Required Report - Public distribution

**Date:** 2/26/2009

**GAIN Report Number:** CH9011

CH8000

**China, Peoples Republic of**

**Frozen Potato Products**

**Potato and Frozen Potato Products Annual**

**2009**

**Approved by:**

![](media/image1.wmf)William Westman

Ag Beijing

**Prepared by:**

Jorge Sánchez, Zhang Lei, Angie Han, and Darren Chandlee

**Report Highlights:**

China\'s fresh potato production in MY08/09 is forecast at 65 million
metric tons (MMT), not much change from the previous year. In the past
two years, about 10 percent of China's potato acreage shifted to other
plantings due to the growth in grains production. Processed potato
products are forecast to increase by 10 percent due to the rapid
expansion of western style and fast food outlets. Frozen french fry
(FFF) consumption is estimated to increase 10 percent in MY08/09 and
another 15 percent in MY09/10. Imported FFF in MY07/08 is estimated at
57,200 metric tons (MT) while FFF production is estimated to account for
over half of China's total domestic consumption in MY07/08.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 3](#production)

[Fresh potatoes 3](#fresh-potatoes)

[China's potato production remains stable in past years
3](#chinas-potato-production-remains-stable-in-past-years)

[Local governments support potato processing sectors
3](#local-governments-support-potato-processing-sectors)

[Processed potatoes 4](#processed-potatoes)

[China's potato processing sectors are expected to develop quickly in
coming years
4](#chinas-potato-processing-sectors-are-expected-to-develop-quickly-in-coming-years)

[FFF production is forecast to increase 8 percent to 70,000 MT in
2008/09
4](#fff-production-is-forecast-to-increase-8-percent-to-70000-mt-in-200809)

[Potato chips production is estimated at 80,000 MT
5](#__RefHeading___Toc223343033)

[China's potato starch processing sector is developing rapidly
5](#chinas-potato-starch-processing-sector-is-developing-rapidly)

[Dehydrated potato production is estimated to increase 30 percent to
40,000 MT in MY2008/09
5](#dehydrated-potato-production-is-estimated-to-increase-30-percent-to-40000-mt-in-my200809)

[Prices and costs 5](#prices-and-costs)

[China's fresh potato prices have been increasing since 2005
5](#chinas-fresh-potato-prices-have-been-increasing-since-2005)

[A simultaneous increase also occurs on costs
5](#a-simultaneous-increase-also-occurs-on-costs)

[Consumption 6](#consumption)

[FFF consumption is expected to increase
7](#fff-consumption-is-expected-to-increase)

[Potato chip are becoming a popular snack food in China
7](#potato-chips-are-becoming-a-popular-snack-food-in-china)

[Demand for starch and dehydrated potatoes continues to rise
7](#demand-for-starch-and-dehydrated-potatoes-continue-to-rise)

[Trade 7](#trade)

[China's does not allow fresh potato imports
7](#no-market-access-for-fresh-potato-imports)

[Fresh potato exports leveled off at around 350,000 MT in the past three
years 7](#__RefHeading___Toc223343045)

[China's FFF imports in MY2008/09 are forecast to increase 8 percent to
62,000 MT and exports are forecast at 10,000 MT
8](#chinas-fff-imports-in-my200809-are-forecast-to-increase-8-percent-to-62000-mt-and-exports-are-forecast-at-10000-mt)

[China's potato starch imports declined sharply since 2007
8](#chinas-potato-starch-imports-declined-sharply-since-2007)

[Marketing 9](#marketing)

[Fresh potato's supply chain 9](#fresh-potatos-supply-chain)

[Spoilage is one of the major concerns for China's fresh potato
distribution
9](#spoilage-is-one-of-the-major-concerns-for-chinas-fresh-potato-distribution)

[Processed potato products marketing intelligence
10](#processed-potato-products-marketing-intelligence)

[Statistics tables 12](#statistics-tables)

[Table 3. Fresh Potato PS&D Table 12](#table-3.-fresh-potato-psd-table)

[Table 4. Frozen Potato Products PS&D Table
12](#table-4.-frozen-potato-products-psd-table)

[Table 5: Processed Potato Imports Including Potato Chips
13](#table-5-processed-potato-imports-including-potato-chips)

[Table 6: Potato Starch Imports 13](#table-6-potato-starch-imports)

[Table 7: Potato Flour, Meal, and Flake Imports
14](#table-7-potato-flour-meal-and-flake-imports)

# Executive Summary

China's fresh potato production in MY08/09 is forecast at 65 MMT. In
MY08/09 potato production became a viable source of income for many
grain, course grain, and oilseed farmers. Although the growing
conditions are not optimal for potato production, processors have
continued increasing the amount of contracts for processing potatoes.
Contract farming represents the industrial sector's commanding influence
in China's farm production. Local governments have played an encouraging
role, in response to strengthened consumer demand, by establishing
support policies that favor the expansion of the potato planted area.
Compared to grain crops, potato production receives much less government
support at the national level and relies much more on market prices and
provincial (including local or county and village-level) government
support.

