POTATO FACTS May 6, 1997 Approved by the World Agricultural Outlook Board =========================================================================== POTATO FACTS is published twice a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. PTS-1. Printed copies of POTATO FACTS will be available in about three days. Subscriptions to the printed version of POTATO FACTS are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock number PTS. Supplemental tables for this report will be available within a week. =========================================================================== NOTICE: This release is a revision of the April 30, 1997, release of POTATO FACTS. The text box at the end of the file was omitted from the initial release. Winter Production Down, Spring Production Up Slightly The 1997 winter-season potato crop is forecast nearly 4 percent lower than a year ago at 3.2 million hundredweight (cwt). Harvested acreage was the same as a year ago in Florida and increased 16 percent in California. Yields were down from a year ago in both States with an overall decrease of 9 percent. A January frost in Dade County, Florida killed some acreage and reduced early yields. Despite decreased yields, good quality is expected in both States. The first estimate of the 1997 spring potato crop was 22.5 million cwt--up slightly from a year earlier. The increase came despite a 5-percent decrease in harvested area -- attributed to high stocks of fall potatoes and low overall grower prices. Overall, yields were up nearly 6 percent from last year, with most producing areas realizing gains. Fresh and Frozen Stocks at Record Highs Low prices and strong demand have disappearance at a record high 298 million cwt, 7 percent above the last 2 years. Processor use for the season through March is up 7 percent and was up 5 percent compared with March a year ago. However, despite record disappearance, last fall's record crop has pushed fresh potato stocks on April 1 to a record high 143 million cwt (23 percent above 1996). April 1 stocks represented 32 percent of all fall production, up 2 percent from last year. Stocks of all frozen potatoes on April 1 were nearly the same as a year ago. French fry stocks were up nearly 2 percent, while stocks of other frozen potato products were down 7 percent. Pacific and Mountain States continue to hold the largest share of U.S. french fry (70 percent of the total) and other frozen (62 percent of the total) inventories. However, East North Central and West North Central States have increased capacity and holdings of fries, accounting for 23 percent of total U.S. inventory on April 1, up from 18 percent a year earlier. Prices Down Significantly in 1996/97 The record crop last fall has caused grower prices to be 29 percent below year-earlier levels for the six-month period of September to February. Grower prices for fresh potatoes during this period averaged 50 percent below a year ago, while contracts with processors have helped prevent a similar plummet for processing potatoes. Though grower prices for fresh potatoes have dropped dramatically from last season, retail prices have not realized similar declines. While the Producer Price Index (PPI) for fresh potatoes was down 44 percent from year-earlier levels for the period of September through February, the Consumer Price Index (CPI) for fresh potatoes was down only 6 percent. Average retail prices for fresh potatoes during the period were down about 10 percent. On the processing side, fry contracts made prior to last season have helped sustain prices for processing potatoes. For the September to February period, grower prices for processing potatoes were down only 7 percent from a year earlier. The PPI for french fry processors is actually averaging slightly above a year ago, and retail prices are also slightly higher. However, with higher inventory and depressed prices for the fresh market this season, contract prices may be lower for the upcoming fall crop. Declines in Acreage and Production Likely This Fall Based on preliminary estimates of current season prices, the Economic Research Service projects planted acreage for 1997 (all seasons) to be 5 percent below last year. If this forecast turns out to be accurate, and trend yields and average acreage abandonment are realized, total production for 1997 would be about 455 million cwt, down nearly 8 percent from 1996. The United States Department of Agriculture's first official estimate of planted acreage for fall potatoes will be released in July, and will give us a clearer indication of production, prices, and trade potential in the coming year. Potato Trade Surplus Decreases in 1996 Despite a large crop in the fall of 1995, overall U.S. exports of potatoes and potato products (fresh-weight basis) in calendar year 1996 declined from 1995 levels, while imports rose. Slight gains in fresh and frozen potato exports were offset by declines in potato chips and dehydrated products. Higher U.S. grower prices during the 1995/96 season combined with strong output in Canada and improved production in Europe to negatively impact U.S. potato trade flow. Though potato export volume was down nearly 7 percent, higher prices helped minimize the decline in total export value. Potato exports were valued at $613 million (down 1 percent from 1995), while imports were valued at $242 million (up 34 percent). Increases in potato imports can be largely attributed to the entry of fresh and frozen potato