Potatoes and Potato Products Annual 2012

An Expert's View about Vegetables and Melons, Roots and Tubers in Canada

Posted on: 21 Oct 2012

Post forecasts an abundant fresh potatoes crop, given a larger seeded area and an expected return to average yields after an uneventful growing season.

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: 10/01/2012 GAIN Report Number: CA12037 Canada Potatoes and Potato Products Annual 2012 Approved By: Robin Gray Prepared By: Mihai Lupescu Report Highlights: Sustained demand in potato processing resulted in expended planted areas for a second consecutive year. Following a depressed production last year caused by poor weather, Post forecasts an abundant fresh potatoes crop, given a larger seeded area and an expected return to average yields after an uneventful growing season. Larger crops expected in the United States will result in modest trade. With ample supplies and solid demand, frozen fries will see expanded production, exports and consumption. Canada Potato Products Annual – October 2012 Executive Summary: As Canadian growers continue to take advantage of a surge in potato processing contracts, Statistics Canada reported a 3 percent increase in planted areas, up to 150,500 hectares from 146,000 hectares during MY 2011/12. At the same time, yields are expected to return to average historical levels after an uneventful growing season in most of the country. Based on these trends, Post forecasts a solid increase of 8.6 percent in the production of fresh potatoes, up to 4.525 million metric tons (MT) during the marketing year (MY) 2012/13 compared to 4.168 million MT recorded in MY 2011/12. The size of the Canadian market for fresh potatoes destined to processing is more than three times the size of the market for fresh table potatoes. This is due to the fact that large processing companies produce frozen french fries and other processed potato products (such as chips) for the export market. In Canada, consumption of fresh potatoes has seen a slow decline over the past decade, but seems to have stabilized in the last few years at some 25 kg per person per year. Given domestic market trends, Post forecasts fresh potato consumption at 825,000 MT for MY 2012/13. This is up 8 percent compared to one year earlier when a shortage of supply translated in reduced consumption. Post also forecasts a 5.4 percent increase in the potato processing market, up to 2.8 million MT, after a modest 2 percent growth during the previous year caused by limited supplies of fresh potatoes. Both imports and exports of fresh potatoes are forecast to remain flat during MY 2012/13, given that larger potato crops are also expected in the United Sates, Canada's major trading partner. This follows after a year when imports declined by 11 percent and exports by 30 percent. Both trends were primarily caused by reduced supplies in North America, and the loss of contracts on the Russian market, which had previously boosted exports during MY2010/11. . With the availability of ample supplies of fresh potatoes and a solid demand, the production, exports and consumption of frozen french fries are all forecast to increase in the current marketing year: production by 8.3 percent, up to 1.15 million MT (after a 2.3 percent expansion last year); exports by 2.1 percent up to 915,000 MT (after a 1.8 percent increase the previous year); and consumption by 17 percent up to 240,000 MT, a volume closer to historical levels (this trend follows a 16.5 percent decline in the previous year). Canada’s top potato producing provinces in order are Prince Edward Island, Manitoba, Alberta, New Brunswick, 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 following ten months. 2 | Page Canada Potato Products Annual – October 2012 FRESH POTATOES CANADA: FRESH Potatoes - Area, Production, Consumption, Trade Marketing Year: MY2007/0 MY2008/0 MY2009/1 MY2010/1 MY2011/1 MY2012/13 July/June 8 9 0 1 2 * Area planted (hectares) 161,556 153,746 149,699 144,276 146,056 150,508 Area harvested (hectares) 159,937 151,115 145,571 138,812 140,917 146,000 Production (metric tons) 4,988,784 4,697,482 4,574,964 4,393,252 4,168,266 4,525,000 Imports (metric tons) 170,732 167,812 226,567 243,823 217,576 210,000 Exports (metric tons) 511,890 440,672 372,064 517,744 363,542 360,000 Domestic Disappearance** ,626 4,424,622 4,429,467 4,119,331 4,022,300 4,375,000 (metric tons), of w 4,647hich: