Canada Potato Products Annual Report 2009

A Hot Tip about Horticulture and Support Services in Canada

Posted on: 4 Jan 2010

Canadian harvested area for potatoes in marketing year (MY) 2009/10 could fall to 150,000 hectares, roughly 1,000 hectares less than the year earlier level reflecting a combination of lower planted area and harvest problems due to another year of wet weather in Prince Edward Island, Canada’s leading potato producing province.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 10/30/2009 GAIN Report Number: CA9057 Canada POTATO PRODUCTS ANNUAL Canada - Potato Products Annual Approved By: Robin Tilsworth Prepared By: Mariano Beillard Report Highlights: Canadian harvested area for potatoes in marketing year (MY) 2009/10 could fall to 150,000 hectares, roughly 1,000 hectares less than the year earlier level reflecting a combination of lower planted area and harvest problems due to another year of wet weather in Prince Edward Island, Canada?s leading potato producing province. Post forecasts total Canadian production for MY2009/10 to reach about 4.69 million metric tons (MMT). For MY2009/10, Post forecasts Canadian frozen french fry production to fall between 2 to 3 percent to 1.22 MMT reflecting prospects for weaker demand in the top export market, the United States. The decreased demand reflects lingering effects of the global economic downturn. Executive Summary: * High input costs, uncertainty over processing contracts, the trend to increasing yields, and falling domestic consumption of table potatoes led Canadian potato growers to reduce total marketing year (MY) 2009/10 plantings to 153,138 hectares, down less than 1 percent from 154,069 hectares planted a year earlier. * Despite the minor change of seeded area on a national level, the area planted varied widely by province. Potato producers in Newfoundland and Labrador and Prince Edward Island showed the biggest cuts in seeded area, cutting their area by 14 percent and 8 percent respectively, while New Brunswick showed the largest increase, up 5 percent. * Canadian harvested area for potatoes in MY2009/10 could fall to 150,000 hectares, roughly 1,000 hectares less than the year earlier level reflecting a combination of lower planted area and harvest problems due to wet weather in Prince Edward Island, Canada?s leading potato producing province that normally accounts for 25 percent of total Canadian potato production. * Post forecasts total Canadian production for MY2009/10 to reach about 4.74 million metric tons (MMT). * For MY2009/10, Post forecasts Canadian frozen french fry production will fall 2 to 3 percent reflecting prospects for weaker demand in the top export market, the United States, due to lingering effects of the economic downturn, an increasingly stronger Canadian dollar, prospects for lower processing supplies, and the possibility of Canadian processing potatoes being purchased by U.S. processing facilities in the event of weather-induced shortages in the U.S. fall potato crop. * The total value of frozen french fry exports during MY2008/09 exceeded $844 million making frozen french fries Canada?s sixth most important single agricultural export commodity after wheat, $5.8 billion; fresh or frozen pork, $2 billion; live cattle, $1.25 billion; breads and pastries, $1.23 billion; and fresh or frozen beef, $1 billion (during the same July/June period). * Canada?s top potato producing provinces in order are Prince Edward Island, Manitoba, New Brunswick, Alberta, Quebec, and Ontario. Combined, the six provinces account for 95 percent of total Canadian potato production. Across all regions, potatoes are mostly planted in late April and May. The harvest of early varieties begins in August but the main harvest is the mid-September to late October period. They are marketed from storage facilities to fresh and processing markets over the next ten months. THE INFORMATION IN THIS REPORT IS NOT OFFICIAL USDA DATA Commodities: Potato Products, Frozen Production: Planted Area Canadian potato plantings in 2009/10 are forecast to reach only 153,138 hectares, down 0.6 percent from 154,069 hectares planted a year earlier. The drop in seeded areas, ongoing since 2003 is the result of continued high input costs, uncertainty over processing contracts, the trend of increasing yields, and the trend of reduced domestic consumption of table potatoes. Statistics Canada?s first estimate of the current crop?s production will be released in late November 2009. Harvested Area Canadian harvested area for potatoes in 2009/10 could fall to approximately 150,000 hectares, roughly 1,000 hectares, or 1 percent below the year earlier level reflecting a combination of lower planted area and harvest problems due to wet weather in Prince Edward Island (P.E.I.), Canada?s leading potato producing province that normally accounts for about 25 percent of total Canadian potato production. The extent of the P.E.I. crop loss due to