Potato Biology and Biotechnology: Advances and Perspectives

Kingdom

Part I

The markets

Outline

Chapter 1: The Fresh Potato Market

Chapter 2: Global Markets for Processed Potato Products

Chapter 3: The seed potato market

Chapter 1

The Fresh Potato Market

Iain McGregor,     SAC, Auchincruive, Ayr KA6 5HW, United Kingdom

Publisher Summary

Potato has arguably revolutionized western society as much as trains, planes and automobiles. It has been and still is a delicacy, a fast food and a hedge against famine. This chapter reviews the market for fresh potatoes largely within the UK, a market that is generally accepted as one of the most sophisticated potato markets worldwide. The importance of potatoes within the UK’s agricultural industry and how the crop compares with other crop enterprises are summarized. Potato growing produces a much higher value crop per hectare than cereal enterprises, but potato growers face much greater fluctuations in the level of prices and revenue as mentioned here. The increases in yield have only been possible as a result of improved agronomy and crop management skills which have developed in line with increasing concentration and specialization among growers in the UK. The chapter details on the supply and disposal of potatoes in GB and indicates the annual variation between components. It provides details of the retailer share of the fresh potato market by volume and value in the UK. Typically, supermarkets now work with one major packer/supplier supplemented by one or two secondary packers. There are shifting patterns in potato consumption in the home. Expenditure and consumption part covers this aspect. The consumers’ view summarizes the opportunities (good news) and threats (bad news) for the fresh potato sector as it stands at the time of writing.

The potato has arguably revolutionized western society as much as trains, planes and automobiles. It has been and still is a delicacy, a fast food and a hedge against famine. This chapter will review the market for fresh potatoes largely within the UK, a market that is generally accepted as one of the most sophisticated potato markets worldwide.

1.1 INTRODUCTION AND OVERVIEW

The importance of potatoes within the UK’s agricultural industry and how the crop compares with other crop enterprises are summarized in Table 1.1. The potato sector contributes £482 million in total to food and agricultural output in the UK (Table 1.2) and represents the second most important crop economically after wheat.

Table 1.1

Agricultural output in the UK at current market prices (£ million).

Note: Calendar-year accounts.

Source: DEFRA, 2006a.

Table 1.2

Output from potatoes in the UK, 1999–2005.

‘Change’ denotes percentage change between 2004 and 2005.

Source: DEFRA, 2006a.

Potato growing in the UK accounts for an area equivalent to approximately 5% of the cereals’ area. Yet its contribution per hectare to the agriculture industry’s revenue is more than seven times that generated by cereals. Potato growing produces a much higher value crop per hectare than cereal enterprises, but potato growers face much greater fluctuations in the level of prices and revenue as mentioned in the section 1.7.

According to the calendar-year accounts of the Department of the Environment and Rural Affairs (DEFRA) between the mid-1990s and 2005, the value of output from the potato sector fell by 41% albeit with significant fluctuations in output during the intervening years and the cereal sector’s receipts fell by a similar amount (43%) over the same period.

1.2 PRODUCTION

Although the registered planted area of potatoes has declined from around 250 000 hectares in the early 1960s to 116 400 hectares in 2005 (Fig. 1.1), gross production over the same period has remained relatively constant at around 6 million tonnes (Fig. 1.2). The fresh supply chain accounted for around half of this (49%) at 2 958 000 tonnes in 2004–05.

Fig. 1.1 Registered area of potatoes in Great Britain, 1960–2004 [with permission of British Potato Council (BPC, 2006), Market Information and Statistics].

Fig. 1.2 Total production of potatoes in Great Britain, 1960–2004 [with permission of British Potato Council (BPC, 2006), Market Information and Statistics]. Since 1960, total production in Great Britain has remained at about 6 million tonnes. Annual fluctuations are mainly due to weather – see drought of 1975–76. Yield per hectare has increased steadily compensating for decreasing planted areas.

In 2005, plantings were 4% down, average yields were 2% down and the associated production figure of 5.65 million tonnes represented the lowest production figure recorded in the UK since 1984. With significant annual variations in value due, among other things, to weather patterns, the underlying trend in average yield has been an increase from around 23 tonnes per hectare in 1960 to around 47 tonnes per hectare currently (Fig. 1.2). This information, including a breakdown between early and maincrop varieties, is available in more detail on the web site of the British Potato Council (BPC) at http://www.potato.org.uk/. The increases in yield have only been possible as a result of improved agronomy and crop management, skills which have developed in line with increasing concentration and specialization among growers in the UK.

One may question whether it was as a result of these improved yields that production has remained relatively stable despite the significant reduction in the area planted or was it the rising yields that enabled lower prices and led to the reduction in planted area or, thirdly, was it lower prices that forced the smaller producers from the market.

Grower numbers in Great Britain (GB) have declined dramatically over the last 45 years and continue to decline year on year as the trend in specialization and concentration continues. To illustrate the scale and significance of the industry shakeout, the author points out that in 1960 there were 76 825 registered growers in the country whereas in 2005 only 3064 (4%) remain. The average area planted per grower is now around 10 times more than it was back in 1960 (Fig. 1.1). In 2005 the average planting per grower is 38 hectares compared with 3.65 hectares in 1960. The trend in concentration at production level continues to gain momentum illustrated by the fact that in 1996, 28% of registered growers were within the 20-hectare-plus size band. Almost 10 years later in 2005, 50% of growers are within the over 20-hectare size band (Table 1.3).

Table 1.3

Distribution of British Potato Council (BPC)-registered growers by size band

From 1996 to 2002, growers planting 1 ha or more are included. From 2003, only growers with 3 ha or more are included.

(with permission of BPC, 2006, Market Information and Statistics).

