Canadian Potato Situation and Trends 2006-2007 (4 of 9)
Over the last two decades, potato production has quickly increased in developing countries, but has decreased in developed countries. According to the Food and Agriculture Organization (FAO) potato production in developed countries increased by 0.58% annually in the 1980s, and then decreased by 0.4% annually between 1990 and 2005. 2005 production is 17% less than the average production in the 1980s. However, production in developing countries entered a rapid expansion phase in the 1990's. Between 1990 and 2005, annual production increased by 4.5% as the area planted increased by 2.9% per year. By the year 2005, production had increased by 125% over the production average of the 1980s. Developing countries now produce about 47% of the world's production, compared to 11% in the early 1960s. This occurred as growth rates for maize, wheat and rice slowed, especially in Asia. Based on this trend, growth in developing countries is expected to continue at between 2% and 3% annually.
About 64% of the crop is used for human consumption. The largest sector in the potato market still remains table stock. However, the seed and processing industries are becoming more significant. The potato starch industry is concentrated in specific regions. It is an important segment that serves the food and non-food industries, and animal feed markets. Consumption of potatoes as food has experienced a 3% annual growth rate from 1993 to 2003. Most of this growth has occurred in the developing countries such as in China and India where consumption is historically low.
The situation is different in developed countries such as in the U.S. and the EU where consumption is historically high. Consumption has now stabilized or decreased. Table potatoes have lost market share in favour of processed potatoes due to changing consumption patterns. Key factors in these markets include: consumer demands for greater convenience and added value, concerns about health, nutrition and food safety, and an increased percentage of the food dollar spent outside home.
Since the 1960s, per capita consumption in Europe has declined. It is still the world leader with about 94 kg followed by North and Central America at 48 kg, Oceania at 43 kg, South America at 29 kg, Asia at 24 kg and Africa at 13 kg. Per capita consumption is increasing in developing countries because of a younger population and increasing demand for chips and fries.
Potatoes compete directly with other sources of starch (including starch), such as popular foods like pasta and rice. However, the potato scores high in terms of nutrition and is an excellent source of vitamins. To meet the expectations of people wanting healthy lifestyles, industry must continue to develop innovative potato products and promote the positive aspects of the potato as a readily available, easy-to-prepare and healthy product.
Food safety concerns will encourage buyers and consumers to require tracking systems for potatoes and potato products. This will also necessitate high quality assurance systems.
Changes are occurring everywhere in the value chain. Processors are buying potatoes directly from growers to ensure a better quality control of the raw product. Processors have set up services to help growers produce a high-quality crop using sustainable and widely accepted production processes. Appropriate crop management practices will ensure the availability and suitability of the crop for processing. The direct raw supply from farmers also allows the processor a easier control and planning for a more efficient processing plant. A better utilization of its capacity helps to maximize its profitability. Direct supplying helps to level off seasonal peaks by either contracting growers to plant early potato varieties or outsourcing storage. With fewer intermediates, storage at the farm is increasing and farmers are assuming a higher risk level related to quality and seasonal price fluctuations.
Industry is changing as mergers or alliances among seed potato companies, retailers and processors occur. This relates to characteristics of potato varieties, their suitability for specific purposes and the ability of the processing industry to source these specific varieties.
The seed sector has played an important role not only in controlling diseases, but also in developing various internal and external quality traits (size, shape, colour of flesh, bruise resistance, dry matter content, frying colour, etc.) matching the specific qualities requested by each industry sector. Access to the right seed potato variety is becoming a key success factor and is stimulating the development of many new varieties. Seed companies are working closely with the processing industry on their requirements. Many alliances between retailers and processors have also been formed to develop exclusive varieties. Changes in the value chain are happening not only in reaction to more demanding consumers, but also in reaction to consolidation occurring in food retail and food service.
Processors are opening new plants in other countries, such as in China, India and Russia, to take advantage of rising demand for potato products. The adoption of Western eating habits is fuelling this increase in countries with large populations to feed.