wet weather in October is not yet fully known but concerns are rising among industry officials that the economic impact may be significant because the number of flooded hectares. The harvest is normally half done by October 15, with October 31 being the normal deadline to avoid the risk of frost damage. So far the harvest in P.E.I. is at about the one-third mark and proceeding very gradually. With many fields too wet to harvest, potato farmers are struggling to bring the harvest in and are now facing the possibility of pink rot contamination - a fungal disease that thrives in wet soil. With large amounts of water still on fields, which doubles the time needed in more normal years to harvest the crop, some farmers may face significant losses. Farmers are still trying to recover from a wet season last year which led to potatoes rotting in storage. Federal and P.E.I. provincial governments are assessing the harm caused by heavy rains to this year?s crop. Production ? Fresh Potatoes Post forecasts that in MY2009/10 potato production will drop to 4.6 MMT as the potato industry continues to contract on Prince Edward Island. Post estimates total Canadian potato production from the 2008 harvested crop to reach about 4.74 MMT slightly changed from 2007 (4.72 MMT), but still approximately 5 percent below 4.99 MMT produced in 2007. Although the full impact of adverse weather on P.E.I. production remains unknown at this juncture, preliminary reports from Manitoba and Alberta indicate that potato yields in those provinces are running above average, a development that is expected to offset some of the anticipated crop loss in Prince Edward Island. In addition warm, dry weather in Ontario and Quebec earlier on have helped crop development and the harvest (yields are generally good to average). Production ? Frozen French Fries Canadian frozen french fry production is export driven. From the late 1990s to the mid- 2000s, North American potato processors built state-of-the-art processing facilities in Canada to take advantage of the low value of the Canadian dollar versus the U.S. dollar. Potato producers responded with additional potato plantings to meet the demand from the processors. The Canadian dollar?s then low value and proximity to U.S. markets enabled potato processors to expand exports of frozen french fries to the United States, especially to the foodservice sector. Exports soared in the ten years ending MY2006/07 with an annual average growth rate of 10 percent. This business model may be jeopardized should the Canadian dollar in the long-term continue to strengthen against the U.S. dollar. There are no official Canadian production data for Canadian frozen french fries. Statistics Canada maintains that there are too few manufacturers, alleging that published data may disclose proprietary information. Post production estimates are based on potato area, consumption patterns and processed potato export data. Post estimates that frozen french fry output during MY 2008/09 fell 5 percent from the year earlier level reflecting lower domestic potato production, increased demand for Canadian processing potatoes by U.S. processors, and lower domestic consumption of frozen french fries at foodservice where menus now include offerings of foreign and ethnic foods and a wider choice of side dishes. For MY2009/10, Post forecasts Canadian frozen french fry production will fall between 2 to 3 percent reflecting prospects for weaker demand in the top export market, the United States, due to lingering effects of the economic downturn, an increasingly stronger Canadian dollar, prospects for lower processing supplies, and the possibility of Canadian processing potatoes being purchased by U.S. processing facilities in the event of lower output from the U.S. fall potato crop. Consumption: Statistics Canada does not record planting, production, or consumption data by market end use. Consequently, all data on these elements in the previous table are Post estimates. Also harmonized tariff system (HS) codes for import and export trade of fresh potatoes do not delineate end use. As a result, fresh potato trade between the two countries is not further separated into potatoes destined for either processing for fresh market. However, growers and processors on both sides of the border are interested in having this data available. In February 2008, the United Potato Growers of America and the National Potato Council met with the Fresh Products, Marketing Order Administration and Market News Branch of the U.S. Department of Agriculture?s (USDA) Agricultural Marketing Service (AMS) to discuss the issue of obtaining accurate and timely information regarding potato imports for the fresh market from Canada. Trade: Trade ? Fresh Potatoes The global economic slowdown forced Canada into recession in 2008/09. The relatively large share of international trade in Canada?s gross domestic product (GDP) left it vulnerable to weak