products from Canada. Large Canadian raw potato production, combined with increasing processing capacity, has boosted exports to the United States in recent years. In addition, Canadian processors have recently been awarded large contracts to supply U.S. fast-food chains with french fries. Increasing imports from Canada have again raised trade dispute issues, and have led to a fact-finding investigation by the International Trade Commission (ITC) at the request of the United States Trade Representative (USTR). Some of the factors being examined include Canadian aid for construction of storage, water treatment, and processing facilities, changes in exchange rates, and production costs. A report will be issued on July 15, 1997. Increased imports from Canada have stirred trade-dispute issues in the past (see the November 1996 issue of Potato Facts for a brief description of other trade dispute issues). For a closer look at U.S./Canada potato trade since the United States and Canada Free Trade Agreement (USCFTA) and the North American Free Trade Agreement (NAFTA), see the box below. Though still the most predominant item in potato exports, the upward trend in french fry exports seems to be slowing. French fry export volume was up less than 3 percent in 1996, a marked decline in growth from recent years. Export markets in North America, Japan (where U.S. fries account for an estimated 75 percent of total supply), and the Pacific Rim continued strong in 1996. However, strengthened production in the Netherlands and other European countries caused dramatic decreases in exports to Europe. Trade Outlook for 1997 With excellent production in both Canada and Europe in the fall of 1996, competition for export markets for potatoes and potato products could be tight well into 1997. However, low prices for U.S. potatoes may help to boost quantity exported, but may cut into profit margins. For the first 2 months of 1997, fresh and seed potato export volume rose 15 percent from a year ago (value declined 18 percent), while frozen exports were up 32 percent (value was up 33 percent). -- Box begins -- Update on U.S./Canada Trade Prior to USCFTA, U.S. tariffs were .77 cents per kilogram on all fresh and seed potatoes, 17.5 percent on frozen potatoes, and 10 percent on frozen french fries, potato chips, and other prepared potatoes. Before USCFTA, the Canadian tariff on fresh and seed potatoes was $7.72 per metric ton, and the tariff on frozen french fries and other prepared potatoes was 10 percent. With USCFTA (enacted in 1989), the U.S. and Canadian tariffs on fresh and processed potatoes are being phased out until falling to zero in 1998. USCFTA includes a snapback to Most Favored Nation tariff levels until 2008 to protect producers of commodities hurt by trade. NAFTA had no effect on USCFTA agreements regarding potatoes. U.S. fresh and seed potato exports to Canada have trended up slightly since the enactment of USCFTA in 1989, with substantial variation ranging from a low of 292 million pounds (in 1991) to a high of 584 million pounds (in 1994). Exports of frozen french fries surged in 1990 to 69 million pounds (product weight), up from 2 million pounds in 1989 and 1 million in 1988. Fry exports, however, fell in 1991, and have averaged 17 million pounds for the 1991-96 period. U.S. exports of potato chips have also benefited from the USCFTA. During the pre-USCFTA period of 1981-88, chip exports to Canada averaged 3 million pounds product weight per year. For the post-USCFTA period of 1989-96, chip exports to Canada averaged nearly 19 million pounds. U.S. fresh and seed potato imports from Canada have varied substantially since 1989, ranging from a low of 401 million pounds in 1992, to a high of 986 million pounds in 1996. The average for the 8-year period was 674 million pounds, 65 percent above the average for the 8 years prior to USCFTA (1981-88). Traditionally, a large percent of the imported fresh potatoes from Canada have come from Prince Edward Island (PEI), and have been distributed primarily along the East Coast of the United States. Shippers throughout the United States have noticed stiff competition from PEI in eastern markets in recent years. Increased fresh and seed imports from Canada in recent years are due to several strong Canadian crops, the weak Canadian dollar, poor yields in Maine during several years, and strong overall demand and prices in the United States. Total french fry imports from Canada have steadily increased since USCFTA. In 1988, fry imports from Canada were 101 million pounds (product weight). In 1989, fry imports fell to 94 million pounds, but then rose steadily to 423 million pounds in 1996. The majority of imports currently come from Eastern Canada, where processors have benefited from the exchange rate, as well as transportation cost advantages over competing firms in the Pacific Northwest in shipping to several East Coast markets. However, Manitoba (a province in mid-western Canada) is also a fast-growing potato and french fry producing/exporting region benefiting from exchange rates and a central location to large U.S. markets. Other potential factors for expanding exports are being examined in the ITC investigation. If it is ultimately concluded that no changes need be made to current trade policies/agreements, french fry imports from Canada will likely continue to increase in 1997. -- Box ends -- For more information, contact Charles S. Plummer (202) 219-0717. END_OF_FILE