The FAO reported world potato production was nearly 314 million MT in 2006. China is the world's largest producer (73.5 million MT) with 23% of the world production followed by the Russian Federation (38.6 million MT), India (23.9 million MT), the United States (19.7 million MT), Ukraine (19.5 million MT) and Germany (10 million).
|*% Change from 2005 to 2006
The United States
In 2006, the United States was the fourth largest potato producer in the world. Total 2006 U.S. production (external PDF) was estimated at 19.7 million MT, 2.5% more than the 2005 production at 19.2 million MT. This change resulted directly from a 2.6% increase in area harvested since yields were similar in both years. The farm value of the 2006 crop was a record-high US$3.2 billion, up 7.8% from 2005. The average price in 2006 was US$163.54/MT (US$7.42/cwt), up US$7.93/MT (US$.36/cwt) or 5.1% higher than the previous year.Footnote 1 A higher price resulted from a 5% growth in domestic demand (based on estimated domestic disappearance) and an expansion in export demand. U.S. potato exports have expanded by more than 13% in 2006.
North American demand for potatoes has been declining in recent years. The US potato industry, like the Canadian industry, experienced oversupply and declining prices prior to 2005. Potato growers have been struggling for many years to receive a reasonable return for their product. In order to improve prices and returns, United Potato Growers of America (UPGA) has many initiatives and programs in place, such as the acre buy-down program, to help growers work collaboratively to match supply to demand. In most cases, acreage buy down is funded by payments from growers who do not achieve their acreage reduction targets. UPGA wants to bring order and stability to the fresh potato market.
Between 1996 and 2006, U.S. per capita consumption of potatoes declined by 15%. In 2006, total U.S. potato utilization (external PDF) was estimated on fresh equivalent basis at 123.7 pounds per person (56.13 kg). Fresh consumption represents 42 pounds per person (19.06 kg) and processed consumption 81.7 pounds per person (37.07 kg). The processed consumption breakdown by category is frozen consumption at 52.7 pounds per person (23.91 kg), chips at 16.2 pounds (7.35 kg), dehydrated at 11.9 pounds (5.4 kg) and canning at .9 pounds (.41 kg).
Trade and Processing
About 28% of the 2006 crop went for fresh table stock and 58% was for processing. Processors used 11.44 million MT from the 2006 potato crop, of which 60% was frozen (mainly as French fries), 21% was chipped, 17% was dehydrated, and the remainder canned or used to produce potato starch or flour.
U.S. fry production was 3.99 million MT in 2005-2006, an increase of 4% over the previous period. During the 2005-2006 marketing year, U.S. exports of frozen potato products were 560,000 MT, a record. This represents a 9% volume increase over the previous year. The top five U.S. frozen potato markets accounted for 72% of 2005-2006 shipments; Japan (39%), Mexico (14%), Canada (9%), China (5%) and South Korea (5%).
In 2006, the U.S. potato industry exported 270,000 MT of table potatoes, 13,600 MT of seed potatoes, 60,900 MT of potato chips and 61,900 MT of potato flakes and granules. The major foreign markets for U.S. potato chips are Mexico, Canada and Japan. Fresh table potatoes were destined for Canada (70%) while Mexico is the major destination for flakes and Malaysia is the first for granules.
The dehydrated product sector boomed during the 2002-2004 period largely due to flake exports to Mexico to support Frito-Lay Stax production. However, flake exports to Mexico have been decreasing in the last two years from 29,400 MT in 2004 to 19,900 MT in 2006.
French fries imports from Canada increased by 4% from 786,000 in 2005 to 713,000 MT in 2006 to compensate rising demand in other countries. Canada essentially accounted for all of the U.S. imports of frozen potato products.
The expansion of the European Union has created major changes in the potato Industry. Many Eastern European countries have faced reduced demand for potatoes as feed and consumer requirements have changed through the major retail chains. Many countries are modernizing and reorganizing their systems of breeding, seed potato certification, research and phytosanitary organizations to comply with consumer driven demands. The current share of the EU25's production such as in the United Kingdom, the Netherlands, Belgium, Germany and northern France has increased due to efficient organizations. Though not as well organized and with less favourable agronomic conditions, the southern European countries have lower production yields and are more dependent on the north-eastern member countries for supplies.
The European Union
The EU-15 production of table and seed potatoes was estimated at 33.4 million MT for the 2006 crop year. This represents a 6.6% decrease on the 2005 crop of 35.7 million MT which was in turn 8.8% lower than the 2004 crop of 39.14 million MT. Poor 2006 weather and production conditions affected the major EU producing countries. Very hot weather in June and July, heavy rains in August had a negative impact on total production while quality issues resulted in less marketable production. Quality problems due to secondary growth and blight were reported in many countries from the UK to some Eastern European states. The European Union had to manage a major shortage of potatoes and potato products for a second consecutive year. Prices have been strong and better than historical prices.