Variety choice for the ware market as summarized in Table 1.4 has changed very little over the years with the top 10 varieties grown accounting for two-thirds (66%) of the total national ware crop and with Maris Piper and Estima continuing to dominate the market in 2005, the former with 20% of the ware area and the latter with 13%. Maris Peer and the crisping variety Lady Rosetta swapped places in the 2005 rankings at third and fourth places, respectively. Marfona moved up a couple of places to the number eight slot probably on the back of continued demand from the domestic buyer and from the pubs and high-street cafes for good-quality baking potatoes.

Table 1.4

Top 10 varieties of ware potato, 1999–2005 (ha), from British Potato Council (BPC)-registered ware planting

(with permission of BPC, 2006, Market Information and Statistics).

Between 2000 and 2005 there has been a continuous change among the less frequently occurring varieties; for example, Hermes, King Edward (long-standing in the market), Osprey and Harmony all recently achieved higher proportions of the planted area, whereas Désirée, Cara and Maris Bard all declined in popularity. The second early Osprey variety is suited to the pre-pack and general ware market and may end up replacing Cara in the market. Harmony, with 1268 hectares grown for ware in 2005, is an early maincrop variety. Whether any of these changes will become progressive and ‘permanent’ remains to be seen.

Market research carried out by the BPC clearly demonstrated that many consumers want to know more about potato varieties. They were in agreement that more should be done to tell customers about the differing qualities of varieties – a King Edward compared with a Maris Piper for example. This is an area that will be explored in Section 1.6.

1.3 SUPPLY

Total consumption of potatoes in GB is around 6 million tonnes similar to the total GB supply. However, the figure for supply includes 18% waste and 7% seed supply so that the net GB supply is around 4.5 million tonnes. Processed products are the main import, totalling 1.3 million tonnes raw equivalent with some fresh imports for processing. Fresh ware imports and exports are nearly in balance, with a slight surplus (77 000 tonnes) on imports. The supply chains for fresh and processed potatoes are currently similar in volume. The volume of potatoes entering the fresh supply chain in GB is estimated by the BPC to have been 2.96 million tonnes in 2004–05. This represents almost half (49%) of the total GB consumption figure of 6076 tonnes. Figure 1.3 provides a schematic flowchart representing the several market components. Table 1.5 gives further details on the supply and disposal of potatoes in GB and indicates the annual variation between components. The proportions of the planted area that are intended for processing, pre-pack or other fresh variety have been fairly stable between 2000 and 2006, but there is a trend towards increasing fractions that are planted and grown under contract rather than without contract (free-buy) (Table 1.6).

Table 1.5

Annual balance sheet of Great Britain potato supplies and disposals, 1999–2004 (1000 tonnes)

‘Change’ is percentage change between 2003 and 2004.

aRaw equivalent.

[with permission of British Potato Council (BPC, 2006), Market Information and Statistics].

Table 1.6

Planted area by market sector, 2004–05 [with permission of British Potato Council (BPC, 2006), Market Information and Statistics].

Source: BPC.

Fig. 1.3 Flowchart for potato supply – figures for the 2004–05 crop year, in thousands of metric tonnes, raw equivalent [with permission of British Potato Council (BPC, 2006), Market Information and Statistics].

1.4 DEMAND

Shoppers in UK spent £819.38 million (Table 1.7) on fresh potatoes purchased from retail outlets in the year ending 18 June 2006. This showed a small reduction (2.2%) in the previous year’s total consumer outlay, although the quantity of potatoes purchased was up by 1.7% because the average price of potatoes in the fresh market was £0.52 per kilogram, down by 2 pence over the year. That change could be explained by the multiple retailers’ continuing quest to drive down prices.

Table 1.7

Retail potato sales by type – year to 18 June 2006 (includes all potatoes – home produced and imports) [with permission of British Potato Council (BPC, 2006), Market Information and Statistics].

Source: BPC/Taylor Nelson Sofres.

Over 80% of fresh potato sales are now made in supermarkets, 70% in the four biggest ones, and this gives the multiple retailers massive purchasing power and influence over the supply chain. Of course, this situation is not confined to the potato sector as in 2006, the four big grocery leaders (Tesco, Sainsbury, Asda and Morrison’s) control 75% of the £120 UK billion grocery market (Table 1.8).

Table 1.8

Retailer share of fresh potato market – year to 18 June 2006 (includes all potatoes – produced in Great Britain and imported) [with permission of British Potato Council (BPC, 2006), Market Information and Statistics].

Source: BPC/Taylor Nelson Sofres.

Altogether 1 588 459 tonnes of fresh potatoes were bought and 468 595 tonnes (29.5%) of these were sold by Tesco. The store’s sales showed a 5.0% increase in quantity over the previous year and were the largest among the supermarkets by a wide margin [Source: Taylor Nelson Sofres (TNS)].

Fresh potato sales are a large market but a relatively stable one. Some retailers are still experiencing growth in this sector, but this is largely at the expense of other retailers rather than overall growth. Increasingly, the supermarkets are turning to their suppliers for assistance in marketing potatoes, developing category management principles that have been seen for many years with fast moving consumer goods. Table 1.8 provides details of the retailer share of the fresh potato market by volume and value in UK.

As the supermarkets have grown their market share, their associated specialist supplier/packers have developed in parallel. Between the years 2000 to 2006 there has been continued concentration through mergers and acquisitions within both the multiple-retail sector and the packing industry. In UK now, four major multiples control three-quarters of the fresh market. As the retail multiples continue to rationalize their supply base, the number of specialist packers declines. Typically, supermarkets now work with one major packer/supplier supplemented by one or two ‘secondary’ packers. Table 1.9 summarizes this point.