overseas demand for its exports. Sharply lower (mineral) commodity and petroleum prices aggravated the underlying drop in the volume of shipments. Overall exports and imports contracted faster than any other sector of the Canadian economy. This is reflected by lower prices for commodities that form part of its cross-border trade, particularly the cross-border livestock trade. Unlike other countries, the faster drop of trade than output or demand in Canada appears to be driven more by lower demand than problems in trade finance or a response to global or cross-border production chains. The decline in trade drove Canada into recession through its direct impact on incomes and output of goods (notably manufacturing and mining) and the indirect impact on related services industries. However imports of agricultural products were little affected. Imports of agricultural products remained steady since staples such as coffee, fruits and vegetables dominate this category. Similarly exports of agricultural products overall were little affected by the recession, posting declines of just 1 percent between the third quarter of 2008 and the second quarter of 2009. Agriculture was buoyed by higher wheat exports, reflecting a good crop which offset a retreat in grain prices from their record highs earlier in 2008. Exports to non-OECD nations have declined by only 13 percent since the third quarter of 2008. There are several reasons for this relatively good result. A large portion of exports to economically emerging nations are agricultural products where demand has remained firm and financing is often facilitated by governments. Imports ? Fresh Potatoes Almost all of Canada?s imports of fresh potatoes are from the United States. During 2008/09, Canada imported 167,034 MT of U.S. fresh potatoes; 2 percent below 2007/08 imports of 170,682 MT. For 2009/10, fresh potato imports from the United States are expected to increase by about 3 percent given prospects for lower Canadian production. Canadian potato imports are not offset by lower export volumes to the United States. Post forecasts Canadian imports of potatoes to reach approximately 172,000 in 2009/10. Canada: Imports of Fresh Potatoes, excluding seed Marketing Year: July/June Quantity: Metric Tons HS Code: 0701.90 Value: $US million Country 2005/06 2006/07 2007/08 2008/09 Quantity Value Quantity Value Quantity Value Quantity Value Total 189,814 77.5 158,324 75.3 170,730 77.5 167,193 91.5 United States 189,780 77.5 158,266 75.3 170,682 77.5 167,034 91.4 Source: World Trade Atlas Exports ? Fresh Potatoes Total Canadian exports of fresh potatoes during 2008/09 fell to 440,672 MT, down 14 percent from the year earlier level of 511,840 MT. As shown on the table below, 94 percent of Canadian exports of fresh potatoes are destined for the U.S. market (414,027 MT). Canada continues to export the greatest number of its potatoes during the November-March period with fresh potato exports from Manitoba accounting for a sizeable share of the exports to the United States. Estimates of U.S. fall potato yields in 2009 are anticipated to average just below the strong levels of 2008 in many areas of the country despite hot spells in the Pacific Northwest, hail in Nebraska and Colorado, freezing temperatures in Idaho, and cool wet weather (and reports) of blight in the Northeast. As a result lower Canadian production in 2009/10 and the likelihood weak U.S. demand resulting from a relatively good (U.S.) fall 2009 harvest, prospects point to lower exports to the United States going into 2009/10. Post forecasts decreased exports of Canadian potatoes to both the fresh and the processing markets in the United States throughout MY2009/10. As a result, Canadian exports of fresh potatoes are forecast to reach roughly 429,000 MT overall with 421,000 MT exported to the United States. United States demand for Canadian fresh potatoes may increase if blight conditions in the U.S. domestic crop lead to increase storage losses and if export and domestic demand for fresh and processed products proves more robust than expected. Canada: Exports of Fresh Potatoes, excluding seed Marketing Year: July/June Quantity: Metric Tons HS Code: 0701.90 Value: $US million Country 2005/06 2006/07 2007/08 2008/09 Quantity Value Quantity Value Quantity Value Quantity Value Total 311,355 104.6 464,043 127.2 511,840 148.9 440,672 168.0 United States 276,111 95.2 399,662 109.0 444,935 129.4 414,027 158.5 Trinidad & Tobago 7,278 1.6 20,986 5.3 21,494 5.6 2,046 0.6 Thailand 5,312 1.7 7,918 2.6 6,312 2.7 8,750 2.7 Dominican Rep. 6,126 1.4 3,152 0.9 5,398 1.8 2,250 0.9 Jamaica 2,177 0.4 7,170 1.6 7,817 1.7 1,043 0.3 Barbados 3,978 1.0 6,258 1.8 5,293 1.5 1,483 0.5 Indonesia 0 0.0 2,770 1.0 2,756 1.1 2,146 0.0 Argentina 0 0.0 0 0.0 3,800 1.0 0 0.0 Bahamas 1,734 0.7 1,672 0.8 1,833 0.8 2,486 1.0 Algeria 0 0.0 0 0.0 3,529 0.6 0 0.0 All Others 8,639 2 14,455 4 8,673 3 6,441 4 Source: World Trade Atlas