[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 20.04.2007

SEC(2007) 533

COMMISSION STAFF WORKING DOCUMENT

The potato sector in the European Union

TABLE OF CONTENTS

INDEX OF FIGURES 4

INDEX OF TABLES 7

ACRONYMS 8

EXECUTIVE SUMMARY AND CONCLUSIONS 9

MAIN ELEMENTS OF THE PRODUCTION PROCESS AND THEIR ECONOMIC CONSEQUENCES 9

GEOGRAPHICAL SCOPE OF POTATO MARKETS IN THE EU 9

ORGANISATION OF THE POTATO CHAIN IN THE EU 10

PRODUCTION 12

HUMAN CONSUMPTION 13

TRADE 14

PRICES AND RISK 15

CONCLUSIONS: CHALLENGES AND FUTURE ACTION 17

1. INTRODUCTION 20

1.1. Objective 20

1.2. Basic definitions 20

1.3. Main characteristics of the cultivation of potatoes 22

1.4. Structure of the report 23

2. PRODUCTION 24

2.1. World Production 25

2.2. Potato production in the European Union 26

2.2.1. EU-15 27

2.2.2. New Member States 29

2.3. Early potatoes 31

2.4. Seed potatoes 32

2.5. Evolution of farm structures 34

2.6. Final remarks 36

3. MAIN DETERMINANTS IN THE DEMAND FOR POTATOES 37

3.1. Overall trends in the EU 38

3.2. Animal feed 38

3.3. Starch potatoes 39

3.4. Potatoes for human consumption 41

3.4.1. Aggregate patterns 41

3.4.2. Typologies of potato products 45

3.4.3. Potato products in the NMS 46

3.5. Evolution of potatoes' demand and market prospects 46

4. TRADE 48

4.1. Seed potatoes 49

4.2. Early potatoes 52

4.3. Main crop potatoes 56

4.4. Processed products 59

4.5. The impact of enlargement 63

4.6. Conclusions 66

5. MARKET SITUATION, PRICES AND CONTRACTUAL RELATIONS 68

5.1. Long run trend of prices series 68

5.2. Segmentation, national boundaries and prices 73

5.3. Farmers and the upstream sector 77

5.4. Fluctuations of potato prices 78

5.5. Contractual relations with downstream operators 78

5.6. Futures and options 80

5.7. Concluding remarks 81

6. EU POLICIES AND THE POTATO SECTOR IN THE EU 82

6.1. EU Phytosanitary measures and commercial standards 82

6.1.1. Directive on harmful organisms (Directive 2000/29/EC) 83

6.1.2. Marketing of seed potatoes (Council Directive 2002/56/EC) 85

6.1.3. Community variety property rights (Council Regulation 2100/94) 85

6.1.4. Food law: traceability 82

6.1.5. Commercial standards 86

6.2. Tariffs and quotas 87

6.3. Promotion 89

6.4. Quality policy 90

6.5. The EC biofuels and biomass action plans 90

6.6. CAP direct payments 92

6.7. Summary 96

APPENDIX A 97

APPENDIX B: Starch Potatoes as a Component of Total Potato Production 112

APPENDIX C: Indicators on the Variations of Areas, Yields and Production 113

APPENDIX D: Potato Balance Sheet in the Eurostat Accounts 115

APPENDIX E: Monthly Potato Prices vs Monthly prices of other Crops 116

INDEX OF FIGURES

Figure 2-1: Main world producers in 2005 (metric tons) 25

Figure 2-2: Production of potatoes in the EU: comparison between the evolution in the EU-5 zone, the Mediterranean basin and the New Member States (1 000 tons) [1990–2005] 28

Figure 2-3: Evolution of arable land, usable agricultural area and potato area in the EU-15 (1992/94 = 100) [original data in ha; 1988–2005] 28

Figure 2-4: Annual variation (%) of potato yields in Poland and in the EU-5 area (from 1997 to 2005) 31

Figure 2-5: Early potatoes production in the main producing Member States (1 000 tons) [1990–2005] 32

Figure 2-6: Weight of potato surfaces in total area of holdings producing potatoes in the EU's Member States (2003) 36

Figure 3-1: Evolution of the components of world potato demand (1000 metric tons) [1961–2003] 37

Figure 3-2: Potatoes destined to animal feed in the EU (1 000 t) [average 2001/03] 39

Figure 3-3: Importance (%) of animal feed as destination of domestic uses of potatoes (average 2001/03) 39

Figure 3-4: Potatoes for the production of starch in the EU (1 000 t) [average 2001/03] 40

Figure 3-5: Importance (%) of potatoes for starch in domestic uses of potatoes (average 2001/03) 40

Figure 3-6: Gross human consumption of potatoes in the EU's Member States (1 000 t) [average 2001/03] 41

Figure 3-7: Gross human consumption in total domestic uses of potatoes (%) by Member State (average 2001/03) 42

Figure 3-8: Gross human consumption of potatoes for food processing and total gross human consumption of potatoes for a group of EU-15 countries (1 000 t) [1994–2002] 42

Figure 3-9: Consumption of processed potatoes (in raw material equivalent) in total human consumption of potatoes in selected EU countries [1990/92 – 1995/97 – 2001/03] 43

Figure 3-10: Per capita human consumption per capita by MS (kg per head) [average 2001/03] 44

Figure 4-1: Intra-EU trade and EU exports of seed potatoes (tons) [1990–2005] 50

Figure 4-2: EU trade of seed potatoes: shares of the main suppliers (1990–2004) 50

Figure 4-3: Main recipients of seed potatoes traded in the EU (% on total shipments)[2000–2004] 51

Figure 4-4: Monthly trade1 of early potatoes in the European Union (tons) [January 2001 – October 2005] 52

Figure 4-5: EU trade in early potatoes and in main crop potatoes (tons) [1990–2004] 53

Figure 4-6: Monthly trade of early potatoes in the EU: intra-EU trade and imports from third countries (tons) [January 2001 – December 2005] 55

Figure 4-7: Early potatoes shipped in the EU from the Mediterranean area (tons) [1990–2005] 55

Figure 4-8: Intra-EU monthly expeditions of early potatoes from the main suppliers (tons) [January 2001 – December 2005] 56

Figure 4-9: EU trade in main crop potatoes (tons) [1990–2005] 57

Figure 4-10: Weight (%) of EU-5 in volumes of main crop potatoes traded in the EU-5 Member States [1990/91 – 2003/04] 58

Figure 4-11: Main destination of EU-15 exports of main crop potatoes (%, original data in tons) [2002/03] 59

Figure 4-12: Importance (%) of the main types of processed potato products in EU-15 trade of processed potato products (original data in €) (1994/96 – 2003/05) 60

Figure 4-13: Exports of frozen potatoes (metric tons) [1978–2003] 62

Figure 4-14: Index of exports in frozen potatoes (1990=100; original data in metric tons) [1990–2003] 62