Potatoes are one of several varieties of starch consumed in China.
Historically, potatoes were used to supplement food rations; however,
they are not considered as an essential part of an average Chinese
consumer's diet. The expansion of Western fast food chains such as
McDonald's and Kentucky Fried Chicken and the growth in snack food
consumption such as potato chips, has led to an increase in potato
consumption in China. The processing sector is the main driver behind
the expansion in production.

# 

# Production 

## **Fresh potatoes**

### China's potato production remains stable in past years

According to MOA's latest Regional Priority for Potato Development
Planning (2008-2015), by 2015, China plans to expand its potato acreage
to eight million hectares, with total production at 150 MMT, 25 percent
of production devoted to the processing sector, and with storage
spoilage rates that do not exceed 10 percent of total production.

China's potato output has not significantly grown in the last four years
even though the planted area has increased by 12 percent. Soil quality
problems due to blight infested harvests are a result of late annual
rainfall have hampered yields. Notwithstanding, China remains the
world\'s largest potato producer, with output in MY07/08 of 64.7 MMT, or
more than 20 percent of the global harvest. Although China's potato
output is lower than corn and sweet potato production, more than 80
percent of corn and 40 percent of the sweet potato production are used
as animal feed.

The vast majority of potato production is on marginal land, mainly
mountainous areas with poor soil conditions, though some larger scale
production operations can now be found in more fertile areas of
northeast and south central China. The major potato producing provinces
are Inner Mongolia, Gansu, Yunnan, Guizhou, Sichuan, and Heilongjiang.
In northeast China's Inner Mongolia and Shanxi provinces, potato sales
account for more than half of total rural household earnings. The potato
production and harvested area have increased over the last 20 years with
a slight leveling off in the past four years. Yields have been more
erratic over the last twenty years possibly because potatoes are not a
staple crop that is supported by government policy and is often grown on
marginal lands with fewer inputs.

### Local governments support potato processing sectors 

At the municipal level, many local governments have shown support for
potato production. If the local governments invest in the development of
storage facilities, irrigation systems, and local infrastructure
development, processors are more likely to maintain contracts in a
particular village. In the long run, Post foresees China's potato
processing industry engaging in a growing number of joint cooperation
projects with local governments to support infrastructure development
and to strengthen the marketing channels in exchange for investment, job
creation, and greater tax revenue generation.

According to MOA, in 2007, about one million ha of potato acreage were
contracted by processors. Contracted land for commercial potato
production ranges from 1.2 to 6.67 ha per household. These are
relatively large land contracts compared to those seen on Post's field
visits where average contracts ranged from 0.67 to 1 ha per household.
This is because of greater land availability in certain northeast
provinces such as Inner Mongolia and Hebei.

Farmer organizations such as cooperatives are not yet prevalent in most
of China even though legislation was passed to support user-owned and
controlled supply cooperatives in October 2006. When the legislation was
recently adopted, there were high expectations from many agricultural
experts in China and abroad about the implications this new policy would
have on agricultural production. Many believed the law would open doors
to farmers by allowing them to control prices and become independent
producers. Unfortunately, Post's visits throughout rural China confirmed
that the legislation has had little impact on the number of operational
cooperatives mainly because farmers are still not in a position to
control investment and supply. China's potato farmers ultimately lack
the storage facilities to market to outside channels. According to MOA,
there were over 300 potato specialized cooperatives in China as of 2007.

## **Processed potatoes**

### China's potato processing sectors are expected to develop quickly in coming years

Processed potatoes account for about eight percent of total production,
with starch, chips, FFF, and dehydrated potatoes as the most prominent
products. Starch milling accounts for about five percent of total
processed potatoes; however, the decline in corn prices and the growing
demand for processed potatoes will result in a decline in potatoes
destined for starch production.

Post's market intelligence indicates that China's potato processing
enterprises amount to about 5,000, among which about 140 are large and
integrated processing enterprises. China's potato starch processing
capacity is estimated at 600,000 MT per year, with about 70 enterprises'
capacity at over 10,000 MT. These enterprises are mainly located in
Heilongjiang, Inner Mongolia, Ningxia, Gansu, Yunnan, and Guizhou
provinces. Dehydrated potatoes processing capacity is at 100,000 MT,
with 12 processors, mainly located in Inner Mongolia, Gansu, and Shanxi
provinces. There are four FFF processing lines in China with processing
capacity at about 100,000 MT, mainly located in Beijing, Heilongjiang,
Shanxi, and Gansu provinces. Potato chips processing capacity is at
160,000 MT, mainly located in Fujian, Guangdong, Jiangsu, Shanghai, and
Sichuan provinces.

### FFF production is forecast to increase 8 percent to 70,000 MT in 2008/09

Post forecasts China's FFF production at 70,000 MT, an eight-percent
increase from the previous year due to strong consumer demand. There are
a total of four FFF production lines located in the Beijing
Municipality, Heilongjiang, Shanxi, and Gansu Provinces with a possible
addition in mid-2009. Although FFF production capacity exceeds 100,000
MT annually, these plants are operating at only 50 percent capacity due
to poor storage facilities and quality issues. However, even with strong
demand, and favorable returns for potato growers, outstanding issues
continue to limit the processing season to approximately four months out
of the calendar year.

