Global potato production is a staggering 295 million tonnes. Forty years ago, that production was just 30mt. The rate of increase has been relentless and the annual increase in production over the last 10 years has consistently exceeded four per cent.
Growth in potato production has out stripped nearly all other major international agri-food commodities such as maize, wheat and rice as well as bananas. In terms of the share of global production held by the emerging suppliers this has grown from just 10 per cent in the 1960s to over 35 per cent today. And the rate of change to this pattern is fast accelerating.
Crop production in the EU has been falling steadily over the last 30 years but has been offset by massive increases in other parts of the world. The emerging markets of Asia and Latin America are becoming more important in the future as a source of highly competitive priced raw materials vis-a-vis high cost producers based in the EU and North America in particular. India and China are at the forefront of all this. This will all only serve to add increased pressure on growers and supply organisations in developed countries who need to look at new ways of adding value to their products and services. An innovative business culture has to be at the heart of this, but has often been difficult to achieve in what is essentially a commodity sector.
At a macro level, it is no surprise that the leading producers of potatoes in developed markets are the US, Canada and the Netherlands. All of them have well developed processing sectors and have vertically integrated operations driven by strong domestic demand as well as export markets to service. In a typical year, the Netherlands exports some one million tonnes of processed potato products, the Canadians some 800,000t and the US around 400,000t. High percentages of the overall production go into the processing sector in each of these industries and a similar high percentage is exported.
For example, Canada exports some 80 per cent of its processed potato products and in the Netherlands over 90 per cent is traded internationally. The other EU markets have always been a key customer base for the Netherlands. The US has significant export markets for its processed products in the likes of Mexico and increasingly in the Pacific Rim and China.
But even in the traditional EU potato strongholds such as the Netherlands, and despite its inherent advantages in terms of production and processing, there are signs that pressure is being exerted on the production and supply base. High costs of labour and transport are seeing new plants being located further south and east within Europe. Most existing plants in the Netherlands are already operating at full capacity and environmental restrictions means that new investments in the Netherlands itself are unlikely.
In terms of potential market demand, despite increasing production levels, consumption of fresh potatoes has been in decline for some years. Most developed markets have experienced a drop in consumer demand for fresh product, while demand for processed potatoes (frozen, dehydrated, and chips/French fries) has increased steadily. Consumption of processed potatoes is such that, in some countries, overall potato consumption almost doubles when this product is taken into account.
In 2003/2004 in the US, consumers ate a further 58kg per capita of processed products, while Canadians consumed some 39kg per capita of processed products. In the UK, consumption of fresh products has continued to fall in the last few years with the growth in marketing coming from the processed sector. High value niches in the fresh sector, such as organic and locally sourced produce, will remain just that: relatively small-scale niches. They might therefore be the answer for some UK growers, but the reality is that for the larger scale players in the UK, dealing with the major supermarkets and increasingly the larger food service operators is the real marketing option that they have.
In the UK and other mature markets, the on going changing consumption and food preparation habits largely explain the shift from fresh to processed product. In recent years, the impact of fashionable low-carbohydrate diets, such as Atkins, Zone and South Beach have added to fresh potatoes’ woes. To redress the balance, potato industries across the world have invested heavily in marketing, stressing the nutritional benefits of potatoes and counteracting the image of potatoes as a “fattening” food. Additionally, new innovations and category management initiatives, such as pre-prepared fresh chilled potatoes, dressings and seasonings marketed with the product, low carbohydrate potatoes and promoting specific and new varieties are all employed to increase consumption of fresh product.
This all makes for a fast changing market environment characterised by:
• Shifts in global production to low-cost areas in eastern Europe, the FSU and then in Asia and Latin America;
• A global trend towards adding value through involvement in the processing sector;
• The ongoing decline in fresh consumption;
• Market niches remaining just that
• An ongoing need to invest in innovation in terms of product and supply chain management;
• Investment in production technology, especially in the areas of yield improvement.
The UK market will continue to change as time goes by. But it is a mature market per se, it is extremely demanding in terms of commercial and technical acumen and only the best are going to survive. There are new routes to market to explore and a rapidly changing consumer to contend with and understand. The situation is crying out for companies across the supply chain that can harness innovation to their excellent growing skills. Looking to achieve massive step change innovations can take a long time and become very expensive.
Ask any of the companies that have been looking at how GM technology might be applied in the international vegetable sector. Despite a feeling by many in the commercial trade that such a technology might produce a wide range of benefits across the supply chain, resistance at retail and consumer level, buoyed up by strong lobbying activity by NGOs means that commercial introductions still seem some way off, at least in the fresh food sectors.
Introducing innovation to the supply chain on a step-by-step basis has been the way forward and might well be the best method of moving forward over a period of time. Innovation is a difficult term to grapple with for many in the UK and international agri-food sector. It does not just happen: it has to be engrained in the company culture and part of a systematic process.
The real winners in the UK and international food sectors are those that can bring to market innovations on a regular and consistent basis. Balancing the need to run the business and think about innovation is a difficult act to manage. However, only those that can achieve this will introduce the level of product and service innovation that might be required in the future. And increasingly, key players at the POS see it as the job of the supplier to lead the innovation process, not them. There needs to be a strong strategic focus to the business to allow this process to take place as well as a strong understanding of how best to leverage these ideas. Not least this requires a high level of commitment to commercialise the benefits. Experience shows that the best innovations are the ones where the customer is the key winner. Producing this environment where the innovation culture is inherent throughout the business is difficult without a strong investment in staff training, coaching and mentoring, but probably most of all requires rock solid customer relationships. And being best of class in the vegetable sector is one thing: the brave companies will look outside their own sectors in agri-food and beverages and look at what is happening there, why it is happening and what the benefits are. And the really ambitious would look right outside the food sector altogether and look to learn from the real international experts in innovation.
Companies such as Nokia and Hewlett Packard are often cited as being the most innovative in the world. What’s that got to do with potato production and processing? Not much might be the initial answer. It all seems a million miles from the flat fields of East Anglia, parts of northern England, eastern Europe, Idaho and the like. But such is the likely pressure from the emerging markets in the next five to 10 years, looking at best practice wherever it comes from in terms of understanding customer and consumer demands and trends, as well as how these can be met, will become more and more important.
No comments yet