Fresh Consumption 900,380 851,200 862,460 854,445 764,500 825,000 For Processing 2,965,680 2,888,030 2,858,380 2,607,040 2,655,660 2,800,000 Other*** 781,566 685,392 708,627 657,846 602,140 750,000 Source: Statistics Canada, Global Trade Atlas & Post Estimates * Except for plantings, all 2012/13 data are post forecasts **All data are Post estimates derived from available Statistics Canada information ***Includes waste, animal feed and change in stocks Production As Canadian potato growers continue to take advantage of a surge in potato processing contracts, they increased planted areas across the country. This is a second consecutive year of expansion in this sector, after a five year decline experienced from 2005/06 through 2010/11. Acreage data released by Statistics Canada showed that areas planted in 2012, at the national level were up 3 percent from the 2011 numbers. Manitoba and Prince Edward Island experienced increases of 4.1 percent in plantings, followed by Alberta with a 3.5 percent raise and New Brunswick with 1.9 percent. Total potato area planted in 2012 stands now at 150,500 hectares, still a decline of 18.7 percent from the 2003 planted acreage of 185,150 hectares, the record year in terms of planted area in over a decade. Yields are expected to return to average historical levels after an uneventful growing season in most of the country. Post forecasts a solid increase of 8.6 percent in the production of fresh potatoes, up to 4.525 million metric tons (MT) during the marketing year (MY) 2012/13 compared to MY 2011/12. The industry is likely to show a more substantial expansion this year, after a contraction period that started several years ago, as consumption of potatoes declined, and after a poor crop last year caused by extremely wet weather. Post also estimates that the current marketing year will see additional amounts of potatoes used as animal feed, given the expected tight and costly supplies of grain feed. Use of potatoes as feed also provides a way to manage inventories and avoid oversupplying the market, especially with the anticipated bumper crop in the United States. 3 | Page Canada Potato Products Annual – October 2012 Source: Statistics Canada / *Post forecast for production In recent years, Canadian potato growers have been steadily decreasing acreage in order to bring production more in-line with market demand. This remains a major preoccupation for the sector, since the consumption of fresh potatoes has been in decline for a number of years and the consumption of processed potatoes (mostly as frozen french fries) took a hit during the recession years, especially through the impact on the restaurant sector. Currently, growers remain focused on their financial bottom lines and seem to be more responsive to market demand. Most of them plant enough to meet known and stable markets, and take advantage of the higher prices implied by a tighter supply. Consumption Statistics Canada does not record planting, production, or consumption data by market end use. Also, the harmonized tariff system (HS) codes for imports and exports of fresh potatoes do not delineate end use. It is, therefore, difficult to get a detailed image on the split between the fresh and processed markets for the domestic fresh potato production and for imports. However, an estimate can be made of the size of the two markets when compared to the total amount of potatoes available in Canada, based on production and imports of fresh potatoes taken together. With this approach, Post estimates, based on food supply and distribution data from Statistics Canada, that over the past ten years the market for fresh potatoes in Canada utilized about 20 percent of the total amount of fresh potatoes available. Similarly, the size of the processing market represented between 50 and 60 percent of available fresh potatoes. This reflected the development of the frozen french fries industry in Canada starting from the late 1990s. About 5 to 10 percent of fresh potatoes available in Canada are exported. The remaining balance is made up of waste, animal feed and stocks. 