Table 1.9

UK Retailer/packer alliances (Potato Newsletter, March 2006).

Note: This is a fluid situation and represents a best estimate at time of writing only.

During 2004 and 2005, multiples such as Tesco and Sainsbury’s re-evaluated and streamlined their supplier base, dropping some groups to sign more exclusive contracts with others. For example, at the beginning of 2005, Sainsbury’s cut its potato suppliers to just three: Greenvale AP, Boston-based Naturally Best Packing (Formerly Hoche International) and QV Foods. According to the supermarket chain, such streamlining means a better position for improving efficiencies.

The suppliers gaining such contracts have the advantage of additional security, although it does mean that they are reliant on a narrower customer base. The need for critical mass to effectively supply the multiples has also driven activity. The grouping together of companies to form strategic alliances has been a feature of the fresh produce sector since the late 1990s. These deals allow smaller producers to gain greater bargaining power with their customers or to provide a wider or less-seasonal product range. An example of such a trading arrangement is the Perthshire-based growers’ group Taygrow, who dedicate their total potato crop of approximately 80 000 tonnes from 1620 hectares to Taypack, one of three UK potato suppliers to Asda supermarkets. There is a mutual commitment between Taygrow members, Taypack and Asda. Taygrow potato producers have a guaranteed market, whereas Asda has a guaranteed long-term and reliable potato supply.

Pre-packed fresh potatoes are much preferred, outselling loose fresh potatoes by six to one in quantity (Table 1.10), but loose potatoes have a higher average selling price of 77 pence per kilogram compared with 48 pence per kilogram for pre-packed so that the ratio of values of pre-packed potatoes to loose ones is only 4:1. Pre-packed potatoes are purchased by more households, with only 7 of 10 households buying loose potatoes in the course of a year.

Table 1.10

Fresh potato sales by pack type – year to 18 June 2006 (includes all potatoes – produced in Great Britain and imported) [with permission of British Potato Council (BPC, 2006), Market Information and Statistics].

Source: BPC/Taylor Nelson Sofres.

There are progressive changes in both value and quantities of constituent parts of the fresh market. ‘Organic’ potatoes continue to show the largest increase in market value at 12.6% year on year, with pre-packed baking potatoes showing 6.2% growth in value and pre-packed new potatoes 6.1%. That last figure reflects the high convenience factor of cooking straight from the pack to the pan without the need for scraping or peeling. This is borne out by the increase in the area grown for the main salad varieties Charlotte and Maris Peer by 2 and 5%, respectively.

Organic potatoes also continue to show good volume growth at 12.2%, but this is overtaken by pre-packed baking potatoes at 13.8%. Whereas the growth in quantities of potatoes grown for pre-packing has shown progressive growth – pre-packed baking at 13.8%, pre-packed new potatoes at 7.9% and over-all 4% – the apparent growth in the quantity of organic potatoes (12.2%; Table 1.10) has to be seen against the large increase in planted area between 1998 and 2002 and the subsequent fluctuations (Table 1.11).

Table 1.11

Organic potato production in the UK (hectares) 2002–05.

Source: Soil Association, 1999.

The area of land under ‘organic’ horticultural production increased by 4.5% from 7400 hectares in April 2004 to 7700 hectares in January 2005, according to the Organic Market Report (Soil Association, 2005). Given the fluctuations in area planted to ‘organic’ potatoes and the fact that the area planted to other ‘organic’ root vegetables decreased by 28%, concerns have been expressed by the Soil Association over increasing levels of imported organic produce. The contribution of the organic potato crop should be kept in context, however, as the Soil Association’s estimated production area of 1886 hectares represents only 1.6% of the BPC’s total registered area. There is a further caveat that much of the organic production will be in units smaller than the BPC’s 3-hectare registration limit and, therefore, will not be registered. Nevertheless, the organic area provides potential for further development (Fig. 1.4).

Fig. 1.4 Organic potatoes from Marks & Spencer’s at £1.99 per kg.

1.5 EXPENDITURE AND CONSUMPTION

There are shifting patterns in potato consumption in the home. Since 2003–04, potato consumption has fallen by 5%. This could be attributed partially to the popularity of low-carbohydrate diets such as ‘Atkins’.

‘Low-carb’ diets such as Atkins have seen a shift in the type of produce eaten; it is a strong proponent of the consumption of plenty of green vegetables but shuns the use of peas and citrus fruit. Unfortunately, one strongly promoted condition is the consumption of potatoes: the BPC reported that there was some impact on the sale of potatoes, which, although low in fat and calories, are high in carbohydrates. However, low-carb dieting appeared to be declining in popularity at the beginning of 2005, with glycaemic index (GI) dieting taking its place.

Potatoes constituted one-third of all carbohydrates consumed in 2005. Practicality is thought to be the main consumption driver, accounting for 51.1%, as potatoes naturally complement many types of food and boiling or steaming is used on 39% of the occasions when potatoes are prepared at home (Fig. 1.5).

Fig. 1.5 How potatoes are prepared in the home ( The Grocer, 2005). Source: Taylor Nelson Sofres.

Health is less of a consideration in determining the choice of carbohydrate, with only 12.5% of all potato-eating occasions being cited as ‘healthy’. This is much lower than for all other carbohydrates.

According to market researchers TNS, the key age group for potato consumption is the over-45s of both sexes – over-45s account for 43.3% of all potato consumption – although their use of potatoes is also down by 2.7% year on year, in line with the overall trend. Although they are the least significant consumer age group, 17- to 25-year-olds are much more likely to eat potatoes than other carbohydrates. They are most attuned to dieting but choose to eat potatoes on the few occasions when they actually do consume carbohydrates.