[]{#__RefHeading___Toc223343033 .anchor}**Potato chip production is
estimated at 80,000 MT**\
According to industry sources, in MY2008/09, there are approximately 20
potato chip production plants in China generating over 80,000 MT of
fried potato chips. Processors are interested in maintaining consistent
characteristics from most of their top chip producers, and seldom make
purchases from independent growers or growing regions. Industry leaders
contend that consistency in chips and FFF is more important than
reducing spoilage. Potatoes used for potato chip and FFF production have
specific requirements that include variety, starch/sugar content, size,
and shape. Such quality-specific potatoes require tailored growing
conditions and regimented irrigation and fertilizer applications.
Industry analysts believe that contractual demands will encourage
consolidation and scaled production. Contract farming represents the
industrial sector's commanding influence in China's farm production.

### China's potato starch processing sector is developing rapidly

China's starch production has expanded greatly since February 2007 when
an antidumping duty was placed on all European potato starch imports
(see Trade section). Industry estimates total starch production capacity
at 600,000 MT as of 2008, and actual production at around 350,000 MT in
MY2007/08. China has thousands of starch plants of varying sizes, five
of which produce at capacities over 30,000 MT. The central government
has provided guidance to the food processing sector via an 11^th^
Five-year Plan during 2006-2010. This direction was interpreted by the
China Starch Industry Association to include a 20-percent annual
increase in the production goals. Potato starch production demand is
strongly supported by the food processing sector and other industrial
sectors such as textiles, paper milling, chemical, and pharmaceutical
products.

In the food processing sector, potato starch is used to produce
vermicelli noodles, a popular local dish especially used in "hot pot"
dishes. Instant noodle manufactures are also a major potato starch
consumer; however, this industry tends to switch to alternative
feedstock when potato prices run high. Potato starch is commonly used in
the bakery sector to increase and retain moisture content in addition to
increasing the product's shelf life.

###  Dehydrated potato production is estimated to increase 30 percent to 40,000 MT in MY2008/09

Dehydrated potato production in MY2008/09 is estimated at 40,000 MT, a
30-percent increase from the previous year mainly attributed to the
growth in consumer demand for compressed chips. Dehydrated potato is
also used in other snack foods and in Western-style dishes like mashed
potatoes. According to industry sources, the increase in popularity of
Western-style fast food restaurants is driving the demand for dehydrated
potato, expanding the sector on average 20 to 25 percent annually since
2004.

# Prices and costs

## **China's fresh potato prices have been increasing since 2005**

Since 2005 fresh potato prices have strengthened and the expectation is
that the trend will continue appreciating at a six to nine percent rate
throughout 2009 and 2010. Growing demand, increasing input costs (oil
and fertilizer) that trickle down to marketing and transportation costs
are the main contributors to the increase in prices.

## **A simultaneous increase also occurs on costs** 

Fixed assets for potato production are limited; a simple hand tractor is
often the only machine owned by the majority of growers. The hand
tractor is a convenient and inexpensive means for farmers to transport
their product from the field to their homes or local markets. The small
number of fixed assets hints at two features of potato production.
First, most potato growers have limited capital for purchasing
equipment, and secondly, the majority of production is harvested
manually and only requires limited equipment.

Interviews with potato suppliers from Inner Mongolia Province were
conducted by Post in 2008 to better understand per ton costs of potatoes
sold in wholesale markets in Beijing. According to these brokers, the
most significant costs were in marketing and transportation. Fuel
prices, which are determined by the central government, have increased
about 18 percent since these interviews were conducted. The central
government recognizes the burden of increased fuel prices on producers
and consumers in urban areas and thus subsidizes highway toll fees for
trucks transporting agricultural commodities.

Table 1: Wholesaler Potato Supply Costs: Inner Mongolia to Beijing U.S.
\$/ton (RMB/ton)

  --------------------------------- ------------------- --------------- --
  Activity                          U.S. \$/ton         (RMB/ton)       

  Purchase Price                    102.34              700             

  Broker Fee                        2.92                20              

  Transportation                    21.93               150             

  Labor Costs                       2.92                20              

  Market Tax                        1.46                10              

  Other expenditures                8.04                55              

  Total Cost                        139.62              955             

  Wholesale Price                   146.20              1,000           

  Profit                            6.58                45              

  Source: Market Research, Beijing,                                     
  October 2007                                                          
  --------------------------------- ------------------- --------------- --

In 2007, the average annual income gained from selling potatoes was
\$790.77 (5,404.88RMB) per household. After costs were deducted, the
average net income per household was \$145.35 (994.17RMB).

# Consumption 

The China Potato Association estimates that about 30 percent of fresh
potatoes are produced for table consumption, 30 percent for feed, 22
percent used as feedstock for further processing, 10 percent for other
usage, and eight percent for seed potato. Post believes that while these
estimates are not official figures, they are the most accurate
information available for this market. Additionally, about 15 to 20
percent of total production is lost to waste due to lack of cold storage
infrastructure (including transportation). Proper storage is a major
limiting factor for the processing industry to expand production.

