Required Report - public distribution

**Date:** 10/25/2005

**GAIN Report Number:** CA5070

CA5070

**Canada**

**Frozen Potato Products**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Lisa Anderson

U.S. Embassy

**Prepared by:**

George Myles

**Report Highlights:**

This report highlights the production and trade of Canadian frozen
french fries. During MY2004/05, for the first time in a decade, the
Canadian output of frozen french fries declined from the year earlier
level. Sluggish demand in the domestic market and in major export
markets was the principal reason for the decline.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Ottawa \[CA1\]

\[CA\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Section I. Production 4](#section-i.-production)

[Industry Developments 5](#industry-developments)

[Non-Hydrogenated Oil 5](#non-hydrogenated-oil)

[Potato Area 5](#potato-area)

[Consumption 5](#consumption)

[Section II. Trade 6](#section-ii.-trade)

[Frozen French Fry Exports 6](#frozen-french-fry-exports)

[Frozen French Fry Imports 7](#frozen-french-fry-imports)

[Tariffs 7](#tariffs)

[Other Frozen Potato Product Trade
8](#other-frozen-potato-product-trade)

[Section III. Marketing 9](#section-iii.-marketing)

[Mandatory Nutrition Labeling 9](#mandatory-nutrition-labeling)

[Packaging and Labeling 9](#packaging-and-labeling)

[Exporter Guide 9](#exporter-guide)

[Exchange Rates 9](#exchange-rates)

# Executive Summary

\* Canadian frozen french fry production during MY2004/05 slipped almost
2% from the year earlier level to an estimated 1,365,000 metric tons.
The decline marked the first time in more than a decade that french fry
output in Canada failed to show a year-over-year increase.

\* Prospects for MY2005/06 point to another modest decline in Canadian
frozen french fry production. Canadian potato producers reported a
decline in processing potatoes under contract and subsequently reduced
the area planted to potatoes in 2005 to 159,400 hectares, down 9% from
the 2004 level.

\* Cavendish Farms, which currently operates two processing plants in
Prince Edward Island, announced it would abandon a plan to add another
processing line citing the sluggish frozen french fry market.

\* Canadian exports of frozen french fries to the United States in
MY2004/05 dropped to 776,146 metric tons, down 6% from the year earlier
level of 822,909 metric tons. However, the value of exports over the
period was virtually unchanged at \$538 million. Frozen french fries are
the third most valuable Canadian agricultural product export to the
United States after beef and pork.

\* U.S. frozen french fry exports to Canada during MY2004/05 totaled
30,153 metric tons, valued at \$38 million, down sharply from a year
earlier.

\* Canada's new nutrition labeling regulations come into effect on
December 12, 2005. The new rules will apply to U.S. prepackaged frozen
potato product exports to Canada.

# Section I. Production

Canadian production of frozen french fries during MY2004/05 slipped
almost 2% from the year earlier level to an estimated 1,365,000 metric
tons. The decline marked the first time in more than 10 years that
french fry output in Canada failed to show a year-to-year increase.
Weaker demand for Canadian frozen french fries in the United States and
Japan, combined with flat domestic market demand caused Canadian
processors to reassess their production targets.

For MY2005/06, a similar scenario is developing. A cutback in Canadian
potato area in 2005 reflects the sluggish french fry market and a
strengthening Canadian currency could impact the competitiveness of
Canadian frozen french fry in foreign markets. Post forecasts production
in MY 2005/06 to drop to about 1,325,000 metric tons, down a further
3.0% from the previous year's level.

![](media/image2.wmf)

## Industry Developments

## 

In April 2005, Cavendish Farms, which currently operates two processing
plants in Prince Edward Island, announced it would abandon a plan to add
another processing line citing the sluggish frozen french fry market.
The Canadian frozen french fry industry is relatively mature following
the construction of Canadian and U.S. owned plants in Canada over the
past ten years and no major expansion of potato area is forecast.
Canadian frozen french fry plants are strategically located close to the
potato production areas in the Maritime and Prairie provinces to serve
markets throughout Canada and the United States and in the Caribbean,
Europe and Asia.

### Non-Hydrogenated Oil

Given recent concerns by customers and consumers over trans fats in
foods, many Canadian frozen french fry processors are processing branded
retail and foodservice products in non-hydrogenated oil. 

### Potato Area

Statistics Canada reports that the total area planted to potatoes in
2005 slipped to 159,400 hectares, down 9% from last year. Prince Edward
Island and Manitoba showed the largest declines, down 4,200 hectares and
4,000 hectares respectively, but all provinces shared in the 15,900
hectare reduction in total plantings. Contract cuts for processing
potatoes and low prices for the 2004 crop are cited as the major reasons
for the drop in Canadian potato area. It was the second year in a row
that Canadian potato producers reported reduced plantings.