Consumption peaks on Sundays when 17.2% of potatoes are eaten. Consumption of the balance is fairly evenly spread through the rest of the week at 12–15% per day. The evening meal is the key occasion for consumption with almost two-thirds of potatoes eaten at that time.

1.6 THE CONSUMERS’ VIEWS

The good news is that almost all households in the UK (97%) purchase fresh potatoes at least every 2 weeks. The product is purchased by all socioeconomic groups in relatively large amounts. The frequency with which fresh potatoes are purchased is testimony to their enduring place in the national diet. Research undertaken on behalf of the BPC by The Oxford Partnership into fresh-potato-purchasing habits shows that although consumption and marketing of potatoes are both doing well, there remains room for improvement. Consumers made this clear through discussion groups and interviews with the findings falling into seven key areas – packaging, convenience, usage, marketing, product innovation, health and product quality.

Table 1.12 summarizes the opportunities (good news) and threats (bad news) for the fresh potato sector as it stands at time of writing.

Table 1.12

The good and bad news for fresh potatoes.

FMCG, fast moving consumer goods.

Source: Dr D Hughes, 2005, Imperial College, London.

Some of the findings from the research included the fact that 60% of shoppers would look out for ‘British’ if the packs were labelled more clearly and 42% said packaging could be more attractive. When shown four labelling format options differing only in which components had the largest lettering, 42% opted for the label highlighting the variety compared with 40% for highlighting use (e.g. chipping, boiling, mashing and baking).

Over 80% suggested that more recipes should be available to ensure that potatoes can be cooked in different ways. Conversely, 61% wanted potatoes that are quick and easy to cook, and 46% thought there should be more potatoes that can be transferred straight from the pack to the pan for cooking.

Considering in-store presentation, it tended to be the chilled displays that were rated more highly than fresh or frozen products as they provided opportunities for finding ‘something special’ and for ‘tempting experimentation’. Furthermore, 56% of shoppers like to see fresh, chilled and frozen potatoes displayed together. That might be convenient for the shopper but would not be particularly practical for store layout and logistics.

Two further points to emerge from the BPC’s market research work are that 88% of people agreed that ‘much more could be done to tell people how healthy fresh potatoes are’ and 41% admitted they would buy more fresh potatoes if the quality was less variable. Clear quality differences were apparent between different retailers and regions of the country. This remains a challenge for all members within the supply chain for fresh potatoes.

1.6.1 When potatoes are consumed

Much work has been carried out by the BPC on potato-purchasing habits. One outcome from this research has been the development of the meal-occasion model for potato purchases. The model identifies seven meal-occasions based on whether the meal is ‘everyday’ or ‘special’ in nature and the extent to which it is ‘pre-planned’. The model is shown graphically in Fig. 1.6 with ‘entertaining friends’ understandably characterized as special and requiring pre-planning, whereas a quick and simple kids’ meal is the opposite.

Fig. 1.6 The British Potato Council (BPC) meal-occasion model (with permission of BPC, 2002, Market Information and Statistics).

The seven meal-occasions can indicate which potato type and variety are suitable for each meal situation, what packaging format is required, how the product needs to be prepared and how the consumer will handle it, which other carbohydrates are perceived as competitors, and where the current potato offer is strong and where the offer is weak.

The type or variety of potato purchased varies according to the meal occasion, and this also influences packaging or presentation expected. Price is not a critical factor in any segment and least of all for a special meal and entertaining friends. Practical examples of how this approach translates into purchasing habits are that jacket potatoes are a popular choice for those looking for a healthy meal and roast potatoes are a firm favourite for family meals, whereas chips (French fries) are rated highly for quick and simple kids’ meals. Planned special meals offer an opportunity for adding value, but potatoes are not always an inspiring choice, and rice and pasta provide strong competition. This is a challenge for the industry.

It is the four planned meal occasions – family meal, healthy meal, entertaining friends and simple adult meal – that offer development opportunities for the fresh market (Table 1.13). Table 1.13 provides details of market value and growth for the seven meal-occasions together with snacking occasions. The table also offers an indication of the importance of these occasions for the fresh potato market.

Table 1.13

Using the British Potato Council (BPC) meal-occasion model

(with permission of BPC, Market Information and Statistics).

As consumption figures for fresh potatoes illustrate, the underlying trend is that of decline. According to DEFRA’s Family Food report, the UK currently consumes less that half (43%) of the potatoes that it did back in 1974. The worry, therefore, is that the market will decline even further if nothing is done. There is an opportunity to address this slow decline in consumption by increasing consumer expenditure on added-value products. This may however create volume growth in the chilled sector rather than the fresh market.

Opportunities include addressing the growing demand for products at the premium end of the market. This may include special packaging, exotic varieties and varieties with health benefits, etc. During 2005/06 there have been a number of limited examples of attempts to do exactly this. So, Tesco and their packer supplier Branston introduced the Dutch salad variety Exquisa, a waxy early maincrop variety with yellow skin and flesh, to Tesco’s ‘Finest’ range. There has also been renewed interest in heritage varieties largely driven by Waitrose and their sole packer Solanum. Varieties such as Shetland Black, Ratte, Pink Fir Apple and Kerr’s Pink have been offered to consumers who are looking for something exotic or different. In 2006, Greenvale AP has offered the Scottish Crop Research Institute (SCRI)-bred variety Mayan Gold to the market, selected from the species Solanum phureja. This is a yellow-fleshed gourmet potato with a unique flavour and requiring 75% less cooking time.