While U.S. frozen potato products dominate the Chinese market with
nearly a 75 percent market share, competition is strong from both third
country and domestic producers. However, locally produced potatoes are
not ideal for processing and freezing because they posses lower solid
content combined with a higher water content compared to imported frozen
products. With an increase in sales of 10-30 percent annually for major
international processed potato manufacturers with facilities in China,
confidence in the market remains high for importers. New shapes and
varieties are increasingly being introduced to the market, reflecting
progressively more sophisticated consumer demands. Shapes such as
twister, cross-cut, and wedges continue selling well, but the classic
shoestring cut remains a favorite. All of these trends have created a
wider variety of dining choices for consumers.

## **FFF consumption is expected to increase**

During MY07/08, China's domestic FFF consumption increased an estimated
15 percent to 112,000 MT. Western style food outlets are the largest FFF
consumers in China, accounting for 75 percent of total consumption. In
addition to the quick expansion of the leading foreign fast food
suppliers like KFC and McDonalds, local chain fast food service outlets
have also grown at a rapid pace. The remainder is marketed through HRI
outlets and retail stores (20 and 5 percent, respectively).

## **Potato chips are becoming a popular snack food in China**

The use of potatoes for chips is evolving quickly as the snack food
market strengthens. Deep-fried snacks are increasingly popular items in
China for all generations, especially the young. Crispy texture and
diverse flavorings make potato chips a good fit for this snack food
niche. Major international potato chip makers are still the leading
players, while local producers have limited market share and product
variety. With Chinese consumers possessing greater disposable incomes,
working longer hours and having less free time, portable snack foods
such as potato chips are gaining popularity especially among those below
age 35. One drawback to potato chip consumption compared to other snacks
is the use of deep frying and treatment with MSG and preservatives to
prolong shelf life. To keep potato snacks competitive, major
international manufacturers are developing baked products instead, which
would reduce fat content by more than 10 percent. One potato chip
company is also introducing an enriched snack food product line that can
be consumed for breakfast and claims to have reached a high sales
volume, expecting 10-percent annual growth in sales.

## **Demand for starch and dehydrated potatoes continue to rise** 

Dehydrated potato consumption continues to climb and are widely used in
food processing, baking, mashed potatoes, and snacks. Although the
price-driven Quick Service Restaurants (QSR) demands low-cost inputs,
international QSR chains such as KFC are not usually willing to
compromise product quality, and therefore continue to seek imported
alternatives to the low-quality domestic dehydrate potato products.

# Trade 

## **No market access for fresh potato imports**

Market access for all fresh potatoes (table stock and chipping potatoes)
is a top priority for the United States potato industry. The U.S. potato
industry is seeking market access for the northwest (Idaho, Washington,
and Oregon) potatoes. In 2006, the U.S. potato industry requested
China's quarantine and inspection authorities conduct a pest risk
assessment on U.S. fresh potatoes. Although technical discussions are
ongoing, China's foot-dragging on this market access request has greatly
limited progress.

[]{#__RefHeading___Toc223343045 .anchor}**Fresh potato exports leveled
off at around 350,000 MT in the past three years**

Malaysia, Vietnam, and Russia are the three largest export markets which
account for about 65 percent of China's fresh potato exports. Compared
to the 65 MMT for domestic production, China's fresh potato exports
although small, are growing.

**Figure 1: Fresh Potato Exports by Destination 2003 - 2008**

![](media/image2.wmf){width="5.836111111111111in"
height="3.045138888888889in"}

## **China's FFF imports in MY2008/09 are forecast to increase 8 percent to 62,000 MT, and exports are forecast at 10,000 MT**

China's FFF(H.S. Code: 20041000) imports in MY2008/09 are forecast at
62,000 MT, an eight-percent increase from the previous year due to the
rapid expansion of western style and fast food outlets. Industry
contacts believe that China's FFF market will continue its moderate
expansion over the next few years. The United States still dominates
China's imported FFF market, accounting for about 80 percent of China's
total imported frozen potatoes in MY2007/08. Canada and Belgium take the
other 20 percent market share.

China's FFF exports in MY2008/2009 are forecast at 10,000 MT. China
exported 9,584 MT of FFF in MY2007/08, of which, 94 percent went to
Japan. Industry contacts indicate that the majority of China's exported
FFF is still sourced from imported products.

## **China's potato starch imports declined sharply since 2007**

China's potato starch (H.S. code: 11081300) imports declined sharply
from 95,839 MT in MY2005/06 to 18,798 MT in MY2006/07 and 13,307 MT in
MY2007/08 due to China's anti-dumping duties on imported starch from EU
countries in February 2007. The Netherlands, North Korea, and Germany
are major suppliers of potato starch to China, accounting for about 90
percent of China's total potato starch imports in MY2007/08. Industry
sources indicate that China's domestic potato starch production expanded
rapidly in the past two years to meet strong demand from the food
processing, textile, and paper milling industries.

