develop relationships with cost-effective suppliers providing better value. It is Morning Star's mission to be a supplier of better value tomato products.

Second, what is the attitude of the supplier toward growth? If a business desires to grow, the only source of growth is by providing better value for its customers through a higher quality product and/or a lower price over time.

Anyone can say they desire to remain viable and grow. Who can demonstrate it? Furthermore, what is the motivation for existence behind the supplier and its ownership? Is the supplier in business for the primary purpose of achieving excellence in manufacturing tomato products--or to fulfill another need? The more a supplier is dedicated to tomato products manufacturing, the more dedicated that supplier will be to providing its customers with high value to achieve long-term viability.

(C) Tomato Paste Supplier.

Behind the tomato products themselves, their quality and price, stands the supplier--its people and its facilities. A supplier's facilities support its people and their ability to function for the tomato products user. Assuming a given base of facilities, who are the people and how are they organized? What is their level of integrity, competence, and authority to make decisions on behalf of the supplier and for the customer? Solid answers to these questions can only come from experience between the parties.

We encourage prospective customers to personally visit our facilities to critically review our operations. You should expect to see a highly innovative, refined and capable tomato products processing operation.

The Morning Star Packing Company is dedicated to providing industrial tomato products users with the best possible value in Quality, Price, and Supplier reliability. Morning Star's facilities are located in Los Banos, Williams, and Yuba City, California, in the heart of the world's most productive and efficient tomato growing areas, in conjunction with a large base of qualified personnel and suppliers of production parts and supplies. The facilities process approximately 1,300 tons of tomatoes (approximately 425,000 pounds of tomato paste and 100,000 pounds of diced tomatoes) per hour into 300 gallon bag-in-boxes and 55 gallon drums, making up the most significant tomato processing capacity in California serving industrial tomato paste and diced tomato users.