Frozen Potatoes Market Overview

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Frozen Potatoes Market Overview

This report provides insights on recent challenges, disruptions, and events in the frozen potato industry in Canada and North America. The research team found that crop shortages combined with high demand are stressing the supply of frozen potatoes for processing, which is increasing prices. In addition, production capacity of frozen potatoes is now higher than ever. Full details are included below.

Insights on Crop Shortages in the Canadian and North American Potato Industry

  • The price of potatoes could increase in 2020 based on 2019 seeing the highest number of unharvested potatoes in Canadian history. While the planted crop of 360,000 acres was 3.7 percent higher than in 2018, 20,000 of those acres went unharvested due to climate issues. The harvest was well below what the industry planned for.
  • The price of French fries in particular could increase as the Canadian harvest was hoped to offset the American harvest, which produced smaller potatoes than normal. Larger potatoes are needed for French fries.
  • With potato production down in the U.S., prices are significantly higher for processing plants that produce frozen potato products. Potato growers are able to make $12.23 per hundred pounds in February 2020, compared to $6 in February 2019. Most of the profit comes from the fresh market.
  • 2019 was the second year in a row that the Canadian potato harvest was affected by a difficult climate, contributing to an ongoing shortage.

Insights on Challenges with High Demand for Frozen Potatoes

  • U.S. potato imports and exports have increased by 53 percent in the past 10 years. Processors are importing more potatoes from Canada due to being unable to keep up with demand through domestic supply.
  • In the last 20 years, U.S. potato exports have increased by 121 percent, largely as a result of increased frozen potato demand.
  • The price of frozen potatoes in Canada increased by 17 percent from December 2018 to December 2019 as a result of shortage and demand.
  • North American production capacity expanded by 8 percent between October 2018 and December 2019. Most of the result of this expansion will be seen in 2020, at which time demand for potatoes to process will be increased.
  • While the shortage is significant and demand is high, producers are widely reporting that there are enough potatoes to process to meet demand once imports and existing inventory are taken into account.
  • Any negative effects from the crop shortage and high demand from 2019 will affect the supply of frozen potatoes for processing more than any other potato market, according to Rachel Atkinson-Leach, category and brand manager with the Bancroft, Wis.-based Russet Potato Exchange Inc.

Insights on Additional Disruptions and Events in the Frozen Potato Market

  • There has been a recent movement amongst industry leaders to motivate the Philippines to remove a 10 percent tariff on frozen potatoes established in 2019. If removed, industry leaders estimate fry imports from the U.S. would increase from $5 million to $10 million in 2020. The Philippines is the fifth-largest market for U.S. fries. If the tariff isn't removed, prices could go up for consumers.
  • Kraft-Heinz is considering the sale of Ore-Ida, a frozen potato product line, to pay down its debt. The brand is estimated to be worth $1.5 billion to $2 billion. Potential buyers are Conagra and Lamb Weston.
  • McCain Foods Canada is increasing its French fry production in New Brunswick, Canada. In 2019, it invested $12 million to expand its facility in two phases, with the second phase completing in early 2020.
  • The McCain expansion, combined with its $65 million expansion in New Brunswick in 2017, is the largest capacity expansion investment in Canada in nearly 10 years.
  • U.S. potato farmers are celebrating the signing of the USMCA under President Trump. The bill is anticipated to ease restrictions on the amount of agricultural products, including potatoes, that can be sold in Canada. It isn't yet known how much an impact the bill will have on the potato markets.


Sources
Sources

Quotes
  • "Data released Friday by Statistics Canada shows that more than 360,000 acres of potato crops were planted this year – a 3.7 per cent increase over last year – but more than 20,000 of those acres could not be harvested. There has not been a year where more than 20,000 acres went unharvested since StatCan started compiling that data in 1985."
  • "French fries are particularly at risk because they are made with larger potatoes, while the potatoes that have been harvested in the U.S. have been smaller than normal, according to Bloomberg News."
Quotes
  • "In a report released last year, the National Potato Council (NPC) said the US exports of frozen fries to the Philippines would expand by as much as $5 million to $10 million if the latter would maintain a zero-percent tariff."
Quotes
  • "Based on current projections, Idaho potato growers should be making about $12.23 per hundred pounds of potatoes sold right now, Huffaker said. This time last year, they were making closer to $6."
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  • "Charlebois says that the price of fresh potatoes has gone up by 20 per cent over the last year, with frozen potato prices increasing 17 per cent. He adds that this is the second year in a row where producers have faced hardships due to the weather."
Quotes
  • "Kraft Heinz has hired investment bank Evercore Partners to prepare a potential sale of its Ore-Ida brand, people familiar with the situation told CNBC. The brand could fetch roughly $1.5 billion to $2 billion, the people said, cautioning the process is still early and valuation is subject to buyer enthusiasm."
Quotes
  • "U.S. potato exports and imports have both increased by 53% in the last 10 years. Fresh potatoes are entering the U.S. from Canada, the European Union and China because the U.S. is not able to supply full domestic demand. U.S. potato exports have increased 121% over the last 20 years, primarily driven by frozen potato products."
Quotes
  • "McCain Foods Canada, a division of McCain Foods Ltd., Canada, announced plans to invest $12 million in its potato processing facility in Florenceville, New Brunswick, Canada. This investment will add capacity to an existing line that produces French fries for the company’s foodservice and retail business. The expansion will be completed in two phases—one starting in August and the second phase completing the project in early 2020."
Quotes
  • "Mr. MacIsaac said that although the shortage was significant and the demand for fried potato products had been rising in recent years, it was unlikely that people would feel the shortage at their favorite fast food spot. "
Quotes
  • "Whatever pressure occurs will come from the frozen side, said Rachel Atkinson-Leach, category and brand manager with the Bancroft, Wis.-based Russet Potato Exchange (RPE) Inc."
Quotes
  • "In the midst of major upgrades at plants elsewhere in its network, McCain budgeted $65 million in 2017 for a 35,000 square foot specialty production line at the Florenceville plant. The company at the time described that development as its largest capacity expansion investment in Canada in nearly 10 years."
Quotes
  • "The agreement grants the U.S. tariff-free access to the Canadian dairy market, and U.S. farmers can now sell more of their agricultural products in Canada without being subject to Canadian limits on imports of some products, AP reported. Xiaoxue Du, a University of Idaho professor in the Department of Agricultural Economics and Rural Sociology, told the Idaho Press in an email that the new pact will help Idaho’s dairies, wheat industry and potato farmers, but she is not yet sure by how much."
Quotes
  • "That is roughly an 8 percent expansion in about 16 months. When the new lines operate at capacity, they will use between 20 million and 21 million cwt of potatoes per year."