**Table 2 China's Tariff Rates**

  ------------- ---------------- ----------- ----------- -------------- ----------- ----------- -----------
  **China                                    **Trade                                            
  Tariff                                     Agreement                                          
  Rates**                                    Partner                                            
                                             Nations**                                          

  **HS Code**   **Potato         **MFN\***   **ASEAN**   **Pakistan**   **Chile**   **GEN\***   **VAT\***
                Imports**                                                                       

  0701.1000     **Fresh**,       13.00%      0.00%       10.90%         0.00%       70.00%      13.00%
                (including seed)                                                                
                (KG)                                                                            

  0701.9000     **Fresh** (not   13.00%      T3\*\*      9.00%          0.00%       70.00%      13.00%
                elsewhere                                                                       
                specified                                                                       
                (NESOI), except                                                                 
                seed) (KG)                                                                      

  0710.1000     **Frozen**       13.00%      T3\*\*      10.90%         0.00%       70.00%      13.00%
                un/cooked by                                                                    
                steaming or                                                                     
                boiled in water                                                                 
                (KG)                                                                            

  2004.1000     **Frozen**       13.00%      T3\*\*      10.90%         9.10%       70.00%      17.00%
                (prepared or                                                                    
                preserved (not                                                                  
                by vinegar or                                                                   
                acetic acid))                                                                   
                *\*includes FFF*                                                                

  1105.1000     **Flour**, meal  15.00%      8.00%       14.10%         6.00%       50.00%      17.00%
                and powder                                                                      

  1105.2000     **Flakes**,      15.00%      8.00%       14.10%         10.50%      50.00%      17.00%
                granules and                                                                    
                pellets                                                                         

  1108.1300     **Starch**       15.00%      8.00%       14.10%         6.00%       50.00%      17.00%

  2005.2000     **Chips**        15.00%      T3\*\*      14.10%         10.50%      70.00%      17.00%
                prepared or                                                                     
                preserved other                                                                 
                than by vinegar                                                                 
                or acetic acid,                                                                 
                not frozen).                                                                    

  \*MFN, Most                                                                                   
  Favored                                                                                       
  Nation; GEN,                                                                                  
  General; VAT,                                                                                 
  Value-Added                                                                                   
  Tax                                                                                           

  \*\*T3,                                                                                       
  various tax                                                                                   
  rates apply                                                                                   
  to the 10                                                                                     
  ASEAN                                                                                         
  countries.                                                                                    

  Source:                                                                                       
  ------------- ---------------- ----------- ----------- -------------- ----------- ----------- -----------

# Marketing

## **Fresh potato's supply chain**

Potatoes enter the domestic market through traditional or modern supply
chains. The traditional supply chain can be categorized into five
sections: production, collection at place of origin, transportation,
target city wholesale market, and retail (see Figure 2). In the main
production area, a broker plays the role of agent between the farmers
and potato purchasers. Most brokers are farmers from the production
area. Brokers earn commissions for facilitating a sale, packing the
product, and loading the product onto the buyer's truck. The modern
supply chain is simply to purchase product directly from the place of
origin and sell to hypermarkets or other end retailers.

Figure 2: Traditional Supply Chain

In order to better understand how potatoes move through the supply chain
to wholesale markets, Post commissioned a survey of twenty randomly
selected wholesalers at Beijing's Xinfadi wholesale market. The data
collected included: 1) the origin of the potatoes; 2) quantity
purchased; 3) how they were purchased (producer's own goods, purchased
at place of production, or purchased from a broker); 4) the broker fee
paid; 5) transportation costs; 6) purchase price; and 7) wholesale
market price. The wholesale price varies from 0.10\$/kg to 0.18\$/kg,
however, there is no corresponding trend connecting how the product was
purchased and the selling price. Transportation costs varied slightly
but the majority of suppliers paid 0.03 \$/kg. The provinces supplying
potatoes to Beijing include Hebei (borders Beijing municipality), Inner
Mongolia, and Shanxi Provinces.

## **Spoilage is one of the major concerns for China's fresh potato distribution** 

Concerned with spoilage for the development of the supply chain, Chinese
researchers have focused on developing disease-tolerant potatoes for
processing. However, growing conditions vary from region to region, and
some new hybrid varieties respond differently even for the two main
varieties for FFF and potato chip processing varieties: Atlantic and
Shepody. Seed research is mainly conducted by universities and research
centers. Most of the major processing companies have set-up regional
growing centers or stations to ensure a steady supply of feedstock can
be produced. Production region stations provide technical support to
farmers and also conduct research on developing new varieties that can
withstand lower temperatures, light irrigation, high yielding, high
starch content, and other attributes.

Researchers also toil over innovative ways to reduce spoilage and
improve growing conditions. Presently, the processing industry hedged
against spoilage ratios in the short term by expanding production
contracts by 10 to 15 percent annually on average. By expanding
production, processors can guarantee an adequate supply, eliminating a
sudden spike in market prices due to limited supplies, thus removing the
incentive for farmers to sell off their crop (partially or entirely) in
the open market rather than honor the contractual obligation with
processors.

Industry sources revealed that China's seed potato storage capacity in
2008 was at about two MMT, mainly in Inner Mongolia, Heilongjiang,
Hebei, and Gansu Provinces. Processing potato storage capacity is
estimated at about one MMT, mainly built by large processing
enterprises.

## **Processed potato products marketing intelligence**

International Quick Service Restaurant (QSR) chains have been the main
drivers for frozen potato sales in China, together with hotels,
restaurants, and bars. For longer-term development, the addition of
China-based QSRs should provide more opportunities for incorporating
frozen, dehydrated, and chipping potatoes into their menus. With the
increasing expansion of QSRs in China, market opportunities arise for
2nd, 3rd, and even 4th tier cities. KFC, one of the largest QSR brands,
has been opening a new store at the rate of an outlet per day since
2006. At the same time, other international QSRs such as Pizza Hut and
McDonalds were also increasing store coverage in China -- all of which
directly support the consumption of imported FFF.