Figure 4-15: Main destinations of EU-15 exports of processed potato products (%; original data in €) [2002/03] 63

Figure 4-16: Seed potatoes: intra EU-15 trade, exports to third countries and shipments to the new Member States (1990=100; original data in tons) [1990–2004] 64

Figure 4-17: Trade in early potatoes between EU-15 and the new Member States (tons)[1990–2004] 64

Figure 4-18: Trade in main crop potatoes between EU-15 and the new Member states (1990=100; original data in tons) [1990–2004] 65

Figure 4-19: Trade in processed potato products: Intra-EU-15 trade, exports to third countries and shipments to the new Member States (1990=100; original data in €) [1990–2004] 66

Figure 5-1: EU-15 production of ware and seed potatoes (1 000 tons) [1985–2005] 69

Figure 5-2: Selling prices of main crop potatoes in the EU-5 countries (ECU-€/100 kg; nominal terms) [1971–2005] 70

Figure 5-3: Comparison between annual average producer prices of potatoes in Spain, Portugal, Italy and EU-5 (ECU-€/100 kg in nominal terms) [1971–2005] 71

Figure 5-4: Comparison between annual average producer prices of main crop potatoes in Poland, Latvia, Lithuania and EU-5 (ECU/100 kg and €/100 kg in nominal terms)[1990–2005] 72

Figure 5-5: Monthly producer prices in France (€/100 kg) [2000–2005] 74

Figure 5-6: Monthly producer prices in Germany (€/100 kg) [2000–2005] 75

Figure 5-7: Monthly producer prices of main crop potatoes in Germany, France, Spain, UK and Belgium (€/100 kg) [2000–2005] 75

Figure 5-8: Unit trade value of early potatoes and main crop potatoes (current values; 1990=100) [1990–2004] 77

Figure A-1 a.n: Distribution of potato areas by holdings' size (classes of agricultural area) [1990–2003] 106

Figure B-1: Comparison between the rate of variation of potato production with and without potatoes for starch (from 2001/04 to 2005) 112

Figure C-1: Coefficient of variation of yields and areas for selected crops in the EU-15 (1990–2004) 113

Figure E-1 a-e: Monthly selling prices of potatoes and other crops in selected Member States (€/100 kg) 116

INDEX OF TABLES

Table 2-1: Importance of potato production in the countries of the EU 30

Table 2-2: Area under seed potatoes in the EU (hectares) [1999–2004] 34

Table 2-3: Number of holdings producing potatoes in the EU's Member states (1990–2003) 35

Table 3-1: Production of processed potato products in the EU (tons) [1999–2003] 45

Table 4-1: Main components in the EU-25's trade of potato products (average 2003/05) 48

Table 4-2: Early potatoes traded in the EU by country of departure in 1990/91 and 2004/05 (tons) 54

Table 4-3: Intra EU-15 trade in main crop potatoes (tons) [1995/96 – 2003/04] 57

Table 4-4: Intra EU-15 trade and origin of EU-15 exports of processed potato products (€1 000) [2003/05] 61

Table 6-1: Third country duties on potato products 88

Table 6-2: Horticultural and potato area grown in the countries that will adopt the regionalisation option (average 2000/02; thousand ha) 93

Table A-1: World production of potatoes (metric tons) [1990–2005] 98

Table A-2: World area under potatoes (hectares) [1990–2005] 99

Table A-3: World potato yields (100 kg/ha) [1990–2005] 100

Table A-4: Production of ware and seed potatoes in the Member States of the EU(1 000 tons) 101

Table A-5: Area cultivated under potatoes in the Member States of the EU (1000 ha) 102

Table A-6: Potato yields in the Member States of the EU (100 kg/ha) 103

Table A-7: Production of early potatoes in the Member States of the EU (1 000 tons) 104

Table A-8: Hectares of specialised potato farms (2/3 of Standard Gross Margin obtained by the cultivation of potatoes) in the EU [1993–2003] 105

Acronyms

BPC | British Potato Council |

BWVEL | Bundesministerium fur Verbraucherschutz, Ernahrung und Landwirtschaft (German Ministry of Agriculture) |

CAP | common agricultural policy |

CCAE | Confederación de Cooperativas Agrarias de España |

CMO | common market organisation |

OAI | Output of the agricultural industry |

EC | European Commission |

EU | European Union |

FAO | Food Agricultural Organisation |

FVP | Fruits, vegetables and potatoes |

MS | Member States |

NMS | new Member States |

SFP | single farm payment |

UAA | usable agricultural area |

UEITP | Union européenne des industries de transformation de la pomme de terre |

WTO | World Trade Organisation |

ZMP | Zentrale Markt- und Preisberichtstelle für Erzeugnisse der Land-, Forst- und Ernährungswirtschaft. |

EXECUTIVE SUMMARY AND CONCLUSIONS

Main elements of the production process and their economic consequences

1. The potato is commonly considered a cool season crop. It is suited to at high temperatures when water is supplied in uniform quantities and can grow well on a wide variety of soils. Planting time varies considerably from region to region depending not only on local climatic conditions but also on intended market use. This entails that potato production can be obtained in many different areas and, indeed, explains why potatoes are grown in all the EU countries .

2. Water management and/or rainfall are probably the most important factors determining yield and quality of potatoes. Water scarcity may determine shifts in the localisation of potato plantings in the future.

3. Potatoes should be grown in a crop rotation that will enhance the soil fertility, maintain a loose friable soil condition and reduce weeds. From a technical and, importantly, from an economic standpoint potatoes should be seen not as a single crop alternative but rather as an element within a multiple-crop rotational plan .

4. A consequence of such a situation is that potato production is becoming increasingly concentrated in big holdings that are not specialised in potatoes . In fact, big farms are in a privileged position to apply rotational systems and, at the same time, satisfy demand requirements. Wholesalers and processors are more receptive to producers who can provide an adequate, regular and disease free supply.

5. Potato harvesting can be almost fully mechanised. Normally, the harvester digs up and loads the potatoes on trucks for transport to a shed where the tubers are washed, graded, and sized for bulk marketing or packed in bags. With the increased consumption of processed potatoes and a re-organisation of fresh market sales, more efficient storage conditions have become a key factor . In Europe, especially in North-Western Europe, a very large percentage of the potato crop is stored both for processing and for fresh sales. Progresses in storage techniques have made it possible to prolong the main crop potatoes' season.

Geographical scope of potato markets in the EU

6. Table potatoes can bear relatively long carriage so that transport costs are not sufficient to completely prevent buyers from all parts of the EU from competing with one another for the same supplies. This widens the geographical scope of the potato market and generally confers to it a European dimension .

7. Table potatoes from Northern Europe are sold on the EU’s Mediterranean markets and vice versa. The business of processed potato products and that of seed potatoes have a world dimension .