Adding value to the fresh potato sector is always a challenge, but the Waitrose packer Solanum managed just that. In May 2005, Waitrose customers were able to purchase packs of fresh potatoes containing recipes within the bag. Having invested in equipment to insert objects into potato packs before they are sealed, Solanum now has the facility to include inserts such as recipe cards, nutritional information, scratch cards, money-off vouchers or sachets of sauce or herbs. The investment followed market research into consumers’ priorities, which suggested that shoppers were looking for ‘potato solutions’. This includes help with choice of variety for specific cooking purposes and advice on recipe ideas.

Solanum and Waitrose were to combine once again to offer their customers full traceability for their fresh potatoes from November 2005. The scheme, which was developed in conjunction with Syngenta, is based on customers entering a code number from the pack label onto the Solanum website. Details of the farm in which the potatoes were grown are then provided via the web. That seems to be a neat idea and a useful marketing tool, but it would be interesting to know how many Waitrose customers actually use it.

Another example of brand development is the promotion of the variety Rooster by the packer Albert Bartlett. The variety gained media coverage through awards for food and drink excellence; Rooster potatoes won the ‘Retail Fruit and Vegetable’ and ‘Healthy Eating Marketing Promotion’ categories at the Scottish Food and Drink Excellence Awards. More headlines were generated when, in summer 2005, the G8 world leaders were to eat Rooster potatoes while dining at Gleneagles during their stay at the G8 Summit.

Other options for adding value include offering local provenance and building on the associated trust. Research consistently shows consumer preferences for locally produced food. This is difficult logistically with supply chains based on centralized packhouses serving the supermarkets’ centralized regional distribution centres. For example, Asda supplier Taypack, based at Inchture between Perth and Dundee, serves all Asda stores in Scotland and all stores in the north of England as far south as North Wales in the west and the River Humber in the east.

Offering consumers more guarantees is another way of adding value and building trust. This is particularly true when it comes to health and environmental guarantees. However, there is a danger of confusing consumers who may be suffering already from information overload concerning farm assurance schemes together with the range of food marques and logos of offer.

There is a clear opportunity for greater market segmentation within the fresh market. While the meal-occasion model is based on meal solutions, fresh potatoes can also be targeted at market segments based on price sensitivity together with consumers’ needs and priorities. The method by which Tesco segments its customers is shown graphically in Fig. 1.7, which illustrates these segmentation variables. Customers are categorized according to their affluence and then into six groupings depending on their shopping habits and lifestyle priorities. This allows Tesco to develop a range of food products, we hope including fresh potatoes, to meet the needs of its customer groups.

Fig. 1.7 How Tesco segments its customers. Source: Tesco. (84% of shopper buy ‘Value’ lines, 64% buy both ‘Value’ and ‘Finest’ lines.)

1.7 PRICES PAID TO PRODUCERS

The relations between area planted, average yield and potato prices are inextricably linked within an unprotected environment where the laws of supply and demand operate with almost textbook accuracy. Prior to 1994, price comparisons were influenced by market regulation through the former Potato Marketing Board. Previously, growers received direct and indirect support under the Potato Marketing Scheme (PMS) in the form of area quota, intervention buying and deficiency payments. There is no support mechanism for potatoes under the Common Agricultural Policy (CAP), thus the level of support for the UK potato sector is determined by the government. The most important element in the PMS was the area quota. This was ‘justified’ partly on the grounds that the underlying trend in yields was upwards and consumption was more or less static. It was also ‘justified’ on the grounds that potato yields tend to fluctuate widely from year to year.

In the 1980s, government policy swung in favour of deregulated markets, and the level of support provided to the potato sector under the PMS began to decline. In 1985 the deficiency payments scheme was abolished, and in 1993 the government announced that the PMS – essentially area quotas – would end in 1997. Given the volatility of yields, many growers feared that the ending of quotas would result in massive instability not only for their businesses but also throughout the supply chain. Fortunately, these fears have not been borne out although years with high production are associated with lower prices and the reverse also applies. Prices are noticeably weaker in years where production exceeds 6 million tonnes. While there is a longer-term trend for declining prices in real terms, there may also be an underlying tendency for price fluctuations to be decreasing. Both these tendencies may be a result of the increasing area of potatoes grown under contract (48% of the ware area) and the increasing tonnage grown on a ‘cost plus’ basis – a payment system where growers know they will get a guaranteed price above the costs of production. Although there are now fewer speculative growers left in the industry and forward contracts have created more stability in the market, yet there is a positive relation between the average potato price and the area planted in the following year (Fig. 1.8).

Fig. 1.8 Relation between average ware and maincrop prices and the change in planted area in the following year (1998–2005) [derived from data from British Potato Council (BPC, 2006)].

Potato prices, as with all other farm gate prices, continue to be a sensitive and contentious issue among farmers. The continuing accusation is that supermarkets are ‘putting a lid on prices’ and preventing farmers from benefiting from improving free-market prices in times when the market is strong. These are claims that are frequently levelled at the supermarkets by the farming industry via their representative body, the National Farmers Union (NFU). This unfortunately is the corollary of the contract cost-plus system. Farmers are grateful for the cost-plus price and guaranteed market when trade is poor but get agitated when the market is strong, and they are stuck with the lower pre-arranged contract price. What rubs salt into the wound is the fact that supermarkets – particularly UK’s largest, Tesco – continue to lodge record profits at a time when farming is being squeezed. The NFU is hoping that all these issues will be thoroughly investigated in the Competition Commission enquiry into the way that supermarkets deal with their suppliers that starts during late summer 2006. A concentrated but highly competitive retail sector has created new pressures for food and drink manufacturers, and the fresh potato market is no different.

Years with higher yields and lower prices tend to be balanced by years of lower yields and higher prices. The degree of price volatility was more commonplace in the past when less of the national crop was grown under forward contract and there was less use of cost-plus pricing. The other noticeable market response is for speculative growers to plant a larger area following a year of relatively high prices.