## Consumption

Statistics Canada does not keep an official data series on the Canadian
consumption of frozen french fries. Anecdotal evidence from the
foodservice industry suggests that the Canadian consumption level of
frozen french fries peaked sometime during 2003. Trends such as the "low
carb" diet pushed per capita consumption lower for both foodservice
frozen french fries and grocery store sales. Recent grocery product
industry surveys show that retail frozen french fries sales continue to
under perform the average rate of sales increase in the total frozen
food sector.

# Section II. Trade

## Frozen French Fry Exports

For the first time in a decade, total Canadian frozen french fry exports
to the world fell below the year earlier recorded level, reflecting
lackluster demand in major destination markets.

![](media/image3.wmf)

## Frozen French Fry Imports

There are no major developments to report in Canada's import market for
frozen french fries. Reflecting sluggish demand, imports of frozen
french fries from the United States during MY2004/05 slipped sharply
from the year earlier level, but the total value of shipments increased.

![](media/image5.wmf)

## Tariffs

+----------------------+---------------------+------------------------+
| ###### Cana          |                     |                        |
| dian Tariff Rates on |                     |                        |
|  Frozen French Fries |                     |                        |
+----------------------+---------------------+------------------------+
|                      |                     | ######                 |
+----------------------+---------------------+------------------------+
| HS 2004.10.00        | Trade Agreement &   | ###### MFN Rate        |
|                      | Preferential        |                        |
|                      | Tariffs             |                        |
+----------------------+---------------------+------------------------+
|                      |                     | 6%                     |
+----------------------+---------------------+------------------------+
|                      |                     |                        |
+----------------------+---------------------+------------------------+
| United States        | FREE                |                        |
+----------------------+---------------------+------------------------+
| Commonwealth         | FREE                |                        |
| Caribbean Countries  |                     |                        |
+----------------------+---------------------+------------------------+
| Least Developed      | FREE                |                        |
| Countries            |                     |                        |
+----------------------+---------------------+------------------------+
| Mexico               | FREE                |                        |
+----------------------+---------------------+------------------------+
| Chile                | FREE                |                        |
+----------------------+---------------------+------------------------+
| Costa Rica           | FREE                |                        |
+----------------------+---------------------+------------------------+
|                      |                     |                        |
+----------------------+---------------------+------------------------+
| Source: Canada       |                     |                        |
| Customs Tariff       |                     |                        |
| Schedule, January 1, |                     |                        |
| 2005                 |                     |                        |
+----------------------+---------------------+------------------------+

## Other Frozen Potato Product Trade

As shown below, Canadian trade in other frozen potato products in
classification HS 0710.10 is minor.

![](media/image6.wmf)

# Section III. Marketing

## Mandatory Nutrition Labeling 

Canada will adopt mandatory nutrition labeling for most prepackaged
products effective December 12, 2005 and all imported products must meet
the same labeling requirements as foods produced in Canada. Use of the
U.S. nutrition panel on labeling is currently prohibited in Canada and
will remain so after Dec. 12, 2005. Only the Canadian nutrition panel
will be acceptable for prepackaged products sold in Canada. There are
differences in the U.S. and Canadian nutrition facts tables for daily
intakes and in the definitions of zero \"trans fats\".

The Canadian Food Inspection Agency has a webpage dedicated to Canada's
the new labeling regulations:
http://www.inspection.gc.ca/english/fssa/labeti/nutrition-pagee.shtml

The webpage listed above provides a link to a Nutrition Labeling Toolkit
to assist U.S. companies interested in bringing their processed potato
product label into compliance with Canada's new nutrition labeling
regulations.

## Packaging and Labeling

For retail sale, Canada's Processed Product Regulations stipulate that
the standard container sizes for frozen french fries are: 250 g; 500 g;
1 kg; 1.25 kg; 1.5 kg; and 2 kg. On December 3, 1998 the regulations
were revised to include "any size over 2 kg but not over 20 kg." For
U.S. exporters, the relaxed rule means they can export wholesale cartons
of frozen french fries containing inner bags in the common U.S. food
service industry sizes provided the inner bags have no markings. If
inner bags are marked, full labeling requirements apply (bilingual
labeling, ingredients, etc.).

## Exporter Guide

U.S. processed food exporters interested in the Canadian market can
consult the Exporter Guide prepared by FAS/Ottawa. The Exporter Guide
for Canada is available on the FAS website under Attaché reports at
www.fas.usda.gov The Exporter Guide provides general information
concerning Canadian regulatory requirements and details the FAS
sponsored services available to U.S. exporters interested in entering
the Canadian Food market.

## Exchange Rates

Where prices and values in this report are expressed in Canadian
dollars, the exchange rates are: 2002, C\$=US\$.6368; 2003,
C\$=US\$.7135; 2004, C\$= US\$ .7683; October 2005, C\$= US\$.8425
approximately.

# 

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