8. The sub-market of potatoes destined to the processing industry has a narrower dimension . Potatoes for processing have a lower unit value and the incidence of transport costs is higher. Processing firms are situated close to the plantings areas in order to minimise transport. In North-Western Europe, where the production of potato-based products is concentrated, locally produced potatoes are put into large storages that are clustered near processing plants where better control of storage conditions and season long accessibility to the stored crop are ensured.

Organisation of the potato chain in the EU

9. Today’s agrifood markets are increasingly characterised by linked vertical chains in which agriculture, manufacturing and retailers influence each other , with an increasing focus on adding value, streamlining distribution and anticipating customers demand. In the EU potato markets, some basins of potato production have responded positively to this very dynamic economic environment .

10. In particular, the EU-5 zone comprising UK, the Netherlands, Belgium, Germany and Northern France can be considered as the most efficient and integrated area in the EU’s potato business . Here, yields are remarkably above the EU-25 average, the importance of EU-5 in total EU-25 potato production is continuously increasing (56% in 2005) and local traders now shape if not control commercial relations all over the EU. Not only price series in the EU-5 countries are soundly correlated but they also have a strong impact on the overall tendencies recorded at EU level.

Figure a: Selling prices of main crop potatoes in the EU-5 zone (€/100 kg) [1971–2005]

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11. The current trend towards the concentration of production in the EU-5 area where processors are located and growing conditions seem more favourable is expected to consolidate in the next years. In the EU-5 area, there is a vital process of circular causation, where the competitiveness of the agricultural activity reinforces the position of manufacturers and vice versa.

12. At the level of market organisation, in the EU-5 area operators can benefit from information on key variables such as prices and production covering the whole EU-5 area. Published price lists and frequent meetings also play an important role in favour of continuous adjustments in prices.

13. In the EU-5 zone, processors and packers more and more provide seeds to farmers. If this practice limits the control of farmers on the purchase of seed varieties as well as planting schedules, it brings about a higher coherence in the plans of operators, reduces risks for farmers themselves and improves the efficiency of the whole chain. Indeed, the potato chain in the EU-5 is an example that shows that an increasing co-ordination can strengthen competitiveness and bring about advantages to all the operators , including farmers.

14. Another important factor shaping the potato business in the EU-5 zone is the creation of certain varieties that respond to specific needs (i.e. offer superior flavour and other attributes). Higher levels of specificity of a variety encourage tighter co-ordination in the form of contractual relations or even vertical integration . Contracts tend to cover a higher share in those areas where producers focus on varieties that would have low salvage value outside the relationship with well identified processors or packers.

15. If a given variety is suitable for fresh consumption, for processing and for exports, farmers have a higher degree of freedom in terms of market outlets and will show a higher propensity to take risks on the free-buy market. For example, in Belgium, where the most popular variety (Bintje) can have multiple destinations, the share of contracted material is relatively low.

16. Southern Europe is losing ground as a basin of potato production and is a very important recipient of products originating in North-West Europe. Yields are below the EU-15 average, costs of production are consequently high, surfaces and production are continuously declining. Local producers use mainly Dutch seeds and consumers eat more and more French table potatoes. Prices of main crop potatoes in the Mediterranean area (Italy, Spain, Portugal, Malta, Greece and Cyprus) are heavily affected by the trends observed in the EU-5 area.

17. In Spain, Italy and other Member States in Southern Europe, few distributors hold the representation right on the main varieties and detain the control of seed business within the national boundaries. They import seeds from the main breeding companies (mainly from the Netherlands) and sell them to local producers. Very often, these traders are also packers and cumulate a relevant buying and selling power .

18. In Southern Europe potatoes play a minor role as a factor of farmers’ aggregation . For example, the very few Spanish organisations dealing with potatoes have other crops as their main activity. Despite some exceptions, the residual interest placed on potatoes results in a general lack of farmers’ control on basic operations such as storage while strategic choices on the production process (for example, seeds selection) are not well co-ordinated. Traders focus mainly on earlies and have little interest in investing in high capacity storage facilities. The food manufacturing activity is not as developed as in North-Western Europe and the only export activity remains limited to early potatoes'.

19. The disruption of the planned economy system and the successive structural change in Central and Eastern Europe’s agriculture has strongly affected the potato industry. Production and plantings are consistently falling, while yields are low and, in some cases, highly variable.

20. In the new Member States (NMS ), there are still many smallholdings and subsistence farms – especially in Poland and in the Baltic countries – with scarce connections with markets. For example, it has been estimated that in recent years 90% of Latvian potatoes have been produced in subsistence holdings. Such a product is affected by significant quality problems and by the lack of modern storage equipment. As far as processing raw material is concerned, the limited processing capacities in some of the NMS constrain the development of local manufacturing firms .

21. The small scale of production, fragmentation, poor quality of tubers, difficulties in the collection of homogeneous batches create marketing problems. Some Eastern varieties find little acceptance among West European consumers while Western packers hesitate to purchase potatoes from some regions of the NMS for the fear of quarantine diseases.

22. Although the re-organisation of the potato industry is still not completed, the route towards a modern system of market economic relationships is bringing about some developments in the NMS. A large number of small family businesses are abandoning potato growing, plantings are continuously declining, prices become more and more in line with market fundamentals and investments are starting to flow into the potato sector .

Production

23. In the average of the period 2003/05, the EU-25 production of ware and seed potatoes was about 52.3 million tons, of which 70% originate in the EU-15. From 1990/92 till the period 2003/05, ware and seed potatoes production has decreased at an annual rate of –2.9% in the EU-25 and by –0.9% in the EU-15; therefore, the decline has been higher in the new Member States, –5.9% per year .

24. In Western Europe , total production is affected by the changes undergone in the demand for potatoes for food consumption . The demand for processed potato products is counterbalancing the fall in the demand for table potatoes, but does not grow enough to provide a stimulus for increasing the production of potatoes.

25. Another important factor is the reduced utilisation of potatoes for animal feed . Nowadays, cereals and other inputs replace potatoes for this purpose. Potatoes are more labour-intensive and, as a result, also more expensive than cereals for feeding animals. The utilisation of potatoes for animal feed is still popular in Eastern Europe, particularly in Poland, but the reduction in cattle stock and the increasing competition of other inputs are substantially lessening the demand for potatoes for animal feed there too.

26. Poland is still the most important producer of potatoes covering one fifth of the entire EU-25 production. However, the long term trend of decline of the Polish production is proceeding strongly . In 2005 the Polish production was 9.6 million tons against 29.6 million tons in 1990/92.

27. Production of potatoes is declining in the Mediterranean region of the EU . Potato production in Spain was 5.2 million tons in 1990/92, dropping to 2.6 million tons in 2003/05, equivalent to a yearly fall of –4.6% over the two periods. In 1990/92 Spanish production was bigger than the levels recorded for France or Belgium, while in 2003/05 the position was reversed. In Italy, production has consistently decreased too, 1.7 million tons in 2003/05 with a yearly decline of –2 % since the period 1990/92. In Portugal and Greece, production has annually decreased respectively by –4.5% and –1.1%.