4 | Page Canada Potato Products Annual – October 2012 Source: Post estimates based on Statistics Canada / *Post forecast Post forecasts the consumption of fresh potatoes at 825,000 MT for MY 2012/13, up 8 percent from MY 2011/12, when, at 764,500 MT, the shortage caused by a poor crop depressed consumption to its lowest level on record. It bears repeating that Canadians have steadily reduced their consumption of potatoes over the past decade. Year 2009 was the first time since the beginning of this declining trend when Statistics Canada reported a stable amount of potatoes in the diet. Ten year ago, Canadians used to consume almost 40 kg of potatoes per person per year. Recent data suggest that the market is now stabilizing around 25 kg of potatoes per capita per year, with the exception of last year when consumption dropped to 22 kg per person due to market shortages and higher prices. Given the additional processing contracts, Post forecasts for MY 2012/13 a 5.4 percent increase, to 2.8 million MT, in the size of the market for fresh potatoes destined for the processing industry. This increase follows many years of declining consumption in processed potatoes, such as frozen french fries and chips, largely attributable to consumers being more conscious about their diets and their concern with eating healthier food. It can also be attributed to declining exports of frozen french fries as a result of a very strong Canadian dollar. 5 | Page Canada Potato Products Annual – October 2012 Trade Imports Virtually all of Canada's imports of fresh potatoes come from the United States. For MY 2012/13, Post forecasts a decline of 3 percent in imports of fresh potatoes, down to 210,000 MT from their level one year earlier, due to expected increased domestic supplies. During the MY 2011/10, Canada imported 217,576 MT of fresh potatoes, down 11 percent from MY 2010/11. This is a volume much lower than expected and reflects a lower production in the United States. Canada: Imports of fresh potatoes, excluding seed Marketing year: July-June / Quantity in metric tons 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 World 158,324 170,732 167,795 226,567 243,823 217,576 United States 158,266 170,684 167,636 226,403 243,693 217,357 Source: Global Trade Atlas Exports Post forecasts a decline of 1 percent in Canadian exports of fresh potatoes during MY 2012/13, down to 360,000 MT. This is primarily based on an expected bumper crop in the United States, Canada's principal export market. This follows another drop of 30 percent in exports during MY 2011/12 when shipments to Russia, which had fueled sales the previous year, ceased. With the recent adjustments made by the industry in order to bring production more in line with market demand, supplies will remain limited for the foreseeable future. Traditionally, the United States was the largest export market for Canadian potatoes, at times absorbing over 90 percent of total volumes. It has now returned to this market position after the one-year surge in shipments to Russia and Trinidad & Tobago, when the U.S. share dropped to 76 percent. 6 | Page Canada Potato Products Annual – October 2012 Canada: Exports of fresh potatoes, excluding seed Marketing year: July-June / Quantity in metric tons 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 World 464,049 511,890 440,672 372,064 517,744 363,542 United States 399,668 444,958 414,027 342,305 395,521 335,864 Market share: 86% 87% 94% 92% 76% 92% Thailand 7,918 6,312 8,750 8,825 10,090 11,119 Indonesia 2,770 2,756 2,146 4,410 11,984 9,289 Dominican Republic 3,152 5,398 2,250 3,311 3,738 3,276 Trinidad & Tobago 20,986 21,520 2,046 1,907 21,098 1,620 Russia 0 1,184 0 0 48,565 46 All other 29,554 29,761 11,452 11,305 26,747 2,327 Source: Global Trade Atlas FROZEN FRENCH FRIES CANADA: FROZEN FRIES - Production, Consumption, Trade Marketing Year: MY2007/0 MY2008/0 MY2009/1 MY2010/1 MY2011/1 MY2012/13 July/June 8 9 0 1 2 * Production** 1,223,729 1,189,676 1,184,088 1,038,782 1,062,324 1,150,000 Imports 42,234 41,873 43,643 43,371 41,063 43,000 Exports 984,178 973,561 904,343 879,941 896,172 915,000 Dom. Consumption** 258,871 268,276 284,418 246,106 205,394 240,000 Source: Statistics Canada, Global Trade Atlas & Post Estimates / Data in metric tons Note: Change in stocks and waste account for the difference between supply and disposition *Post forecast **Post estimates derived from available Statistics Canada information Production For MY 2012/13, Post forecasts an increase of 8.3 percent in frozen french fry production, up to 1.15 million MT from a modest 1.06 million MT recorded in MY 2011/12. Last year's production was only 2.3 percent above the 2010/11 level, which remains the lowest during the past five-year period. Despite the expected growth, the current year's production is still approximately 6 percent below the record level registered in 2007/08. Demand for frozen fries, both domestically and in export markets, seems to have somewhat recovered after it tanked as a consequence of the recent recession and the struggle of the foodservice sector. 