DOMESTIC AND TRADE TRENDS IN THE U.S. POTATO INDUSTRY

U.S. POTATOES: PRODUCTION IN LEADING STATES

• Potatoes are grown commercially in every state in the U.S. However, over the past few years, the top ten states have consistently accounted for 88 percent of output.
• Since the 1950's, the bulk of U.S. potato production has gradually shifted to the Western states. The three general types of potatoes grown extensively in the U.S. are white, red, and Russets. Russet potatoes account for about two-thirds of the U.S. crop and are heavily concentrated in Western States.
• Potatoes are especially important to farm economies in Maine and Idaho, accounting for about 50 and 35 percent of their cash farm receipts.

U.S. POTATO UTILIZATION

• Over the years, the percentage of the potato crop used for processing has steadily increased.
• In 1959, only 19 percent of the crop was processed. In 1997, about 57 percent of the crop was processed. Now, only 28 percent sold as fresh table stock.
• Processors used over 268 million cwt of potatoes from the 1997 crop, of which 61 percent was frozen (mostly as fries), 18 percent was chipped, 18 percent was dehydrated, and the remainder canned or used to produce starch or flour.

THE UNITED STATES REMAINS A NET EXPORTER

• Although the U.S. is an overall net exporter of potatoes and potato products, imports have increased in recent years.
• Much of the increase is due to rising imports of fries from Canada, where the frozen potato industry has grown rapidly.
• Canadian fry plants alone have added 500 million pounds of new capacity in the last two years.
• The Canadians have four advantages:
  economies of scale;
  lower raw material costs;
  the exchange rate; and
  lower shipping costs to Eastern U.S. markets from Eastern and Midwestern provinces.

U.S. POTATO EXPORTS

• U.S. potato exports comprise four principal categories - frozen, potato chips, fresh, dehydrated and other (prepared/preserved and flour/starch).
• Exports of frozen potato products have gradually increased to become approximately one half of total U.S. potato exports by value. Fries account for about 95 percent of frozen potato exports.
• Exports of potato chips, like fries, are growing, accounting for a about one third of total U.S. potato exports.
• Exports of fresh potatoes (tablestock and seed) have increased slightly over the years but are still hampered by low product value and phytosanitary barriers. Most of the tablestock and seed potatoes are exported to Canada.
• The export market for dehydrated potatoes has grown consistently. Most of these products are exported to the Asian markets.

U.S. FRY EXPORTS VERSUS COMPETITORS

• Total world trade for frozen potato products is estimated at about 2.3 million metric tons for 1998/99. Frozen potato product exports from the 3 major export countries, the U.S., the Netherlands, and Canada, are forecast at a record 2.1 million metric tons, or over 90 percent of total world trade.
• Other exporters are France, Belgium, Germany, Argentina, and Australia.
• Production in France and Belgium has grown steadily over the years as the Dutch shift their operations to areas of lower cost of production.
• The Netherlands remains the world's largest exporter of frozen potato products, accounting for over half of world trade. About 95 percent of Dutch exports go to other countries in the European Union. The strong growth of American fast food chains in Europe continues to have a very positive effect on the (export) demand for Dutch fries. Other export markets include Latin America and the Middle East.
• The Dutch source about 30 percent of their potato stock from Belgium and Germany.
• The second largest exporter of frozen potato products is Canada which for the second consecutive year has surpassed U.S. exports.
• The trade anticipates fry production to exceed one million metric tons by the year 2000 as U.S. and Canadian processors continue to invest heavily in new potato processing plants in Canada's western provinces.
• Canada exports approximately 85 percent of its fries to the U.S. Other export markets include Japan, Malaysia, and Latin America.
• The U.S. is the third largest exporter of frozen potato products, accounting for a little under 20 percent of world trade. Its markets are primarily Asia and Latin America.

U.S. FRY EXPORTS REACHED A RECORD

• Markets remain hot for frozen fries as more quick-serve restaurants around the world lure new customers.
• Exports have climbed 130 percent since 1991.
• Today, nearly one in three U.S. potatoes is sliced into fries, and around 15 percent of the fries from domestic and imported spuds go to foreign markets.

U.S. FROZEN POTATO EXPORTS AS A PERCENTAGE OF DOMESTIC PRODUCTION

• Since 1991, U.S. frozen potato exports as a percentage of domestic frozen potato production have increased more than two-fold to almost 15 percent.
• Exports as a percentage of domestic production for other selected horticultural crops is:
  almonds 75%
  walnuts 51%
  fresh grapefruit 40%
  lemons 27%
  wine 10%

What's Behind the Export Boom

• Expansion by international fast food industry
• Product quality
• Market promotion efforts
• Tariff reductions
• Rising incomes
• Growing consumer awareness

Export Prospects for U.S. Fries

• Export prospects for the next decade are very promising given the sustained and continued expansion of the fast-food industry abroad.
• Further tariff cuts under trade agreements are anticipated.
• Low per capita consumption of fries in overseas markets is a strong indication of future demand.
• In the U.S., per capita consumption is 60 lbs. (fresh equivalent), more than triple the amount in 1965. About 80 percent of the frozen products are fries.

U.S. FRY EXPORTS BY REGION

• In Asia, the largest market is Japan, accounting for over 63 percent of the export sales.
• Lining up behind Japan is S. Korea, China, and Taiwan.
• Latin America is relatively a new market; the largest markets are Mexico, with a 70 percent share, followed by Chile, Argentina, and Brazil.
• In the European Union, the largest market is the United Kingdom, accounting for about 85 percent of the exports.
• Much of the product exported to Canada is reexported.