28. On the other hand, EU-5 production is on a stationary trend (around 33 000 thousand tons). Therefore, its importance in total EU-25 production increases (about 56%). It is likely that further cutbacks in plantings in Southern and Eastern Europe could strengthen the demand for potatoes produced in the EU-5 countries so that EU-5 production is projected to increase in the future.

Figure b: Production of ware and seed potatoes in the EU-5 zone, in the Mediterranean part of the EU and in the new Member States (1 000 tons) [1995–2005]

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Human consumption

29. The main factors that have an impact on human consumption of potatoes are:

demand for convenience products. Convenience is especially related to saving time due to peoples' busier lifestyles and more women in the workforce; |

an increased competition of substitute products, such as pasta or rice. |

a strengthened attention on the health aspects of food (low calories, low fat, etc.); |

development of special products that are linked to certain methods of production or to certain territories. |

- 30. In Western Europe and in other developed areas, the demand for table potatoes is falling as consumers have less time for home-prepared meals and many have become well off enough to spend more evenings in restaurants and other food services. There are no signs that the future demand for table potatoes could stabilise at a new level.

31. On the other hand, the consumption of processed potato products has been gaining ground . Currently , the shift from table to processed potatoes in people’s preferences results in a stationary human consumption of potatoes in the EU.

32. The consumption of processed potato products is comparatively more developed in North-Western Europe , where it represents even more than half of human consumption of potatoes in some areas. It is relatively low but increasing in the Mediterranean area of the EU (about 10% of human consumption). For the totality of the new Member States, the importance of processed potatoes in total human consumption is limited to 7%.

33. In the last decade, the consumption of processed potato products has grown mainly because of the corresponding increase in fries' demand. The fries' market remains predominant but there are worries caused by the mounting health concerns of consumers .

Trade

34. The EU’s potato industry is very competitive and is continuously gaining shares within the EU as well as in the most dynamic marketplaces worldwide. On a world scale, EU firms are especially competitive in the segments of seed potatoes, where few Dutch companies are global leaders, and processed products. World demand for seed potatoes and processed products is increasing, especially in Asia.

35. Intra and extra-EU trade in seed, fresh and processed potatoes expanded significantly over the last decades. This trade expansion is mainly the result of an increasing specialisation of potato production in the EU-5 area .

36. Business in early potatoes from the Mediterranean Member States (Italy, Spain, Portugal, Greece, Cyprus and Malta) area is becoming increasingly problematic. Given that storage techniques now offer the possibility to commercialise main crop potatoes in the first part of the calendar year, earlies from Italy and Spain can still find a market in Europe as long as the price differential with main crop potatoes commercialised from March to June is not too high . Furthermore, they have to compete with potatoes originating in Egypt and Israel .

Figure c: Early potatoes shipped to the EU from the Mediterranean basin (tons) [1990–2004]

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37. France is specialised in table potatoes and is the most important provider . French shipments are dominated by Southern Europe as main area of destination because consumers still prefer firm-cooking varieties there. About 65% of all French potato shipments go to Spain, Portugal, Greece and Italy.

38. Dutch and Belgian firms are leaders on the market of processed potato products . Trade in varieties that are used for processing purposes is mainly circumscribed to the EU-5 area where the main manufacturing companies are located.

39. Trade between the EU-15 countries and the new Member States has been increasing exponentially under the effects of the enlargement process. At the same time, fears of large volumes of cheap potatoes flooding into the EU-15 from the new Member States are so far unfounded. However, traffic is flourishing between bordering regions and some food multinationals are setting up processing plants in some NMS.

40. Transport costs have followed an upward trend over the last years, with a peak of + 30% from 2004 to 2005. This strong increase could produce a more fragmented production of potatoes . This could also affect trade in seed potatoes. The main breeders could further limit their business to genes and know how, leaving multiplication to others. Practically, they could bring samples of their “genes” abroad and provide licences to local operators which could take care of multiplication and commercialisation of seeds.

41. Phytosanitary regulations are of extreme importance for operators as they normally prevail on all the types of legal acts that concern trade. At present, without prejudice of a derogation, it is forbidden for phytosanitary reasons to import ware potatoes from all third countries except Switzerland, Algeria, Egypt, Israel, Libya, Morocco, Syria, Tunisia and Turkey, and other than European third countries which are either recognised as being free from Clavibacter michiganensis ssp. sepedonicus (Directive 2000/29/EC, Annex III), or in which provisions recognised as equivalent to the Community provisions on combating Clavibacter michiganensis ssp. sepedonicus have been complied with. Within this group of countries, Israel and Egypt are the main suppliers of early potatoes to the EU.

Prices and risk

42. After the big fall recorded in 1994, the potato production in the EU-15 fluctuated around 37 million tons but the market situation has not been perceived by farmers as encouraging. In parallel to a fluctuating but substantially stationary production, real producer prices have gradually moved downwards .

43. Some explanatory elements can be identified as causes of the relative low price :

° Yields improve and cause a decrease in the costs of production, especially in the EU-5 MS . Farmers can then sell their potatoes at lower prices;

° The high levels of competitiveness of the EU-5 farmers exert a downward pressure on prices not only within the EU-5 MS, but in the rest of the EU too;

° The demand for table potatoes is continuously falling and is gradually causing a reduction of producer prices for the product that is used mainly for fresh consumption;

° The progressive shift in demand from table potatoes to varieties destined to the manufacturing industry. Potatoes for processing have a lower value and their increased utilisation pushes downward the aggregate unit price of potatoes.

Two additional factors having an impact on the potato prices can be identified:

° Data collected on spot markets concern varieties that can be used for multiple purposes . These varieties are valued less than varieties that are conceived for a specific use and that are normally contracted. However, prices on the spot market remain useful to illustrate price trends;

° Downstream operators have more possibilities to influence prices than farmers . In fact, packers and processors delay purchases when spot prices are very high or vice versa. The application of a counterbalancing strategy is more difficult for farmers as they are numerous and free-riding behaviours amongst them are more likely to happen.

44. In Southern Europe, prices of main crop potatoes tend to be higher than those recorded in the EU-5 area mainly because yields are lower and costs of production rise over the EU-5 levels. The price gap helps to explain why table potatoes from France have partly traded off domestic production in the EU's Mediterranean area.

45. Some NMS such as Hungary, the Czech Republic and Slovakia have prices that do not diverge significantly from the EU-5 average levels. In other NMS, such as Poland and the Baltic countries , there is a general increase in prices of main crop potatoes . As a consequence, prices tend to equalise EU-5 average levels and, in some cases, to overtake them. Alongside the narrowing of the price differential, quality gaps explain why table potatoes from Germany, Austria and other EU-15 countries have entered into these markets .

