NFAPP's Newsletter May 1997
Featured Articles :
"U.S. - Canada Potato Trade", by Pieter van Ispelen, Timothy J. Richards and Pamela Mischen
Topic: U.S. - Canada potato trade issues
"Market Watch.....Lettuce", by Richard Adu-Asamoah
Topic: The 1997 Lettuce Market
U.S. - Canada Potato Trade
by Pieter van Ispelen, Timothy Richards and Pamela Mischen
Imports of potato products to the U.S. from Canada are at all-time highs. Fresh potato imports rose from 161.5 million kilograms (Mkg.) in 1995 to 233.5 Mkg. in 1996, while U.S. imports of Canadian french fries grew from 150.7 Mkg. in 1995 to 174.4 mkg. in 1996 and seed potato imports were up from 102.5 mkg. to 128.8 Mkg. over the same period. Potato growers in the U.S. claim that this rapid growth in imports from Canada is due to domestic agricultural policies targeted at the support and protection of Canadian growers, providing them an unfair trading advantage. This unfair advantage, U.S. growers argue, has not only led to increased imports of Canadian potatoes and potato products, but to lower prices in the U.S.
NFAPP has analyzed the claims made by the U.S. potato industry and has concluded the following:
A specific contention that frozen potato imports from Canada have had a negative impact on U.S. frozen potato prices has been made. As can be seen in Figure 1, U.S. frozen potato prices have increased over the past five years while Canadian import prices have remained steady. Statistical models controlling for U.S. production, exchange rate, and U.S. expenditures show that potato imports have had no negative effect on U.S. french fry price.
However, NFAPP models indicate that Canadian imports of frozen potatoes, while not having a pronounced price effect, have indeed impacted domestic market share. U.S. market share of the U.S. frozen potato market has decreased from 98.8% to 97.4 % over the past 5 years while Canada's market share has increased from 1.2 to 2.6%.
The result that price has not been affected while imports have increased can be attributed to three factors. First, the overall amount of imports represents only 2.6% of the total frozen potato industry- an amount that doesn't influence market price substantially. Second, U.S. potato processors have shifted supply regions from the U.S. to Canada, giving potato processors an equal ability to put downward pressure on grower prices in both Canada and the U.S. Third, the U.S. price has been rising because the U.S. has been taking advantage of the premium export market while leaving an opening in the U.S. market to Canadian imports. Although the increase in imports of frozen potatoes from Canada exceeded the increase in U.S. frozen potato exports to the world in 1996, the preceding years show the opposite effect (Figure 2). However, NFAPP models continue to indicate that there is a lagged effect between Canadian shipments to the U.S. and U.S. exports. This indicates that Canadian potato processors are filling in the gap left behind by high-value U.S. exports.
The shift from U.S. to Canadian production regions is due, in part, to federal and provincial subsidies in Canada to potato processors. NFAPP estimates that increases in Canadian processing capacity in 1993 and 1996 (supported by provincial subsidies), are responsible for a substantial increase in Canadian shipments to the U.S. of approximately 123,000 tons.
Examples cited by the Foregin Agriculure Service of USDA of Canadian federal and provincial governments subsidization include:
- Cavendish Farms Ltd., one of the country's top three potato processors, received a C$ 4.3 million grant which funded 46% of the cost of a potato storage facility. FAS research reports that potato acreage in PEI increased 13% in 1995 in anticipation of the 40,000 metric ton increase in storage capacity.
- Development of a C$15 million waste water treatment facility located adjacent to a processing plant in Manitoba. Construction of this treatment plant coincided with an expansion of the potato processing facility, allowing for an increase in frozen french fry output.
- In March 1996, the federal government and provincial government of New Brunswick contributed C$192,280 to the construction of a potato storage, packing and shipping facility. Although the actual impact of this development has yet to be seen, it is estimated that it will allow for a 360 acre increase in potato acreage in the area.
- The government of Saskatchewan has signed a memorandum of agreement with a large U.S.-based french fry processor which will allow equity participation by a government-owned firm in a french fry joint venture to be located in Saskatchewan.
In conclusion, NFAPP analysis shows that higher imports of fresh and frozen potatoes from Canada have led to a decreased market share for U.S. producers, but this loss of market share has not necessarily caused U.S. prices to fall. Specifically, in the case of fresh potatoes, Canadian producers are responding to high prices and short supply in the U.S. and do not exert downward pressure on prices. Increasing frozen potato imports, on the other hand, are likely caused by greater french fry production capacity in Canada, but do not lower U.S. prices. Much of the increase in Canadian processing capacity is due to government incentives in the form of grants, guaranteed loans, infra-structural projects, or equity par-ticipation. Due to the concentration of potato processors in the United States and the fact that two of the largest processors also operate in Canada, these incentives may lure additional processing facilities to Canada and cause U.S. growers to face further difficulties in negotiating fair prices with processors.
The full report, "U.S. - Canada Potato Trade Issues," NFAPP Policy Briefing Paper, #97-3, can be downloaded from the NFAPP Web site and is available upon request by calling the NFAPP office at (602) 965-5470.