A case in point is 1999–2000 when the average price collapsed to £67 per tonne following the 1998 crop year, which gave an average price of £147 per tonne. The main cause of the fall in price, despite little change in yield from the previous year, was the 8% increase in the area planted.

In most years, there is a strong seasonal cycle of changing prices for ware potatoes, but the amplitude of the cycle and its baseline differ from year to year (Fig. 1.9).

Fig. 1.9 Weekly average price of ware potatoes in successive years 2002–2005 (£ per tonne) ( Potato Market weekly, 2006). Source: British Potato Council (BPC), Market Information and Statistics, with permission.

1.8 POTATOES AND THE HEALTH ISSUE

Evolving consumer trends pose both opportunities and challenges for food and drink market suppliers. Along with convenience and pleasure, health is one of the key drivers for consumers when it comes to food shopping (Fig. 1.10). Fortunately, fresh potatoes have much to offer health conscious consumers. As is demonstrated in Table 1.14, the potato is nutritious, relatively low in calories, virtually free of fat and cholesterol, and high in vitamin C and potassium. It is also high in fibre especially when the potatoes are served with their skins.

Table 1.14

Nutrition from the potato per 175-g serving – based on boiled new potatoes in skins

Percentage of daily allowances based on 2000 kilocalorie controlled diet.

[with permission of British Potato Council (BPC, 2004b), Market Information and Statistics].

Fig. 1.10 Key consumer influences and trends.

The BPC run a number of promotional campaigns to heighten demand for British potatoes and to increase the competitiveness of the UK potato industry. Current BPC promotional work is built around three ‘inter-linked platforms’: National Chip Week (February), Health (May–August) and Convenience (September–November). The BPC’s 2006 health campaign, ‘Fab not Fad’, was aimed at the health-conscious market especially – women – promoting potatoes as low fat, low salt and rich in vitamin C.

The ‘Help Me To Be Healthy’ campaign of summer 2006 followed research that showed that consumers are confused about the health benefits of potatoes – 66% of people surveyed rate pasta and rice as healthier than potatoes and one in seven children think potatoes make you fat.

There is always jockeying for position among our daily carbohydrate requirements between potatoes, pasta and rice. A balanced diet should include 50% of total energy from carbohydrate. This is the equivalent of a minimum of 100 g of carbohydrate per day. Carbohydrates are needed to prevent fatigue and dangerous fluid imbalance. To make sure we get enough, we should eat 6–11 servings each day from the carbohydrate group that includes bread, cereal, rice, pasta and potatoes. One of the health and nutrition messages promoted by the BPC is that potatoes contain less fat and fewer calories than other carbohydrates (Table 1.15).

Table 1.15

Nutritional values of potatoes, rice and pasta – based on new potatoes boiled in skins, boiled white rice, and cooked penne pasta

[with permission of British Potato Council (BPC, 2004b), Market Information and Statistics].

Between 2003 to 2006 there were a number of recent attempts to endorse and promote potato varieties with health benefits. One example is the variety Adora, which was claimed to have 75% of the calories carried by other potatoes and 66% of the carbohydrates. The first early HZPC variety was re-launched in Florida in early 2005 as the ‘Atkins-friendly’ potato. In the UK, Naturally Best also played the health card with its variety Vivaldi claiming that it has 26% less carbohydrate and 33% fewer calories than the average variety. These claims represent both imaginative and opportunistic marketing and invite the cynical response that they simply contain more water. Promoting the healthy eating attributes of potatoes is not a new marketing strategy, however, as selenium-rich potatoes have been promoted in Italy for some time.

1.8.1 Glycaemic indices

As a result of fashionable interest in low-carbohydrate diets, there is increasing interest and debate surrounding the GI of foods. This is a measure of how quickly and by how much a food raises blood sugar levels. The GI, introduced by Jenkins et al. (1981), is a tool to rank foods (on an index of 1–100) by whether they raise blood sugar levels dramatically (a high index rating of 70+), moderately (56–69) or a little (55 or less). Potatoes generally have one of the highest GI values of any food. However, GI ratings for foods vary dramatically depending on whether they are eaten alone or in combination with other foods. For example, (Table 1.16) a potato eaten on its own may have a GI rating of 88, but when eaten with cheddar cheese, e.g. in a baked potato, the GI rating of the combination is low at 39.

Table 1.16

Glycaemic index (GI) of potatoes [with permission of British Potato Council (BPC, 2004a), Market Information and Statistics].

aLow GI <55, medium GI 56–69 and high GI > 70.

Source: BPC, University of Dundee.

Furthermore, research work carried out by Oxford Brookes University in 2004 on behalf of the BPC found that different potato varieties exhibit a wide range of GI responses from 56 to 94. Potatoes with waxy textures produced medium GI values whereas floury potatoes had high GI values (Table 1.17).

Table 1.17

Glycaemic index (GI) values and GI classification by variety of potato [with permission of British Potato Council (BPC, 2004a), Market Information and Statistics].

Source: BPC, Oxford Brookes University.

So what is the worth of the GI? Determining the GI of a meal is not as simple as reading a number off a chart. For example, the addition of fat and protein slows down the absorption of carbohydrate. Therefore, chocolate has a medium GI because of its fat content, and crisps and chips have a lower GI than potatoes cooked without fat.

The GI of food only tells you how quickly or slowly it raises blood glucose when the food is eaten on its own. In practice, we usually eat foods as meals in combination with other foods, so cutting out all high GI foods is not the answer. A further complication with potatoes is that while they score high on the GI scale, they also score high on the satiety index (SI). The higher the SI of a food, the more satisfied a person is between meals and therefore is less likely to snack.