Trade ? Frozen French Fries Imports ? Frozen French Fries Relative to the significant quantities of Canadian frozen french fries exported, Canadian imports of frozen french fries are small. In part, this reflects the dominance of the major Canadian manufactures in domestic market distribution. Almost all of the major, national fast food outlets source their frozen french fries through the established distribution channels of the large Canadian processors. Imports during MY2008/09, virtually all from the United States, totaled 52,343 MT valued at $75 million. On a quantity basis, this was 24 percent above the previous year (42,243 MT). Exports ?Frozen French Fries Total Canadian exports of frozen french fries slipped to 973,561 MT during MY2008/09, dropping by 1 percent from 984,178 MT a year earlier due mostly to lower exports to Japan, Saudi Arabia, China and to other (i.e., countries included in the ?All Other? category in the table below). Despite the decline, value was higher reflecting generally higher prices and the strength of the Canadian dollar during the period ($867 per ton versus $849 per ton a year earlier). The total value of frozen french fry exports during MY2008/09 exceeded $844 million making frozen french fries Canada?s sixth most important single agricultural export commodity after wheat, $5.8 billion; fresh or frozen pork, $2 billion; live cattle, $1.25 billion; breads and pastries, $1.23 billion; and fresh or frozen beef, $1 billion (during the same July/June period). Post forecasts a 2 percent year-to-year decline in total frozen french fry exports to about 950,000 tons reflecting weak demand in export markets due to the slow global economic recovery. Our forecast decline will be affected by the strength of the Canadian dollar, which if it follows its current strengthening trend against the U.S. dollar will make Canadian frozen fries less competitive in the U.S. and other markets in MY2009/10. Trade Matrices: Other Frozen Potato Products Policy: U.S./Canada Potato Agreement In November 2007, the countries signed an arrangement to facilitate bilateral potato trade. The Technical Arrangement Concerning Trade in Potatoes facilitates trade between the United States and Canada by providing U.S. potato producers with predictable access to Canadian Ministerial exemptions to import potatoes. Ministerial exemptions for potatoes are generally granted by the Government of Canada only when there is a proven shortage of potatoes in Canada. The Arrangement, when fully implemented in Year 3, will allow a 60-day forward contract between U.S. growers and Canadian processors to serve as sufficient evidence of a shortage in Canadian potatoes. In addition to addressing U.S. concerns about Canada?s procedures for granting Ministerial exemptions for potatoes, the Arrangement will phase in quality inspections for potatoes at destination and will phase out spot-check inspections along the northeastern Canadian border crossing. The United States also initiated rulemaking to allow some Canadian specialty potatoes that did not meet current US quality standards for size to enter the U.S. market. This Arrangement protects the right of each Party to establish requirements and to conduct inspections at the border for health and safety reasons and does not affect the rights or obligations of either country under North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO). Canada Adds Acrylamide to Toxic Substance List Health Canada added acrylamide, a substance found in french fries and potato chips, to the government?s list of toxic substances. Canada?s decision to include the chemical on the list of toxic substances follows the Swedish Food Administration?s 2002 report linking unexpectedly high levels of acrylamide in carbohydrate-rich foods to cancer in laboratory rats. Acrylamide is not added to foods but rather is produced when starchy foods such as french fries and potato chips are cooked at high temperatures. Food manufacturers have been under increased consumer group pressure to cut levels of acrylamide in french fries and potato chips, but this is the first time that Canada is forcing producers to reduce consumer exposure. Health Canada will press industry to develop effective ways of reducing the presence of acrylamide in food and will coordinate with food regulators on risk management. Health Canada?s decision will likely contribute to further depress French fries and potato chips consumption, reinforcing the trend in the Canadian market to view potato and products as increasingly less healthy. The inclusion of acrylamide on Health Canada?s toxic list is part of the Canadian government?s review of approximately 200 chemical substances in widespread commercial use have not been subjected to thorough risk analysis. Tariffs Canadian Tariff Rates on Fresh Table Potatoes HS 0701.10.00 - Seed Trade Agreement & MFN Rate HS 0701.90.00 - Other Preferential Tariffs 4.94% United States