By John Saulnier, FFB Editorial Director
FrozenFoodsBiz.com (FFB) extends Season’s Greetings and warm wishes to all of our readers around the globe as we bid farewell to 2018 and ring in the New Year. May 2019 bring good health, peace, prosperity and happiness to one and all.
With the calendar about to turn over a new page and thus present a clean slate for us all, let’s pause to remember the dearly departed while looking forward to better days for those who carry on. Indeed, the international frozen food sector has lost too many of its best and brightest during the past 12 months, and to those friends of the FFB team and contributors to the cause, a glass of champagne will be raised in their honor when the clock strikes midnight on December 31.
As it happens, I am writing this while winding down the old year on Hainan Island, where summertime is endless and the sounds John Lennon’s “So this is Christmas” song and traditional Yuletide carols join the swish of gentle surf from the South China Sea in a beachfront serenade.
The southernmost province of China is known among locals as the “Eastern Hawaii,” as it lies virtually along the same latitude as the USA’s Aloha State in the mid-Pacific Ocean. Hainan’s tropical sea breezes are refreshing and the current 27°C temperature reading is much preferred to the cold climate of the New York neighborhood where I am usually found during this time of the season.
Here coconuts, bananas, lychees, papayas, pineapples and other tasty tropical fruits are abundantly harvested year-long, and the extraordinarily wide variety of seafood landed daily is very delicious and highly nutritious. Then there’s the oh so delectable Wenchang Chicken, a traditional favorite that bests KFC’s Colonel in the battle for share of stomach among the native population as well as Han Chinese transplants and holiday makers from the mainland. The Kentucky thoroughbred quick service restaurant chain, which ranks as the leading Western-style fast food operator in the PRC with over 5,000 units in approximately 1,100 cities, has successfully conducted business in China since 1987. Its main rival, global QSR giant McDonald’s, operates 2,500 outlets nationwide.
Fries Fly High
Common menu fare at both KFC and McDonald’s, of course, are french fried potatoes supplied to operators in frozen form to guarantee consistency of quality and size. Not too long ago this market was pretty much an exclusive preserve of exporters from North America — chiefly Lamb Weston, Simplot and McCain. In recent years European competitors have carved out a piece of the action, and today a growing volume of home-grown supply from domestic companies has entered the pipeline.
Simplot and McCain have been packing frozen french fries and other value-added potato products in China for decades, well before European producers came on the scene to invest in plants. Interestingly, Steenderen, Holland-headquartered Aviko is just now pulling out of a joint venture with Snow Valley Agriculture. It held a 51% majority stake in the enterprise, which has produced frozen french fries and other products since 2014. A new potato processing facility in Zhangjiakou, Hebei Province, with annual output capacity of 150,000 tons, was scheduled for completion this fall.
“Both partners concluded that their views on the growth in the Chinese market differ to such an extent that there is too little basis to continue successfully together,” explained Aviko parent company Royal Cosun in an official statement.
Termination of the agreement requires approval from Chinese authorities, which is expected to occur by the end of the year. Meanwhile, the Dutch company will continue to do business in the PRC.
The Royal Cosun statement concluded: “Aviko will pursue its growth ambition in China on the basis of alternative sourcing lines.”
GAIN Posts Solid Gains
According to a recent GAIN Report written by Abraham Inouye and published by the USDA’s Global Agriculture Information Network: “Frozen french fry production will jump to 290,000 metric tons in MY2018/19, a 15% year-on-year increase resulting from added processing capacity. Conversely, China’s imports during that period are forecast to decrease 10% to 115,000 metric tons because of additional tariffs placed on US frozen french fry exports to China, reduced European supply and growing domestic production.”
China is the world’s largest potato producer, claiming approximately 25% of global output. The MY2017/18 harvest was predicted to hit 94 million metric tons, sourced from four geographical regions. Sichuan, Gansu, Guizhou, Yunnan and Inner Mongolia rank as the largest potato growing provinces, yielding 60% of total tonnage. Processing spuds, which are harvested in September and October and account for 15% of all production, are forwarded to french fry factories situated mainly in the Northern Single Crop Zone.
“Due to increasing demand for frozen french fries, China’s potato processing industry is building additional capacity in Inner Mongolia,” noted the GAIN Report. “In the PRC there are less than 10 frozen french fry processing lines and the addition of a new line will noticeably increase capacity. It is expected to begin production in MY2018/19.”
Owing to its rising popularity as a side dish for burgers, chicken and fish, and as a snack option, the future looks quite positive for ongoing rising consumption of fries at a moderate pace.
“Continued urbanization and the increasing number of fast food restaurants (the primary channel for fries) are major contributors to consumption growth,” assessed the GAIN Report. “Industry sources also report that the sale of frozen french fries at convenience stores and supermarkets has increased rapidly in recent years, with more and more Chinese consumers preparing fries at home as a result of food safety and health concerns.”
Impact of Tariff Tiff, Drought
Frozen french fries have not been exempt from the United States-China trade war. The PRC added a supplemental 5% import tax on US imports in September, which could lead to a reduction in sales and a further erosion of US market share. The subsequent price rise was relatively “small potatoes,” however, considering that the implementation of supplemental tariffs applies to $60 billion worth of imports from the US.
European exports to China are expected to decline in the near term due to a supply crunch following a severe summer drought that reduced potato harvests across much of the continent’s northern potato belt.
The GAIN Report summed up the foreign supply situation as follows:
“Although the United States continues to be the largest frozen french fry exporter to China, its market share is declining due to the competitive pricing of European imports. According to China Customs, the United States accounted for 43% of China’s total imports during September 2017-March 2018. This is down substantially from the past three marketing years, when the market share was 65%, 71% and 70%, respectively.
“On the other hand, the market share of imports from Belgium and the Netherlands increased to 20% (from 12%) and 16% (from 4%), respectively, during September 2017-March 2018. According to China Customs, Belgium’s frozen french fry imports were priced 32% cheaper than US-origin imports in the first quarter of 2018, which was prior to the imposition of additional Chinese import tariffs.”
Meanwhile, China’s exports of frozen french fries during MY2018/19 are expected to weigh in at about 7,000 metric tons. That’s an approximate 12% reduction from the estimated 8,000 metric tons the year before, due to predicted lower supplies.
“China regularly imports frozen french fries, repackages them and then re-exports them to third countries,” noted the GAIN Report. “Japan continues to be the largest destination market, accounting for 63% of China’s total exports in the first seven months of MY 2017/18.”
While wrapping up this FrozenFoodsBiz BUZZ column, the writer hears the echo of John’s Lennon’s eternal Christmas gift to mankind, and imagines that the musical and lyrical genius would not object to the addition of a few wishful words to the parting verse of his song:
A very merry Christmas
And a happy New Year
Let's hope it's a good one
Without any fear
Trade War is over
If you want it
Trade War is over
American exporters of frozen french fries and other products to China will likely sing along with this tune.
Happy New Year dear reader, once again, from the FrozenFoodsBiz crew!