So what are the implications of all this for the potato industry? If people were to confine themselves to low-GI foods, their diet would be unbalanced resulting in an inappropriate amount of energy coming from fat, which could lead to weight gain and increase their risk of heart disease. For this reason, it is important not to focus exclusively on GI and instead to think more in terms of the overall balance of the diet. Describing potatoes simply in terms of their high GI value does not do justice to their nutritional benefits and the fact that they are an important part of a healthy and balanced diet. If a low-GI potato variety can be identified, however, it could be used to lower the overall glycaemic load of the western diet and thus decrease the risk of type 2 diabetes, coronary heart disease and obesity. Confusion among health-conscious consumers about GI and potato consumption is one for organizations like the BPC to address as part of their continuing marketing and educational remit.

Finally, the UK government’s ‘Five-a-day’ campaign urging consumers to eat at least five portions of fruit and vegetables a day is continuing, backed by bodies such as the Food Standards Agency and various supplier groups in the produce sector. Consumers are being encouraged to eat fruit and vegetables at a wider range of eating occasions in order to meet the ‘Five-a-day’ requirement. This can only be good news for the sector.

1.9 SUMMARY, CONCLUSIONS AND FUTURE PROSPECTS

The potato industry in general can offer a number of lessons to UK agriculture. The way in which the potato sector operates as an unsupported agricultural sector in a totally free market is evidence that farming enterprises can survive without support while at the same time coming to terms with wide fluctuations in producer prices and annual incomes. The potato sector operates with a short three-link supply chain (grower, packer and retailer), and there is a positive willingness among growers to form groups and vertical relationships. For example, there are currently 10 grower groups operating in Scotland alone. These transactional arrangements help to reduce market uncertainty and maintain competitiveness. A continuing problem is the industry’s understandable but irrational response to plant a larger area following a year of higher prices. The replacement of ‘hard’ contracts between growers, packers and retailers with vertical partnerships would help reduce these irrational responses to price fluctuations and help growers and their customers to meet the ever more exacting consumer demands.

The BPC believes that building sales of fresh potatoes should be based on promotional activity that focuses on health, convenience and better value. Research findings from Somerfield supermarket shoppers concluded that three broad types of promotional activity should be developed:

(1) Promote the health benefits of potatoes.

(2) Create convenient meal solutions with fresh potatoes.

(3) Create better value – for both the retailer and its value-conscious customers.

The research concluded that promotional activity should be focused on those of the multiple’s shoppers now buying a lot less potatoes than previously and those of its regular shoppers who buy their potatoes elsewhere. It was reckoned that the biggest impact and best pay-back would be derived from those sections of their customers.

1.9.1 Key points

• The fresh market will continue to decline in value terms relative to the processed market.

• There will be more market segmentation within the fresh market – look at the other staple food product, bread, and how that sector now offers greater specialization and segmentation to its customers.

• The chilled market will grow in line with increasing demand for added-value, convenience food products.

• The processed market will experience increasing pressure from imports.

• Higher transport costs will continue to provide a degree of protection to the fresh potato sector. But higher fuel costs for field operations and storage will reduce growers’ margins.

• There will be continued rationalization in production.

• There will be continued concentration throughout the supply chain – this includes growers, packers, processors and retailers.

• Continued yield increases will lead to less land under potatoes.

• Soil sickness and, increasingly, water availability will become more important in determining production.

• Vertical supply chain partnerships will ensure the future viability of the sector.

Getting away from a commodity product and commodity mentality is key to the future of the industry. In too many cases, fresh potatoes are still seen within the trade and by consumers as simply reds or whites with variety, provenance, cookability, taste and texture given little attention. The one thing we do know about consumers is that while they are interested in differentiated products up to a point, they consistently demand both quality and choice. Improvements in both areas are yet another way of pushing up fresh consumption. There is also a strong argument for better labelling and more attractive packaging, something which the processing sector recognized some time ago.

The good educational work being carried out by the BPC particularly at school level must be carried on so that consumers of tomorrow appreciate the value of this valuable staple food product and make use of its qualities to full potential.

REFERENCES

January Agribusiness News, Potatoes — review and outlook. SAC, U.K., 2006. http://www.sac.ac.uk

British, Potato Council, Potatoes — what does the future hold?, 2002. http://www.potato.org.uk

Ref: R256 British, Potato Council, Glycaemic index (GI) values for potatoes, 2004. http://www.potato.org

British, Potato Council, Potatoes — a healthy market, 2004. http://www.potato.org.uk

British, Potato Council, Yearbook of Potato Statistics in Great Britain May 2006 edition, 2006. http://www.potato.org

U.K. Department, for Environment, Rural, Affairs, Agriculture in the United Kingdom 2005. TSO, London, 2006. http://www.defra.gov.uk

U.K. Department, for Environment, Rural, Affairs, Family Food 2004-05. TSO, London, 2006. http://www.defra.gov.uk

Hughes, D., What do tomorrow’s consumers want?. Conference Paper British Potato 2005 Harrogate. 30 November 2005, 2005.

Jenkins, D. J.A., Wolever, T. M.S., Taylor, R. H., Barker, H., Fielden, H., Baldwin, J. M., Bowling, A. C., Newman, H. C., Jenkins, A. L., Goff, D. V. Am. J. Clin. Nutr.. 1981; 34:362.