46. Prices of early potatoes tend to weaken in relation to the price of main crop potatoes. This is mainly brought about by the falling consumption of table varieties, increasing opportunities for packers to pick up the remaining batches of the main crop product during the earlies' season, and increasing competition from Israel and Egypt.

47. There is no common market organisation for potatoes. The absence of any type of stabilisation measures, the inelasticity of demand and the high variability of yields has produced substantial fluctuations of potato prices in the EU. Efficient storage operations can only partly offset the impact of these variables on price fluctuations.

48. However, potatoes have already become eligible for CAP decoupled payments:

- in the new Member States where a Single Area Payment Scheme[1] applies;

- as well as in those Member States[2] of the EU-15 that decided to use the new Single Farm Payment under the regionalisation option (Chapter 5, Section 1 of Regulation (EC) No 1782/2003). The regionalisation option allows applying a specific derogation to the prohibition on cultivating fruits and vegetables, other than permanent crops, and table potatoes[3].

Within the other MS that are applying the Single Farm Payment in its standard form, farmers can have access to the single payment scheme if they do not use their agricultural land to produce permanent crops, other fruit and vegetables, and table potatoes[4].

49. Prices variations do not convert automatically into income fluctuations of the same magnitude. However, price risk is a relevant element in potato business so that farmers and their counterparts in the potato chain have developed various tools that help reduce risks.

50. Contractual relations are the most popular price-fixing model in the potato sector. Normally, a maximum yield is established on which a given price is guaranteed. Once contracted prices and tonnages are fixed, the allocation of pay offs between farmers and their customers will depend on weather conditions and bargaining power . If the weather is unexpectedly favourable, then processors and traders can make additional purchases at prices below the contract level on the free-buy market. Annual or multi-annual contracts stipulated between potato producers and their customers normally include the possibilities of revising the unit price each month or sometimes even weekly.

51. In the EU, potato operators can deal with price risks by using financial derivatives, such as futures and options on futures . These types of contracts offer the possibility to lock-in a certain price ahead of time and are currently traded at the Commodity exchange in Hannover. In Amsterdam, trade in potato futures and options was rather limited if compared with trade in other commodities and it has been suspended since June 2006. Hannover is therefore the only market for potato futures as Dutch contracts for 2007 will be posted there . Very rarely individual potato producers have sufficient size and appropriate skills to make a profitable use of such modern risk management tools.

Conclusions: challenges and future action

52. As long as consumers require much higher dietary, hygienic and health standards and processors need low cost material that fits changing consumers’ requirements, there is room for the development and the introduction of new varieties offering better quality, higher yield and better resistance to diseases. Therefore, the evolution of demand in table potatoes and the rise in world demand for processed potato products will provide an excellent opportunity for expanding the business of the EU breeders of seed potatoes .

53. However, business in seed potatoes will be strengthened if basic principles of Intellectual Property Rights will apply fully , especially in some of the most important emerging countries.

54. The rising demand for potato products in Central and Eastern Europe, in Asia and South America will be met by imported products as well as by the production units that will be set up in these areas. EU potato processors are very competitive worldwide and could take advantage of the growing consumption of processed products . Product promotion and new product development are on the priority list of the main firms.

55. Manufacturers are trying to respond to the rising concerns on the effects of French fries on health by introducing "new French fries" (e.g. potatoes fried in special oils, microwavable, etc), but are also going to develop new lines of convenience products . In the EU and in other affluent marketplaces, business in refrigerated products with individual characteristics (linked to specific production methods, composition or origin) is projected to rise fast in the next years.

56. The rising presence on EU markets of products based on well-identified local recipes could open new opportunities for operators in regions which are currently not very dynamic in their role of suppliers of potatoes and potato products . However, the revitalisation of the systems of production in these areas involves a coordinated network of relationships at local level and brave marketing strategies.

57. It is often questioned whether the decline in table potatoes' consumption could be stopped and how this could be done. There is no evidence that table potatoes are harmful for health and a clear distinction should be made between some potato products and table potatoes. It is widely recognised that some classes of French fries have high calories and high fat contents, but that evidence should not automatically be considered as valid for table potatoes (as well as for some "new" French fries). An active approach could be based firstly on facts – that is scientific studies for measuring the impact of (different varieties of) table potatoes on human health – and then on updated marketing strategies .

58. In order to inform and offer guarantees to consumers about the quality of the product, potato producers in Europe could apply for the PDO/PGI . There are some classes of potatoes that are now registered as PDO/PGI.

59. If the evolution of trade patterns shows that the EU new Member States provide promising outlets with strong possibilities of expanding the EU potato industry, it is also evident that there is today little competition coming from NMS, on the EU-15 potato markets. Given that prices in the new Member States tend to reach average EU-15 levels, Central and Eastern European operators of potatoes cannot count on a significant price differential for strengthening their competitiveness. Rather, they need to improve the overall efficiency of the production and commercialisation process in order to establish more substantial and bi-directional trade links with the EU-15.

60. In Southern Europe, there is still room for potato farmers to strengthen connections with their commercial counterparts and to improve their horizontal links . The domestic markets in these countries are relevant and still offer business perspectives.

61. In some NMS, the use of certified seeds could be further promoted as this enables farmers to exert a better control on their volumes of production, facilitates the collection of homogeneous batches and allows them to design a more accurate sales schedule. A close monitoring should then accompany all the phases of crop development in order to achieve a better quality and safe commercial margins.

62. In the NMS but also in the EU's Mediterranean area, packers and processors could invest more in storage logistics and other equipment in order to increase the scale of their activity and market finished production units ready to hit the shelves of big retailers.

63. Information on prices, storage, plantings, production, varieties and other variables reported by specialised agencies has an important role to play. It could be used to enhance the collective knowledge on how the market works and what it wants. Sound information ensures market transparency and efficiency and is vital for farmers as they are relatively small compared to the larger organisations with which they trade . If in Western Europe, existing databases could be further improved, in the NMS there is a strong need to set up efficient information systems that could assist farmers in their decision-making; Public action could be directed at facilitating the flow of reliable information and improving the understanding of the potato markets in the EU .

64. If an individual farmer cannot individually take up modern risk management strategies, more farmers may pool their efforts and develop joint strategies on commercialisation and risk management . Working together would then allow reducing the unit transaction costs and would make the use of some financial instruments more attractive.

65. As was remarked upon in the Commission’s Communication on risk and crisis management in agriculture (COM(2005) 74, p. 6): “ the causes of the rather weak development and use of market based risk management tools (insurance, futures market, contract farming) could be addressed by training measures within rural development programmes ”.