With plentiful crops in storage, potato producers in Prince Edward Island and New Brunswick were expecting to export to Europe to offset the shortage. However, the European shortage did not translate into an increased demand for Canadian potatoes. Nevertheless, exports of North American potato products have increased to previously EU supplied third countries; this EU shortage contributed to open doors for product from both Canada and the United States.
Germany with 21% of the EU-15 production, Netherlands (13%), France (15%), United Kingdom (17%) and Belgium with 8% constitute the core of the European potato growing countries accounting for 74% of the EU-15 production. Except the more recent years, the European potato industry has experienced poor returns. Demand for fresh potatoes has been affected by adverse publicity about the Atkins diet and health concerns like in North America. Falling table potato consumption and decreases in demand for processing potatoes has maintained low prices. EU potato growers in countries dominated by the processing industry are surviving due to the contract price. The situation is slightly better for British and French growers due to a premium paid in the packing sector. In the last two years, a decrease in the EU-15 production resulted in a better supply and demand balance, and growers enjoyed reasonable returns. Demand for potato processed products seems to be reviving. The surge in the euro compared to many other currencies represents an issue for the EU potato competitiveness on the export markets.
The expansion of the EU represents a major challenge for the industry. Ten new member states (Poland, Hungary, the Czech Republic, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Cyprus and Malta) formally acceded to the EU in May 2004. Romania and Bulgaria joined the EU in January 2007. The EU has also agreed to a formula for the start of accession negotiations with Turkey. Potato production is already economically significant for the majority of these countries. East European potato producers will compete directly with the EU-5 central countries.
The EU potato starch industry mainly found in Germany, the Netherlands, France and Denmark is subsidised. This is made up of a minimum producer price, compensation payments to producers, a premium for processing and export refunds. The EU potato starch manufacturing is subject to production quotas. The European Commission decided in December 2006 to maintain existing starch production quota for another two years, to allow a fuller analysis of the impact of the sugar reform on the starch market.
The Russian Federation
The Russian Federation is the second largest producer of potatoes in the world. After the collapse of the Soviet Union, Russian production has mainly relied on household production due to a lack of investment in large enterprises and private agriculture. Growers did not have enough money for fertilizers and agrochemicals, labour costs are relatively high and the availability of seed, which was formerly produced by state-owned companies, is not sufficient. Russians must grow their own supplies with more than 90% of the annual crop produced from gardens and small farms. Disease and Colorado beetle infestations have also resulted in important losses. Average yields are very low, usually below 11 MT/ha. From 1998 to 2000, the crop was smaller at 31-34 million MT than the previous year's crops of 37-40 million MT. According to FAO, Russian potato production was 38.6 million MT in 2006, 3% more than the previous year. Poor weather conditions also created quality issues.
In recent years, a higher average potato yield has contributed to increased production in spite of the steady trend of decreasing areas planted to potatoes. Recent investments by the Russian government in new technologies, new equipment and new varieties in partnership with foreign companies contributed to improve production levels. Many processors have built plants for various potato products.
Ukraine is the fifth world's potato producer with production of 19.5 million MT in 2006 and continues to expand its production. In spite of high volumes of production, the Ukraine is not a potato exporter because a major part of the crop is lost each year due to pests and inadequate storage. Large world potato companies are interested in investment opportunities of the Ukrainian potato industry from potato production and handling to potato processing and trade. The growing consumption of processed potatoes and low competition on this market represent business opportunities for large potato processors.
Future global demand and growth will be driven by increased consumption in Asia and particularly in China and India. The traditional rice-based diet has changed to include potatoes. The FAO reports that potato production in Asia has increased by 4.6% annually on average over the past 10 years. Annual growth rates are 13.5% in Bangladesh, 11% in Pakistan, 4.5% in China, 5.2% in India and 0.5% in Indonesia. The growth of the potato industry in this part of the world is due to the increasing use of cold storage facilities, more processing plants, irrigation and the growth of the fast food industry.
People's Republic of China
China is the world's largest producer with 73.5 million MT. Most of this production occurs on small plots cultivated with rudimentary tools. Yields are about 15 MT/ha and are expected to increase. Only 5% to 10% of this production is processed.