FREE Commonwealth Caribbean FREE Countries Least Developed Countries FREE Mexico FREE Chile FREE Costa Rica FREE Israel FREE Peru FREE Source: Canada Customs Tariff Schedule, July 1, 2009 Canadian Tariff Rates on Frozen French Fries HS 2004.10.00 Trade Agreement & MFN Rate Preferential Tariffs 6% United States FREE Commonwealth Caribbean FREE Countries Least Developed Countries FREE Mexico FREE Chile FREE Costa Rica FREE Iceland FREE Norway FREE Peru FREE Switzerland-Liechtenstein FREE Source: Canada Customs Tariff Schedule, July 1, 2009 Marketing: Mandatory Nutrition Labeling Nutrition labeling for prepackaged food products is mandatory in Canada and imported products must meet the same labeling requirements as foods produced in Canada. Use of the U.S. nutrition panel on labeling is prohibited and only the Canadian nutrition panel is deemed acceptable for prepackaged products sold in Canada. There are differences in the U.S. and Canadian nutrition facts tables for daily intakes and in the definitions of zero "trans fats". The Canadian Food Inspection Agency has a webpage dedicated to Canada?s new labeling regulations: http://www.inspection.gc.ca/english/fssa/labeti/nutrition- pagee.shtml The webpage listed above provides a link to a Nutrition Labeling Toolkit to assist U.S. companies interested in bringing their processed potato product label into compliance with Canada?s new nutrition labeling regulations. Packaging and Labeling For retail sale, Canada?s Processed Product Regulations stipulate that the standard container sizes for frozen french fries are: 250 g; 500 g; 1 kg; 1.25 kg; 1.5 kg; and 2 kg. On December 3, 1998 the regulations were revised to include ?any size over 2 kg but not over 20 kg.? For U.S. exporters, this relaxation in the rule resulted in the ability to export wholesale cartons of frozen french fries containing inner bags in the common U.S. food service industry sizes provided the inner bags have no markings. If inner bags are marked, full labeling requirements apply (bilingual labeling, ingredients, etc.). Exporter Guide U.S. processed food exporters interested in the Canadian market can consult the Exporter Guide prepared by FAS/Ottawa. The Exporter Guide for Canada is available on the FAS website under Attaché reports at www.fas.usda.gov The Exporter Guide provides general information concerning Canadian regulatory requirements and details the FAS- sponsored services available to U.S. exporters interested in entering the Canadian food market. Exchange Rate Throughout 2008, the Canadian dollar weakened against the U.S. dollar. The Canadian has gradually regained some ground against the U.S. dollar in 2009, especially since March 2009. The Canadian dollar has been growing stronger compared to the U.S. dollar since then and is in the last quarter of 2009 is again approaching parity due to the strong link to oil. VISIT OUR WEBSITE: The FAS/Ottawa website is now accessible through the U.S. Embassy homepage. To view the website, log onto http://www.usembassycanada.gov; click on Embassy Ottawa offices, then Foreign Agricultural Service. The FAS/Ottawa office can be reached via e-mail at: agottawa@usda.gov Production, Supply and Demand Data Statistics: CANADA: Fresh Potatoes Area, Production, Consumption, Trade Marketing Year: July/June 2006/07 2007/08 2008/09 2009/10* Area planted (hectares) Total 162,649 161,961 154,069 153,138 For Fresh Market 58,554 58,306 55,465 55,130 For Processing 104,095 103,655 98,604 98,008 Area Harvested (hectares) Total 158,238 160,342 151,398 150,000 For Fresh Market 56,966 57,723 54,503 51,000 For Processing 101,272 102,619 96,895 99,000 Production (metric tons) (metric tons) (metric tons) Total 5,091,252 4,999,534 4,724,562 4,691,000 For Fresh Market 1,832,851 1,799,832 1,700,842 1,595,000 For Processing 3,258,401 3,199,702 3,023,720 3,096,000 Consumption (metric tons) Total 4,785,527 4,658,374 4,451,083 4,433,000 For Fresh Market 1,527,126 1,458,672 1,427,363 1,337,000 For Processing 3,258,401 3,199,702 3,023,720 3,096,000 Trade (metric tons) Imports 158,324 170,730 167,193 172,000 Exports 464,049 511,890 440,672 429,000 Source: Statistics Canada & Post Estimates Notes: Statistics Canada does not report separate planting, production or consumption data by end use. All fresh market and processing shares are post estimates. HS Codes for import and export trade do not delineate end use. * Except for plantings, all 2009/10 data are post forecasts. Canada: Frozen French Fries: Production, Trade, Consumption Marketing Year: July/June Quantity: Metric Tons 2006/07 2007/08 2008/09 2009/10 Production 1,346,680 1,330,048 1,259,822 1,218,500 Imports 45,436 42,243 52,343 56,200 Total Supply 1,392,116 1,372,291 1,312,165 1,274,700 Exports 1,025,145 984,178 973,561 950,000 Dom. Consumption 366,971 388,113 338,604 324,700 Source: Post Estimates, World Trade Atlas
Posted: 04 January 2010

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