66. Potato producers , especially in Western Europe, are often subject to the respect of different private quality assurance schemes . These schemes can cover issues such as food safety, environment protection, animal welfare and occupational health. As there are many quality assurance parameters and different schemes, an improved harmonisation will facilitate trade, improve cost-effectiveness and install higher consumer confidence .

INTRODUCTION

Objective

Potatoes are one of the few agricultural products for which there is no common market organisation. In 1992 and 1995 the Commission put forward proposals for a common market organisation, but no agreement was reached in the Council.

However, potatoes have become eligible for CAP decoupled payments in the new Member States where a Single Area Payment Scheme[5] applies as well as in those Member States that will implement the new Single Farm Payment under the regionalisation option (Chapter 5, Section 1 of Regulation (CE) No 1782/2003).

As a consequence of the enlargement to ten new Member States on 1st may 2004, the EU’s production of potatoes has increased by 40% in comparison to EU-15 levels, while the EU's potato area has jumped by 77%.

These changes bring about the necessity to follow up more closely the evolution of potato markets in the EU .

In the core of the EU’s potato economy (Northern France, Belgium, Netherlands, North-West Germany and UK), contractual relationships evolved on the basis of more direct and efficient linkages between the various operators of the chain. In many zones situated in the new Member States, holdings have instead a small size and the circulation of information within the sector is very fragmented.

Potato operators and policy makers need to have sounder information in order to monitor and better interpret market trends . As agricultural holders are relatively small and can control only a limited flow of information, the European Commission intends to improve market transparency with the establishment of a working group where not only farmers but also other operators of the chain are represented and where the main elements and determinants of the potato markets are discussed.

This report is aimed to be a step towards a better understanding of the economic relations shaping the potato business and will provide further material for the statistical documents[6] that will be periodically released by DG Agri on the potato markets.

Basic definitions

Potatoes markets are becoming increasingly segmented as new varieties are created to satisfy particular needs of the chain. However, as starting point some broad categories of potatoes can be identified: early potatoes, main crop potatoes, seed potatoes and starch potatoes .

Potatoes for human consumption, that is early and main crop potatoes, can be used as table potatoes , when they are supplied fresh to the consumer , or as raw material for the food processing industry .

The UNECE defines " early potatoes " as potatoes harvested before they are completely mature, marketed immediately after their harvesting and whose skin can be easily removed without peeling[7].

Early potatoes from the EU's and non EU's Mediterranean area (Spain, Italy, Cyprus, Greece, Malta, Portugal, Morocco, Israel and Egypt) are harvested and then commercialised in the first semester of the calendar year while the season of earlies obtained in the Continental and Northern part of Europe starts in late May-June and has its pick in July-August. In Southern Europe, the process is characterised by relatively low yields and high costs and, by consequence, the utilisation of early potatoes from the Mediterranean area is not very attractive to the processing industries.

The harvest of main crop potatoes starts later (normally in September) and production costs are lower. The technical progresses in storage operations have allowed a prolongation of the main crop potatoes’ season till May-June. As a consequence, there is an overlap of the season of main crop potatoes with that of early potatoes from the Mediterranean area.

The food industry can require potatoes for different types of products:

- pre-cooked products (mostly French fries),

- de-hydrated products (i.e. potato flours, potato flakes or potato granules),

- snacks ,

- other products (gnocchi, salads, ready prepared meals, etc.).

Seed potatoes are propagation material intended for re-production[8]. Once planted, they grow into new crops of potato varieties for human consumption or for starch.

Special varieties of potatoes are used for the production of starch . Starch potatoes represent the only sector of the “potato family” in which the CAP intervenes. In practice, a premium is paid to starch producing undertakings provided that they have made a cultivation contract with a potato producer and paid to potato producer a fixed minimum price for all the potatoes necessary to produce starch up to a quota limit (Council Regulation (CE) No 1782/2003, Article 94).

In this report, we will not deal with the evolution of the potato starch sector in the EU . The links between starch potato and the other parts of the potato industry are very weak because starch potatoes are only grown on contract for the starch industry and are not suitable for direct consumption. Therefore, they are not in direct competition with other varieties of potato.

Main characteristics of the cultivation of potatoes

Potato is commonly considered a cool season crop. It is suited to at high temperatures when water is supplied in uniform quantities and can grow well on a wide variety of soils. Planting time varies considerably from region to region depending not only on local climatic conditions but also on intended market use. This entails that potato production can be obtained in many different areas and, indeed, explains why potatoes are grown in all the EU countries .

Water management and/or rainfall are probably the most important factors determining yield and quality of potatoes. Water scarcity may determine shifts in the localisation of potato area in the future. In some areas, potatoes use relatively large amounts of fertilisers and pesticides.

Potatoes should be grown in a crop rotation that will enhance the soil fertility, maintain a loose friable soil condition and reduce weeds. From a technical and, importantly, from an economic standpoint potato should be seen not as a single crop alternative but rather as an element within a multiple-crop rotational plan .

Potato harvesting can be almost fully mechanised. Normally, the harvester digs and loads the potatoes on trucks for transport to a shed where tubers are washed, graded, and sized for bulk marketing or packed in bags or boxes. With the increased consumption of processed potatoes and a re-organisation of fresh market sales determined by the impetuous growth of big retailers, more efficient storage conditions have become a key factor . In Europe, especially in North-West Europe, a very large percentage of the potato crop is stored both for processing and for fresh use.

Following the expansion of the processing industry , particularly in Belgium and the Netherlands, locally produced potatoes are put into large storages that are clustered near processing plants where better control of storage conditions can be maintained and season long accessibility to the stored crop are ensured.

The above mentioned characteristics of the potato production bring about a series of consequences:

- perishability and European trade : potatoes are produced and demanded in all the regions of Europe. As table potatoes can bear long carriage, the geographical scope of table potatoes markets has a European dimension. Nowadays, potatoes from Northern Europe compete directly with locally produced potatoes in the Southern Member States and vice versa;

- perishability and price risk : potatoes can be stored for some months and then marketed at the “right” moment. Thus, potatoes’ operators could normally be less exposed to price-risk than their colleagues engaged in the production of perishable crops such as, for instance, peaches but more exposed than the producers of cereals;

- variation in surfaces : differently from farmers cultivating permanent crops that incur in elevated fixed costs, potato holders can promptly respond to technical, market and policy signals by changing their production mix. The area under potatoes can vary significantly from one year to another.

Structure of the report

This report will be structured in five sections. The first four sections will deal more directly with the economy of the potato sector. The quantitative trends of the main variables that affect the markets' evolution and equilibrium will be presented in the sections treating production (§ 2), demand (§ 3) and trade (§ 4). The understanding of the path followed by these variables will ease the "reading" of price series that will be carried out in § 5. In this section, we will also deal with the strategies put in place by operators to limit their exposure to risk. The last part (§ 6) will concern the main EU policies that have or could have an impact on the sector.