Developing consistency in taste and quality should be a priority for FFF
and chip retailers. Although the Chinese consumer has yet to reach the
level of sophistication of other regional markets in North Asia, a new
wave of young consumers with a preference for convenient and
Western-style diets is being shaped. Western lifestyles frequently
portrayed in Western (mostly U.S.) media including music, fashion,
television, and movies. are extremely popular with China's youth and
also highly influential in developing a market for processed potato
products. According to an industry source, developing unique tastes that
consumers can distinguish is fundamental to their marketing strategy.

While FFF are available at certain retail outlets, at-home consumption
of FFF is still negligible. At-home dehydrated potato consumption could
increase significantly but from a very small base. Industry marketing
campaigns should target middle class groups with greater exposure to
Western media and younger generations that prefer convenient foods and
are therefore more likely to incorporate western style food into their
diets.

PR and media activities: nutrition campaigns and seminars, HRI sector
activities, including chef training in Western as well as Chinese
cuisine, and menu promotions are all effective tools for reaching out to
local consumers. Additionally, participating in trade shows like Food
and Hotel China (FHC) and SIAL (held annually in Shanghai) is a good way
to reach importers, traders, distributors, and establish company, and
product brand image. Chefs and food service operators are delivering to
consumers the message of healthiness, safety, nutrition, and the
versatile uses for U.S. imported potato products.

Sampling products in a retail format is a direct and effective way to
reach out to consumers and educate them about possible applications and
varieties. Rising disposable incomes, longer working hours and shrinking
free time are all factors influencing consumer choices. In addition,
dietary habits vary regionally, and effective marketing must take these
differences into account. For example, in potato chip products, new
flavors such as barbeque, red meat, salty foods, seafood (shrimp flavor
in particular), and spaghetti are local favorites.

Among the many emerging city markets (ECM), some are identified as
having extremely favorable conditions for imported potato products:
Wuhan, Chengdu, Chongqing, Nanjing, Hangzhou, Zhengzhou, Harbin, and
Shenyang. For U.S. exporters to thrive in the China market, reliable
distribution channels are necessary to maintain the integrity of high
value products during transport. Frozen potatoes and potato chips
require special care to ensure quality. Depending on their location,
destinations in Central and West China are usually far from ports and
can take longer to reach, thus driving up product costs.

Cold chain logistics and proper product handling are critical areas for
imported frozen potato products. Road conditions, temperature, and
distance are all factors that can affect product quality, outlook, and
final costs. Inviting importers and distributors to participate in a
seminar may be beneficial to improving service efficiency and product
reliability. The North China market has been traditionally dominated by
Beijing and Tianjin, but new market opportunities are arising in Inner
Mongolia, Shandong, and Shanxi provinces. Other ECMs in north China also
have market potential because many local consumers in those regions
favor fried foods.

The industry is yet to be significantly impacted by the financial
crisis, as of the time of this report, but some predict that the market
will feel the strain by the end of this year, leading to a slow down in
demand for high-value products and a rise in demand for low cost items.
However, most manufacturers are confident that the current market
conditions will continue and that domestic demand will continue to
increase.

# Statistics tables

## **Table 3. Fresh Potato PS&D Table**

  -------------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- -----------
  Country                   China,                                                                                     
                            Peoples                                                                                    
                            Republic                                                                                   
                            of                                                                                         

  Fresh Potatoes                                                                                (HA)(1000              
                                                                                                MT)                    

                 2006                  Revised                2007       Estimate               2008        Estimate   

                 USDA\                 Post\      Post\       USDA\      Post\      Post\       USDA\       Post\      Post\
                 Official              Estimate   Estimate\   Official   Estimate   Estimate\   Official    Estimate   Estimate\
                                                  New                               New                                New

  Market Year                          09-2006    09-2006                09-2007    09-2007                 09-2008    09-2008
  Begin                                                                                                                

  Area Planted   0                     512500     5015700     0                     4430300     0           0          4500000

  Area Harvested 0                     512500     5015700     0          0          4430300     0           0          4500000

  Beginning      0                     0          0           0          0          0           0           0          0
  Stocks                                                                                                               

  Production,    0                     72000      74355       0          0          64790       0           0          65000
  Commercial                                                                                                           

  Imports        0                     0          0           0          0          0           0           0          0

  Total Supply   0                     72000      74355       0          0          64790       0           0          65000

  Exports, Fresh 0                     400        400         0          0          300         0           0          300

  Processing     0                     4320       7400        0          0          6450        0           0          6470

  Domestic Fresh 0                     35700      37000       0          0          32250       0           0          32350
  Market                                                                                                               

  Feed Waste     0                     25200      29555       0          0          25790       0           0          25880

  Total Dom.     0                     71600      73955       0          0          64490       0           0          64700
  Consumption                                                                                                          

  Ending Stocks  0                     0          0           0          0          0           0           0          0