7 | Page Canada Potato Products Annual – October 2012 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 growers 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. Source: Post estimates based on Statistics Canada / *Post forecast From MY 1989/90 to MY 2009/10, Canadian production of frozen french fries increased by 322 percent. Over the same period of time, exports soared more than eightfold, with an annual average growth rate of 41 percent. Unless new markets are explored, this business model may be in jeopardy today, given the declining trend in North American consumption and a persistently strong Canadian dollar vis-a-vis the U.S. dollar. Consumption While Canadian production of frozen french fries, driven by exports, more than tripled over the past 20 years, not the same can be said with respect to domestic consumption. During the 20-year period ending with MY 2009/10, Canadian consumption of frozen fries increased by a mere 32 percent. Given that the total population increased over the same period of time by 24 percent, the increase in per capita consumption of frozen fries was a very modest 6.6 percent, or an annual average growth rate of 0.3 8 | Page Canada Potato Products Annual – October 2012 percent. This trend is not likely to change in the future; on the contrary, one may see a flattening or even declining per capita consumption of frozen fries in Canada as consumers become increasingly concerned with their diet. Currently Canadians consume some 7.5 kg of frozen fries per person per year. For MY 2012/2013, Post forecasts a 17 percent increase in overall consumption, up to 240,000 MT, after a 16 percent drop during the previous year, when limited supplies of fresh potatoes and the need to satisfy export demand resulted in fewer supplies on the domestic market. Trade Imports Relative to the significant quantities of Canadian frozen french fries exported, Canadian imports of frozen french fries are very 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 MY 2011/12, almost exclusively from the United States, totaled 41,063 MT. Exports Post forecasts a 2.1 percent increase in Canadian exports of frozen french fries for MY 2012/13, up to 915,000 MT from 896,172 MT one year earlier, when a declining trend which started several years ago was finally reversed by a modest 1.8 percent raise. A sustained foreign demand is behind this recent trend, despite the strong Canadian dollar, which stayed above parity with the U.S. dollar for a good part of the past two years. The Philippines is one of the leading, rapidly growing markets behind this foreign demand. The 14 percent decline experienced from 2006/07 until last year was largely due to low exports to the United States, which usually account for close to 80 percent of the Canadian export market. During this timeframe the United States saw an exceptionally large production of fresh potatoes, while Canada saw a decrease in production. In addition, weak demand and the ever stronger Canadian dollar contributed to the declining exports. 9 | Page Canada Potato Products Annual – October 2012 Canada: Exports of frozen french fries Marketing year: July-June / Quantity in metric tons 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 World 1,025,146 984,178 973,561 904,343 879,941 896,172 United States 787,872 764,356 780,762 712,986 715,162 732,965 Mexico 36,543 38,212 41,677 57,169 45,429 41,692 Japan 42,193 41,940 33,781 28,275 31,559 33,952 Philippines 5,167 5,022 10,236 10,712 9,791 15,648 Costa Rica 12,589 12,899 12,575 13,363 8,412 10,196 Venezuela 16,889 16,585 17,712 13,010 11,713 6,696 Indonesia 6,082 5,112 5,137 4,868 4,777 6,694 Australia 499 9,735 545 2,518 4,100 4,846 All other 117,312 90,317 71,136 61,442 48,998 43,483 Export Market Shares United States 76.9% 77.7% 80.2% 78.8% 81.3% 81.8% Mexico 3.6% 3.9% 4.3% 6.3% 5.2% 4.7% Japan 4.1% 4.3% 3.5% 3.1% 3.6% 3.8% Philippines 0.5% 0.5% 1.1% 1.2% 1.1% 1.7% Source: Global Trade Atlas 10 | Page
Posted: 21 October 2012

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