The traditional Chinese diet is based on rice and wheat. Although the potato has always been considered as a
"poor man's food", it is becoming essential to building a national food security system. The Hunan province of China is currently undergoing large scale change to its cropping system. A potato crop could be grown as a winter crop from December to April winter followed by a long-season rice crop from May to October. This contrasts with the current cropping practices of growing two short-season rice crops followed by a winter crop of oilseed, wheat, or corn.
In recent years, the Chinese have changed their lifestyles and eating habits resulting in a booming fastfood industry. Chinese consumers, particularly those in large cities, have adopted Western-style fast-food restaurants that serve French fries and other popular potato dishes as a way of life in China. French fries are mostly imported from the United States.
With 1.3 billion people and a fast growing economy, China presents a very large market for the processing industry. International companies are currently building potato processing plants while others are planning to invest in existing processing ventures.
In order to develop its potato industry, China will need to expand its processing capacity, and develop better quality varieties with new disease and drought resistant characteristics. A better processing industry can avoid a market glut during harvest and contribute to the continued development of the potato industry.
India is the third largest producer in the world with 23.9 million MT in 2006. In India, the potato is a cash crop, not a staple food, providing significant income to farmers. Consumption is low at 17.1 kg per person in 2003. The potato is not part of the traditional diet and is consumed primarily as a vegetable, rather than a staple food. Only a very small percentage of its annual production is processed. Its potato processing industry has strong potential to grow in response to domestic and international markets.
Poor seed quality, inappropriate varieties, inadequate control of pests and diseases, the high cost of inputs and high post-harvest losses are limiting production. Potato yields are relatively high at about 18 MT/ha. India has increased the capacity of its potato processing industry. Processors work closely with producers in sharing the best agronomy practices, modern irrigation systems, new planting techniques, methods of fertilizer and pesticide application and modern methods for effective storage.
With 1.03 billion people, a minor increase in potato consumption per capita would result in a larger global demand. The high growth rate production is likely to continue, primarily as a marketed cash crop more than as a rural staple.
Potato production in Africa contributes about 4.6% of the world's production. The average yield is 11.17 MT/ha compared to the world average yield of 17.4 MT/ha.
In 2005, Egypt, South Africa, Algeria, Malawi, Morocco and Rwanda produced 70% of Africa's crop. The strongest growth rates have been in Malawi, South Africa and Egypt as the use of irrigation has expanded.
There are different potato production systems in Africa. In South Africa, the majority of the crop is grown on relatively large farms, increasingly under irrigation, and yields are high. In the densely populated and intensively cultivated highland areas of Eastern and Central Africa, potatoes are grown primarily on small farms, both as a cash crop and as an important component of household food security. In West Africa, the crop is also grown on a small scale, but under irrigation as a high-value vegetable. In North Africa, potato is a widely grown food crop and producers are integrated into European systems, importing seed and exporting fresh crop.
Seed potato availability and quality is a major issue in most areas. Diseases are some of the major constraints to the production. Most African countries must develop their capability to use new technologies for improving production. Many African countries represent good opportunities with ongoing developments in production and processing. Urbanization, rising incomes, tourism and female participation in the work force contribute to increased demand for fresh and processed products.
Latin America and the Caribbean
Potato production in Latin America and the Caribbean represents about 5% of the world's production. The average yield is 16.5 MT/ha close to the world average yield of 17.4 MT/ha. Over the last 10 years, production has expanded at an annual rate of 1.7%. Peru, Brazil, Colombia, Argentina, Mexico and Chile are the major producing countries and represent 84% of the total production. Overview of CIP Work in Latin America and the Caribbean.
Australia and New Zealand
Potato production is around 1.4 million MT in Australia and .5 million MT in New Zealand. Production has lightly and steadily increased in both countries over the last decade in response to the development of their processing sectors. The potato industries of Australia and New Zealand are comprised of four well structured sectors: table stock, processed (frozen), processed (chips) and seed.
The percentage of crop targeted for processing has increased significantly in the last decade to around 55%. Frozen processing is dominated by McCain Foods and Simplot. Australia and New Zealand are new competitors in the potato fry trade. In recent years, the countries have increased their exports, mainly to the Southeast Asian region. The chip industry is very competitive and a high value sector.
- Footnote 1
Vegetables and Melons Outlook/VGS-319/February 22, 2007, ERS, USDA.
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