  Total          0                     72000      74355       0          0          64790       0           0          65000
  Distribution                                                                                                         
  -------------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- -----------

## **Table 4. Frozen Potato Products PS&D Table**

# 

<table style="width:100%;">
<colgroup>
<col style="width: 15%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 10%" />
<col style="width: 7%" />
<col style="width: 10%" />
<col style="width: 10%" />
<col style="width: 5%" />
<col style="width: 7%" />
<col style="width: 14%" />
</colgroup>
<tbody>
<tr class="odd">
<td rowspan="5"><strong>Potato Products, Frozen China</strong></td>
<td colspan="3"><strong>2006</strong></td>
<td colspan="3"><strong>2007</strong></td>
<td colspan="3"><strong>2008</strong></td>
</tr>
<tr class="even">
<td colspan="3"><strong>2006/2007</strong></td>
<td colspan="3"><strong>2007/2008</strong></td>
<td colspan="3"><strong>2008/2009</strong></td>
</tr>
<tr class="odd">
<td colspan="3"><strong>Market Year Begin: Sep 2006</strong></td>
<td colspan="3"><strong>Market Year Begin: Sep 2007</strong></td>
<td colspan="3"><strong>Market Year Begin: Sep 2008</strong></td>
</tr>
<tr class="even">
<td colspan="2"><strong>Annual Data Displayed</strong></td>
<td><strong>New Post</strong></td>
<td colspan="2"><strong>Annual Data Displayed</strong></td>
<td><strong>New Post</strong></td>
<td colspan="2"><strong>Annual Data Displayed</strong></td>
<td><strong>Jan</strong></td>
</tr>
<tr class="odd">
<td> </td>
<td> </td>
<td><strong>Data</strong></td>
<td> </td>
<td> </td>
<td><strong>Data</strong></td>
<td> </td>
<td> </td>
<td><strong>Data</strong></td>
</tr>
<tr class="even">
<td>Beginning Stocks</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td> </td>
<td>0</td>
<td>0</td>
<td> </td>
<td> </td>
<td><blockquote>
<p>0</p>
</blockquote></td>
</tr>
<tr class="odd">
<td>Production</td>
<td>45,000</td>
<td>45,000</td>
<td>63,000</td>
<td> </td>
<td>50,000</td>
<td>65,000</td>
<td> </td>
<td> </td>
<td>70,000</td>
</tr>
<tr class="even">
<td>Imports</td>
<td>54,000</td>
<td>55,000</td>
<td>56,800</td>
<td> </td>
<td>58,000</td>
<td>57,200</td>
<td> </td>
<td> </td>
<td>62,000</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>99,000</td>
<td>100,000</td>
<td>119,800</td>
<td> </td>
<td>108,000</td>
<td>122,200</td>
<td> </td>
<td> </td>
<td>132,000</td>
</tr>
<tr class="even">
<td>Exports</td>
<td>13,000</td>
<td>15,500</td>
<td>11,900</td>
<td> </td>
<td>16,000</td>
<td>9,600</td>
<td> </td>
<td> </td>
<td>10,000</td>
</tr>
<tr class="odd">
<td>Domestic Consumption</td>
<td>86,000</td>
<td>84,500</td>
<td>107,900</td>
<td> </td>
<td>92,000</td>
<td>112,600</td>
<td> </td>
<td> </td>
<td>122,000</td>
</tr>
<tr class="even">
<td>Ending Stocks</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td> </td>
<td>0</td>
<td>0</td>
<td> </td>
<td> </td>
<td>0</td>
</tr>
<tr class="odd">
<td>Total Distribution</td>
<td>99,000</td>
<td>100,000</td>
<td>119,800</td>
<td> </td>
<td>108,000</td>
<td>122,200</td>
<td> </td>
<td> </td>
<td>132,000</td>
</tr>
</tbody>
</table>

## **Table 5: Processed Potato Imports Including Potato Chips**

  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------
  **China: Processed                                                                                                 
  Potato Imports                                                                                                     
  Including Potato                                                                                                   
  Chips**                                                                                                            

  Marketing Year:                                                                                                    
  September/August                                                                                                   

  HS: 200520                                                                                                         

  Quantity (MT)                                                                                                      
  Value (U.S.\$                                                                                                      
  millions)                                                                                                          

  **Country**        **2004 -                   **2005 -                   **2006 -                   **2007 -       
                     2005**                     2006**                     2007**                     2008**         

  ** **              **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**

  World              73.46          0.116636    48.25          0.194842    189.54         0.441413    76.96          0.384896

  United States      43.08          0.063731    22.63          0.103436    152.60         0.295175    36.25          0.182008

  Germany            0.59           0.002758    17.71          0.066233    26.13          0.10159     29.04          0.132746

  Italy              5.43           0.013218    0.00           0           5.04           0.01265     5.00           0.024824

  Poland             0.00           0           0.00           0           1.67           0.010882    1.96           0.015062

  Taiwan             0.00           0.010654    0.43           0.006656    0.97           0.004001    0.96           0.005568

  Korea, South       20.89          0           2.94           0.001964    0.00           0.004249    0.86           0.0052

  Austria            0.00           0           0.00           0           0.00           0           0.83           0.004722