Market Watch......Lettuce
by Richard Adu-Asamoah
Lighter California Supplies Cause Unstable Prices:
Barring any natural disaster such as the California floods in 1995, weekly quantity movements and price trends of iceberg lettuce, romaine, and other lettuces may resemble those of 1996. The annual transition from desert growing regions of California and Arizona to regions in the north began on time in late March. Harvests were light in the north until the first week of April. This year's mild weather in the West, however, caused iceberg lettuce harvests to run about a week ahead of schedule in March. Harvest in Huron, California started in the middle of March, helping to abate any fears of extended supply gap that might cause serious price instability. As expected, this year's average weekly prices of iceberg lettuce in March ($5.08-$7.57 per carton of naked 24s) were lower than 1996 levels ($6.10-10.21 per carton of naked 24s) causing prices to remain lower than normal through the first week of May.
April's active trading in iceberg lettuce from California sources will continue through May and, possibly, June with prices for naked 24s of $4.25-10.25 per carton depending on size and quality. Movement from western Arizona sources, however, is expected to continue to decrease as most shippers finish the season. Central Arizona iceberg lettuce movement was light during the first week of April but has since picked up. May and June average weekly shipment of iceberg lettuce is expected to be around 1.8 million cartons (Figure 1), with an average weekly price of $6.6 per carton (Figure 2).
Romaine prices have remained lower than 1996 levels since the middle of February. Price trend since January, however, has been similar to that of last year. Average weekly prices in California since January have fluctuated between $5.25 and $14.05 per carton of 24s, and reflect larger continued weekly movements than 1995 and 1996 levels. Average weekly shipment of Romaine lettuce is estimated at 446,000 cartons for May and June (Figure 1). Average weekly price is expected to be around $9.2 per carton for these two months (Figure 2).
Other lettuces trading has remained active since the second week of April. Average weekly prices have been between $5.25 and $8.75 since the first week of January, and will rise through June. Average weekly shipment of 412,000 cartons is expected during May and June (Figure 1), with an estimated average weekly price of $6.8 per carton for the period (Figure 2).
Outlook for Value-added Lettuce Products in 1997:
Fresh-cut lettuces now have a competitor. The available production and shipment data suggest that the growth of salad products has slowed. Processors have reduced salad lines and are focusing on adding value to top-selling non-salad varieties of produce. While processors expect to introduce new salads in 1997, the rate of growth of this sector of the market will not be anywhere near the explosive rates seen during the past five years. Instead higher product growth is expected in non-lettuce items such as baby spinach, cabbage, baby carrots, broccoli, cauliflower, and other hard vegetables. The slow down in salads production will allow processors to better manage this category of the market. Processors plan to introduce a few new packaged salads including extensions of existing salad lines. New salad releases will be justified if they address the concerns of that portion of the population that has kept away from packaged salads and salad products for various practical reasons. "Guilt-free" convenience products that allow consumers to "personalize" what to include in a salad may appeal to this portion of the population. Through selective packaging consumers can choose salads, toppings, and dressings, and create their own salad combinations. Home-meal replacement alternatives may also do well. Category management strategies may dictate a movement away from packaged salads (now 83 percent of the fresh-cut market) and salad meal kits (now 17 percent of the market). Other product areas for lettuce that may improve consumption and profits include bulk bin lettuce, romaine cuts, and mixed lettuces for the food service industry. Garden and Caesar salads will continue to sell well through 1997, and beyond.
Outlook for the Fresh-cut Industry:
Larger processing operations will result from increased consolidation among fresh-cut processors, and the formation of produce buying groups. Processing firms will continue to vertically integrate forward and backward in order to spread cost over more products and services. Partnerships between produce processors and nationally-known brand-name companies are also providing a promising formula for packaging and promoting healthy choice salads and fresh-cut vegetable alternatives. As category management becomes increasingly a necessary strategy for many retailers, the demands on processors to deliver specialized products will also increase. Preliminary analysis of the available data suggests that competition among Romaine, other lettuces, and iceberg lettuce has intensified. The available first-quarter data for 1995, 1996, and 1997 suggests that category products may be influencing growers' production and shipment decisions. Even accounting for supply problems during the 1995 California floods, iceberg lettuce shipments seem to be losing grounds to Romaine, and the other lettuces. January-March shipments of iceberg lettuce have declined from 72 percent of all lettuces in 1995 to 65 percent in 1997 (69 percent in 1996). On the other hand, Romaine lettuce shipments increased from 13 percent in 1995 to 18 percent in 1997 (16 percent in 1996). Other lettuces shipments increased from 15 percent in 1995 to 17 percent in 1997.
End of Canadian Antidumping Duties in Sight:
Exports, especially to Canada, will continue to play an important role in the profitability of the U.S. lettuce industry. The recent decision by Canada to review a 1992 antidumping case against the U.S. involving exports of iceberg lettuce to British Columbia, Canada should be a good sign for iceberg lettuce trade. Canada may not find it necessary to continue assessing antidumping duties when a decision is made in November and will, therefore, allow the measure to expire. This should be good news for desert producers in the U.S. during the 1997-98 season.
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