Section 2 will provide an extensive presentation of the EU potato production. We will treat separately the segments of main crop potatoes, early potatoes and seed potatoes. We will also identify the variation in production levels and the resulting vectors of specialisation in the EU. Changes undergone in the structure (sizes, typology of production) of potato farms in the EU will also be presented. The analysis will be carried out at an aggregate level and at Member State level.

Section 3 will be mainly devoted to analysing the demand, mainly that for table potatoes and that for processed products. The main facts will also be interpreted in the light of evolving social habits and new dietary requirements that have a big impact on the evolution of demand. A minor part of the total supply is also required for animal feed and starch potatoes. Figures will be provided on the evolution of these components at EU and Member States level.

Section 4 is about trade. The analysis of trade flows is another fundamental component affecting the dynamics of EU markets and it will shed light on the competitiveness of the EU potato industry on the world markets. The analysis will be carried out on the main segments of the potato sector: seed potatoes, early potatoes, main crop potatoes and processed potato products.

Section 5 will deal mainly with price series. In order not to use only "average" prices, statistics provided by professionals on specific varieties or on homogeneous groups of varieties will be used. We will try to identify the factors lying behind the levels and evolution of price series. The analysis will concern data registered in the main producing Member States. Another important part of section 5 will concern the relations in the potato chain as a way of minimising the risk exposure of the various parts involved in the transactions.

The last section will provide a broad overview of the main EU policies having an impact on the potato business in the EU. The first in order of importance is the EU phytosanitary policy but other fields of intervention will be equally considered: the CAP quality policy, the CAP promotion policy, the EU commercial policy and the new CAP direct payments.

At the end of each section, a paragraph will illustrate the main findings but also the main challenges that operators have to face.

The main sources that will be used are EUROSTAT (production, food use, trade and prices), FAO (data on production, trade and food use at world level). Statistics provided by professionals and by specialised agencies such as ZMP on prices of well identified potato varieties will also be used to reinforce the analysis of price series in § 5.

There are some national measures that could have an impact on the potato markets, such as insurance schemes, measures to facilitate forms of vertical co-ordination and so on. Such national measures will not be directly addressed in this report. Nonetheless, the issue is relevant and could be addressed in the future within the working group on potatoes set up by the European Commission.

Production

In Western Europe and in other developed areas, total potato supply has been constant over the last decade. The partial substitution in people’s own consumption of table potatoes with cereals and vegetables is partly offset by the increasing consumption of processed potato products. Vice versa, in other countries where potatoes were almost inexistent in people’s diet, potatoes supply is following an upward trend. In many areas of Africa, South America and particularly in Asia, technological improvements and rotational necessities on the production side, united with increasing incomes and new possibilities to diversify and integrate traditional food habits, are stimulating domestic supply to grow .

We observe a reduced utilisation of potatoes for animal feed . Potatoes are more labour-intensive and, consequently, also more expensive than cereals and other inputs for feeding animals.

A significant impact on the evolution of EU-25 potato supply is being exerted by the big changes in Central and Eastern Europe . In the NMS, potato production is being subject to an overall structural change and its fall is very significant .

This section aims at describing the main trends that have been shaping the supply of potatoes in the last decade. The starting point will be the analysis of world production in order to highlight the relative position of the main players and the place of the EU (§ 2.1). A detailed exam of the situation in the EU will then be carried out in the successive paragraphs. In § 2.2 we will furnish a factual presentation of the EU production, by pointing out also the changes undergone in the localisation of production since the first nineties. The aggregate "potato production" is the sum of starch potatoes, early potatoes, main crop potatoes and seed potatoes. Over the exposition, we do not consider starch potatoes in the aggregate production of ware and seed potatoes. Production of early potatoes and seed potatoes will be analysed respectively in § 2.3 and § 2.4. The structure of potato holdings will be scrutinised in § 2.5 and will be put in correlation with the production process of potatoes as well as with the necessities of the downstream customers. As conclusive step, we will synthesise the main findings of this section (§ 2.6).

FAO statistics on the EU production used in § 2.1 could diverge from Eurostat figures used in the successive paragraphs. In particular, FAO data referred to the first years of the nineties present lower values of potato production and surfaces for those Countries of Central and Eastern Europe that have joined the European Union on 1 May 2004.

World Production

World potatoes production has been increasing by + 1.4% per year, from 266.3 million tons in the period 1990/92 to 323 million tons in 2003/05 (table A-1)[9]. Behind this overall rise, there is a constant growth recorded for developing countries [10] (+ 4.5% on annual basis), particularly in China (yearly increase of + 5.8%), that is now the first world producer with a share of 23%, and India, (yearly rise of + 3.5%) that covers now 7.8% of world potato production (graph 2-1). Production is instead declining in many important developed areas , such as in the EU-25, that records an annual fall of –1,6% from 1990/92 to 2003/05 (–0.6% for the EU-15), and in other countries of Eastern Europe like Ukraine (–0.4%) and Russia (–0.3%). US and Canada have been recording a positive trend with an annual increase respectively of + 0.5% and + 3.4%. As result, developed countries' production declined at an annual path of –0.5% from 1990/92 to 2003/05 but still detained about 53% of world production in 2005. EU-25’s share in world supply was 18.5% in 2005.

Figure 2-1: Main world producers in 2005 (metric tons)

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Potato world area was 18.6 million hectares in 2005, almost equally distributed between developing and developed countries (table A-2). From 1990/92 to 2003/05, world area has increased annually by + 0.4%, although there has been a decrease in the developed countries (–1.3%) and an increase in the developing ones (+ 2.8%). Area has declined more in EU-25, –3.4% on annual basis (–2.2% in EU-15), in Japan(–1.8%), in US (–1.1%) as well as in Russia and Ukraine (–0.5%). Canada is the only important producer, within the group of developed countries, with a rising potato area (+ 2.6%). Surfaces are instead growing in China, + 3.2% per year, India, + 2.6%, Bangladesh, + 5.6%, as well as in Africa, + 3.8%. China is the first potato country in terms of area, with a share of 23.6% in total world area, next come Russia, 16.8%, EU-25, 10.9%, Ukraine, 8.1%, and US, 2.4%.

The average potato yield at world level was 17.2 t/ha in 2005, the average level for the developed countries was about 18.6 t/ha while it was 16 t/ha for the developing countries. World yields averagely increased by + 1% per year from 1990/92 to 2003/05, with a rise of + 0.9% for the developed countries and + 1.6% for the developing ones (table A-3).

Therefore, the jump of developing countries production is not only due to different patterns in terms of surfaces, but also to yields' increases. Again, this is particularly evident for China, + 2.5% per year from 1990/92 (16.7 t/ha in 2005), India, + 0.9% (17.9 t/ha), Bangladesh, + 2.6% (14.4 t/ha). However, the average values recorded for the group of developed countries are strongly affected by the relatively low increases recorded for Russia, + 0.2% per year from 1990/92 to 2003/05, with a yield of 11.6 t/ha in 2005, and Ukraine, + 0.2% (12.7 t/ha). US and EU-25 are improving annually their potato yields respectively by + 1.5% (43.5 t/ha) and + 1.9% (29.3 t/ha). The corresponding increases for EU-15 is equal to + 1.6% (about 37.3 t/ha in 2004).