  Australia          2.24           0           1.82           0           1.07           0           0.77           0.004719

  Japan              0.56           0.002005    0.30           0.002756    0.43           0.003928    0.51           0.004139

  Spain              0.00           0.023543    0.00           0.007203    0.00           0           0.35           0.002258

  Source: China                                                                                                      
  Customs                                                                                                            
  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------

## **Table 6: Potato Starch Imports**

  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------
  **China: Potato                                                                                                    
  Starch Imports**                                                                                                   

  Marketing Year:                                                                                                    
  September/August                                                                                                   

  HS: 110813                                                                                                         

  Quantity (MT)                                                                                                      
  Value (U.S.\$                                                                                                      
  millions)                                                                                                          

  **Country**        **2004 -                   **2005 -                   **2006 -                   **2007 -       
                     2005**                     2006**                     2007**                     2008**         

  ** **              **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**

  World              43,126         18.3083     95,839         35.6889     18,798         8.5482      13,307         9.2603

  Netherlands        16,790         6.9540      37,862         14.4189     8,557          3.9214      6,102          4.5289

  Korea, North       651            4.8862      676            10.6993     2,226          2.3028      3,021          2.2970

  Germany            10,637         0.1361      29,395         0.1352      4,867          0.4904      2,742          1.0241

  Denmark            6,551          2.8433      10,762         4.2123      1,562          0.8507      744            0.5615

  Japan              251            0.2201      285            0.2035      538            0.4687      474            0.4178

  Poland             3,504          0.0000      7,064          0.0154      55             0.0217      84             0.2872

  France             2,938          1.2744      8,538          2.8914      406            0.2021      64             0.0582

  United Kingdom     0              1.2852      6              2.5779      6              0.0287      49             0.0476

  Hong Kong          0              0.0000      0              0.0000      20             0.0220      20             0.0205

  Taiwan             0.2            0.0002      0.5            0.0636      6              0.0071      5              0.0096

  Source: China                                                                                                      
  Customs                                                                                                            
  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------

## **Table 7: Potato Flour, Meal, and Flake Imports**

  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------
  **China: Potato                                                                                                    
  Flour, Meal, and                                                                                                   
  Flake Imports**                                                                                                    

  Marketing Year:                                                                                                    
  September/August                                                                                                   

  HS: 1105                                                                                                           

  Quantity (MT)                                                                                                      
  Value (U.S.\$                                                                                                      
  millions)                                                                                                          

  **Country**        **2004 -                   **2005 -                   **2006 -                   **2007 -       
                     2005**                     2006**                     2007**                     2008**         

  ** **              **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**

  World              2,121          2.065       3,813          3.765       1,295          1.758       1,917          2.865

  United States      185            0.228       951            1.296       540            0.777       615            0.887

  Germany            1,594          1.457       1,282          1.220       380            0.386       518            0.690

  Poland             0              0.000       270            0.315       264            0.390       353            0.614

  Netherlands        270            0.290       210            0.236       40             0.044       322            0.494

  Thailand           10             0.004       5              0.001       0              0.000       99             0.152

  Spain              29             0.062       29             0.058       67             0.152       10             0.025

  France             0              0.000       600            0.204       0.546          0.001       0.294          0.001

  Belgium            0              0.000       170            0.156       0.798          0.002       0.1            0.000

  Denmark            18             0.017       252            0.238       0              0.000       0.05           0.000

  Italy              0.07           0.000       0              0.000       0              0.000       0.034          0.000

  Source: China                                                                                                      
  Customs                                                                                                            
  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------

**Table 8: Frozen Potato Imports Including FFF**

  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------
  **China: Frozen                                                                                                    
  Potato Imports                                                                                                     
  Including FFF**                                                                                                    

  Marketing Year:                                                                                                    
  September/August                                                                                                   

  HS: 200410                                                                                                         

  Quantity (MT)                                                                                                      
  Value (U.S.\$                                                                                                      
  millions)                                                                                                          

  **Country**        **2004 -                   **2005 -                   **2006 -                   **2007 -       
                     2005**                     2006**                     2007**                     2008**         

  ** **              **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**   **Quantity**   **Value**

  World              61,782         45.90       54,782         40.85       56,788         52.06       57,193         56.07

  United States      41,453         31.69       33,662         25.79       38,524         35.51       46,562         45.78

  Canada             13,131         9.49        16,147         11.60       15,418         14.01       7,495          7.54

  Belgium            1,773          1.20        1,635          1.17        713            0.65        2,475          2.11

  Netherlands        151            0.09        282            0.21        107            0.11        497            0.41

  Japan              0.1            0.00        40             0.03        111            0.14        136            0.19

  Egypt              525            0.29        504            0.28        479            0.42        24             0.02

  France             0.108          0.00        0.972          0.00        8              0.04        3              0.02

  Germany            84             0.06        0.204          0.00        1              0.00        1              0.00

  United Kingdom     0              0.00        0              0.00        0              0.00        0.067          0.00

  Italy              0              0.00        0              0.00        0              0.00        0              0.00

  Source: China                                                                                                      
  Customs                                                                                                            
  ------------------ -------------- ----------- -------------- ----------- -------------- ----------- -------------- -----------