TPO FIVE MARKETS FOR U.S. FRIES

• Our No. 1 customer by far is Japan, where more than 5,000 hamburger outlets in Japan (most representing U.S. chains) are helping to cultivate the taste for fries.
• Lining up behind Japan are several other East Asian markets and NAFTA partner, Mexico.

U.S. HORTICULTURAL EXPORTS TO ASIA

• U.S. horticultural exports to Asia in 1997/98 were down for most of the product categories except for wine and fries.
• The decline in exports came about for several reasons:
  - the strong U.S. dollar against many currencies;
  - Japan's economic recession; and
  - the economic crisis in Asia.

U.S. POTATO CHIP EXPORTS

• Sliced or extruded, bagged or boxed, traditional or flavored, potato chips are taking a big bite out of the growing world market for snacks.
• The emergence of a significant export market is a fairly recent phenomenon. In 1989, U.S. potato chip exports worldwide were valued at a mere $19 million--small potatoes by most standards.

What's Behind the Growth in U.S. Potato Chip Exports

• Entry into the market of major U.S. snack food companies, e.g. low fat/olestra type products, potato crisps
• Regional shortages of chipstock potatoes
• High quality of U.S. product vs. domestic products
• General trend toward more snacking
• Attraction among younger consumers to products identified with American lifestyles and tastes
• Tariff reductions

How the Future Stacks Up for U.S. Potato Chip Exports

• Export prospects still very promising but the dramatic gains of the past decade are not expected given the following market conditions:

-establish overseas plants; Increased competition for local manufacturers and U.S. chip makers who

- potato chips are a trendy product; and
- the Asian financial crisis

• Strong growth opportunities are expected in specialty chips--new flavors, lower fat, no-fat, and low salt products, and natural and organic chips.

U.S. POTATO CHIP EXPORTS BY REGION

• Canada reigns as the world's largest U.S. potato chip market.
• In Asia, the largest market is Japan, accounting for about 40 percent of the export sales. Several factors have contributed to this rapid growth: expansion into major supermarkets accompanied by heavy advertising.
• Other promising markets in Asia include Taiwan, the Philippines, Korea, and China.
• In Latin America, the largest market is Mexico accounting for over 60 percent of the export sales.
• Other promising markets in Latin America are Brazil and Argentina.
• In Europe, Belgium, Germany, France, and Switzerland account for most of the sales.
• In the Former Soviet Union, Russia accounts for 95 percent of sales.

TOP FIVE MARKETS FOR U.S. POTATO CHIPS

• Exports to Canada have been fairly steady, ranging between $20 million and $30 million annually from 1991 to 1996. The spurt in exports in 1997 was due to stepped-up promotional advertising.
• The major reason for the slowdown in exports to Japan is the strengthening of the U.S. dollar against the yen. Another factor relates to the faddish nature of the Japanese market, as well as the role of fads within the snack food sector itself.
• Although sales virtually collapsed after the peso devaluation in 1994, sales have rebounded with the recovery of the Mexican economy and consumer purchasing power.
• The decline in U.S. exports to Taiwan is largely due a U.S. company building a processing plant for its potato crisps. On the up side, additional demand has been generated for U.S. potato flakes for making extruded potato crisps.

Market Access Program

• Assists in funding trade organizations and companies in development, maintenance, and expansion of agricultural commodities.
• Finances activities including consumer promotions, market research, technical assistance, and trade servicing.
• $90 million allocated in the 1998 program year, distributed among 73 trade organizations.
• Since 1986, first under the Targeted Export Assistance (TEA) Program and then under MAP, the USDA has allocated about 1.8 billion to U.S. agriculture.
• The commodities include apples, wheat, poultry meat, forest products, soybeans, dairy products, and potatoes.
• $90 million will be allocated for the 1999 program year with allocations to be announced to be announced in April.

MAP Allocations to the Potato Industry

• The National Potato Board is the main recipient of MAP funds promoting frozen potato products in Asia and in Latin America.
• The California Agricultural Export Council uses MAP funds to promote its new potatoes in Canada.

U.S. FROZEN POTATO PRODUCT EXPORTS BENEFIT FROM MAP FUNDS

• MAP funding allocated to the National Potato Board in 1998 was nearly $1.6 million, most of which was budgeted in Asia.
• MAP allocations to the National Potato Board since 1986 exceed $34 million.
• Since 1986, first under TEA and then MAP, U.S. frozen potato exports have increased five-fold to $343.7 million in 1998.
• At the same time, the percent of TEA/MAP funding to exports has fallen from more than 3 percent in 1986 to less than 1 percent in 1998.

National Potato Board's Strategy for Frozen Potato Products

• Mostly consumer oriented targeting international fast food chains.
• More recently, mostly in Asia, the Board is focusing more of its attention on the food manufacturing industry and family dining restaurants.
• Its long-term strategy is to increase awareness and use of frozen dices, dehydro-frozen dices, and slices among food manufacturers.
• Among the family dining restaurants, its strategy is to increase awareness and use of specialty cuts and battered products in addition to traditional fries.

Types of Activities Used to Promote U.S. Frozen potato products

• Trade Advertising
• Merchandising
• Cooperative Sales Promotions
• QSR/FDR Promotional Contests
• Newsletters
• Fry Station Management Seminars
• Testimonial Videos
• Industry Tours
• Program Evaluations

Export Services at the Potato Industry's Fingertips...

• Trade Shows
• Trade Leads (Foreign Buyers/U.S. Suppliers)
• Market Reports
• Subscription Magazines and Newsletters
• Export Credit Assistance
• Export Promotion Program
• On-line Information Access via Internet
  
  FAS Home Page on the Internet: http://www.fas.usda.gov/htp/

For more information contact Ted Goldammer at (202) 720-8498.

Last modified: Tuesday, May 08, 2001