U.K. Mintel, Fruit and Vegetables — U.K. May 2005, 2005. http://www.mintel.com

Potato Markets Weekly, 2006, No 1519 July 4 2006, Great Britain, Agra-Informa Ltd, U.K. http://www.agra-net.com

March Potato, Newsletter, Is there a place for potatoes in an overweight population?. SAC, U.K., 2006. http://www.sac.ac.uk

November/December Potato, Review, Fresh Sales Experience — A Renaissance. Aremi Publishing, U.K, 2005. http://www.potatoreview.com

Rickard, S. Challenges and Prospects — Potato Sector Leads the Way. U.K.: Lloyds TSB Business; 2000.

Soil, Association, The Organic Food and Farming Report 1999 1999; . http://www.soilassociation.org

Soil, Association, Organic Market Report 2005 2005; . http://www.soilassociation.org

October 15 The, Grocer, Consumer insight 2005; 67. http://www.thegrocer.co.uk

Daphne MacCarthy, The 2006 Potato Yearbook & Buyer’s Guide 10thEdition, ATC Publishing, U.K.

Chapter 2

Global Markets for Processed Potato Products

Michael A. Kirkman,     3 The Coach House, Main Street, Ravenstone, Leicestershire LE67 2AS, United Kingdom

Publisher Summary

This chapter is an essay on the global potato-processing industry from the personal perspective of a former agro R&D manager in a major snack food company. During the authors’ employment of 25 years in the industry, significant expansion has occurred not only in the global market for chips (crisps in the UK) but also for French fries (chips in the UK) and other processed potato products. In the pages that follow, the author has tried to marry his understanding of potato science with a new understanding about markets, based on research undertaken during the preparation of this chapter. According to the Union of the European Processing Companies, in 2002 the process accounted for 2 million tons of potato utilization in the EU. The history of potato processing covers this part elaborately. Global production and consumption, trends, and drivers are summarized under current dimensions. Potato-processing companies and locations are also outlined. The situation described has an important bearing on the future volume expansion in the international trade of frozen potato products. A continuing potato supply of acceptable quality for processing into chips and French fries is critical to success. Supply chain and variety requirements are the titles of potato supply whereas potato cost covers theory and practice and contracts. A great deal has been written about potato quality requirements for the potato-processing industry. Quality parameters are outlined separately.

ACKNOWLEDGEMENTS

The author gratefully acknowledges help from numerous friends and colleagues. Professor Joe Guenthner of the University of Idaho deserves special mention. Joe Guenthner provided additional information, valuable insights and guidance, and reviewed this chapter before publication. Any mistakes in fact or logic are the author’s. Former colleagues Dr Robert Hoopes, Kan Moorthy, Newton Yorinori and Jimmy Mackenzie provided comments, suggestions, information and moral support. Dr Robert Hoopes also provided a valuable review of the draft.

2.1 INTRODUCTION

This chapter is an essay on the global potato-processing industry from the personal perspective of a former Agro R&D manager in a major snack food company. During my employment of 25 years in the industry, significant expansion has occurred not only in the global market for chips (crisps in the UK) but also for French fries (chips in the UK) and other processed potato products.

In the pages that follow, I have tried to marry my understanding of potato science with a new understanding about markets, based on research undertaken during the preparation of this chapter. In this endeavour, considerable help was forthcoming from a number of sources, which I have acknowledged in the final section.

2.2 PROCESSED POTATO PRODUCTS

In developed nations, up to 60% of potato in everyday diet is consumed in processed form. Demand for convenience food in the home, fast food in restaurants and snacking has given rise to a wide variety of products. These include potato chips, French fries and various other frozen products, dehydrated potato products, chilled-peeled potatoes and canned potatoes.

Potato chips are deep-fried, thinly sliced potatoes, with a finished moisture concentration of 1.3–1.5%. They are fried in different types of vegetable oil, with a range of added flavours, e.g. salt, salt and vinegar, cheese and onion, paprika and cool lemon to name a few. They are sold in 25–400 g portions, with a shelf life of 12–14 weeks; freshness is preserved as far as possible in a nitrogen atmosphere within sealed polylaminated bags.

The term ‘potato chip’ also denotes chips formed from a dough made with dehydrated potato, and either baked or flash-fried. Baked Lays® and Pringles® are examples of this product type. In later discussion of global production (Section 2.4), the term ‘chip’ will be used inclusively.

French fries are made from potatoes that have been cut into thin strips, washed briefly in cold water, partly dried to remove surface moisture and deep fried in vegetable oil to a light golden colour. Frozen fry manufacturers ship their products raw, par-fried, or partially cooked and drizzled with oil (for baking), to suit the end user. Cutting style varies, and the consumer or restaurant selects a product according to the final cooking method. Restaurants generally employ deep fat frying, and preferences in home use include baking and microwaving.

Other frozen potato products include waffles, wedges, hashed brown potatoes, rösti, pre-formed mashed potatoes, patties, potato rounds, diced potatoes, baby roasts and a variety of shaped potato products with child-appeal. Manufacturing and trade statistics are difficult to disaggregate according to different product types. Typically, frozen potato products other than French fries amount to 10% of the total.

Canned potato production constitutes a few percentage of the overall market for processed potatoes. In Europe and subsequently in the UK, production of chilled-peeled potatoes became established during 1995–2005 to supply a growing demand by restaurants, takeaways and the catering business.

2.3 HISTORY OF POTATO PROCESSING

Potato chips have a US origin dating back to 1853 in a hotel kitchen at Saratoga Springs, New York. The first commercial production got underway in 1895 (Gould, 1999). William Tappenden of Cleveland, Ohio, made chips for his restaurant and neighbouring stores. Business thrived, and the first potato chip plant was established in a converted barn.

According to Gould, eleven new chip plants started production during 1895–1928, giving rise to a number of familiar brands that are still in the market in 2005. In the UK, Smith’s Crisps began production in 1920. Several innovations mark the industry’s subsequent development.

During the 1920s, Herman Lay developed