Potato production in the European Union

The geographical distribution of potato production within the European Union is characterised by five main aspects:

- The Mediterranean part of the EU is relatively more specialised in early potatoes that are commercialised in the first semester of the calendar year;

- Earlies cultivated in Northern, Eastern and Central European countries are brought on the market between late May and August. However, these countries are relatively stronger in the marketing of main crop potatoes;

- Given continuous improvements in storage facilities, the season of main crop potatoes has been prolonged and clashes with the marketing season of early potatoes from the Mediterranean area;

- Trend towards the concentration of potato supply in five Member States: Germany, the Netherlands, France, UK, Belgium ( hereinafter EU-5 ). Poland has been for a long time the first potato producer in the EU but its production is strongly declining, while EU-5 countries are strengthening their position on the EU markets;

- The new Member States’ potato production underwent a drastic process of structural change following the disruption of the former planned socialist system. The path towards a modern system of market economic relationships is bringing about some developments but the re-organisation of the sector is still not completed. We will analyse separately the situation in the EU-15 (§. 2.2.1) from that of the new Member States (§ 2.2.2)

EU-15

From 1990/92 to 2003/05, production of ware and seed potatoes[11] decreased at an annual rate of – 2.9% in the EU-25 and by – 0.9% in the EU-15: therefore, the decline was higher in the new Member States, –5.9% (table A-4)[12]. In the average of the period 2003/05, EU-25 production of ware and seed potatoes was 52.3 million tons, of which 70% originated in the EU-15.

Poland is still the most important producer of ware and seed potatoes covering one fifth of the entire EU-25 production. However, the long term trend of decline of the Polish production is proceeding strongly . In 2005 the Polish production was 9.6 million tons going down from 29.6 million tons in 1990/92 (table A-4). Germany is the second producer of potatoes in the EU with about 8.5 million tons, equivalent to 17.5% of the EU-25 production. The German production has been slightly falling since the beginning of the nineties at an annual rate of –0.6%. The other main producing countries are the Netherlands , 4.35 million tons in 2005 (9% of the EU-25 production), France , 5.3 million tons (11%), UK , 5.8 million tons (12%) and Belgium , 2.8 million tons (5.8%).

In all the Member States, potato production has been decreasing over the last decade, except in Belgium, in the Netherlands and France. Belgian production has been increasing at a yearly rate of + 2% from 1990/92 to 2003/05, the Dutch production by + 0.1% and the French one by + 1.3%. In the EU-5, only UK has seen its ware and seed potatoes' production declining more than the EU-15 average, –1% per year from 1990/92 to 2003/05 (against –0.9% per year for EU-15).

The Mediterranean Member States are losing importance . Spanish production of ware and seed potatoes was 5.2 million tons in 1990/92, dropping at 2.6 million tons in 2003/05, equivalent to a yearly fall of –4.6% over the two periods. In 1990/92 the Spanish production was bigger than the French and Belgian ones, while in 2003/05 the position was reversed. In Italy, production has consistently decreased too, 1.7 million tons in 2003/05 with a yearly decline of –2 % from the period 1990/92. In Portugal and Greece, production annually decreased respectively by –4.5% and–1.1%. Graph 2-2 shows that EU-5 production is stationary, while the harvest in the Mediterranean area and especially in the new Member States is strongly falling.

Figure 2-2: Production of potatoes in the EU: comparison between the evolution in the EU-5 zone, the Mediterranean basin and the new Member States (1 000 tons) [1990 – 2005]

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Area cultivated under potatoes[13] in the EU-25 reached almost 2 million hectares in 2005, of which 59% are concentrated in the EU-15 zone (table A-5). Between 1990/92 and 2003/05, the annual area decreases have been –4.4% for the entire EU-25, –2.5% for the EU-15 and –6.2 % for the NMS.

Evidence shows a certain regularity in the decline of potato area in the EU-15 since 1988 (graph 2-3). The 1992 CAP reform has not caused major breaks as potato plantings continued to decline more than total arable land in the EU-15 even after its implementation.

Figure 2-3: Evolution of arable land, usable agricultural area and potato area in the EU-15 (1992/94 = 100) [original data in ha; 1988–2005]

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From 1990/92 to 2003/05, the annual reduction of surfaces in the EU-5, but Germany, has been lower than the EU average decline . In Belgium it is recorded even an annual increase of + 0.7% over the two periods. Again, there is a considerable fall of surfaces in Spain, –6.8% per year, Portugal, –6.4%, and Italy, –3.3%.

The EU-5 zone concentrated 56% of the entire EU-25 production in 2005 (a share of 77% in EU-15 production), but only 40% of the EU-25 potato area (67% in terms of EU-15 potato area). In 2005 surfaces under potatoes in Spain and Italy represent respectively 4.8% and 3.5% of the EU-25 area, more than the Belgian one (3.3%), despite the fact that production in these two countries is lower than in Belgium.

Yields are higher in the EU-15 and, within it, in the EU-5 plus Denmark and Ireland, while the remaining countries have yields that are lower than the EU-15 average. In 2003/05, the average potato yield in the EU-25 was 28.6 t/ha, resulting from a yearly increase of 2.1% since 1990/92 (table A-6). In the EU-15, the level was 36.8 t/ha with an annual increase of 1.9% over the two periods. In the NMS, the average yield was 18 t/ha in 2003/05 and the annual increase from 1990/92 was 0.7%. Therefore, yields in the EU-15 are almost twice those recorded in the NMS.

Relatively low levels are recorded in Finland, (25.7 t/ha in 2005), Italy (25.1 t/ha), Greece, (24 t/ha) and Spain (27.5 t/ha). Portuguese yields (about 16 t/ha in 2004) are even lower than those recorded in Central and Eastern Europe. Yields improvements in Italy, + 1.2%, and in Spain, + 2.3%, have not prevented a consistent decline of production.

New Member States

Following the 2004 enlargement, the EU production of potatoes has increased by 40% in comparison to EU-15 levels, while potato area has jumped by 77%. These numbers just represent the current picture and the situation is evolving as a consequence of the restructuring process that is taking place in the NMS.

At national level, potatoes play a very important role especially in Poland and in the Baltic countries (table 2-1). In Poland the value (at basic prices)[14] of potato production represents 3.8% of the total output of the agricultural industry (OAI)[15], whilst potato area covers 3.7% of the usable agricultural area (UAA). In Estonia, potatoes cover 6.2% of OAI and 2.1% of UAA, in Lithuania the percentages are 4.2% in terms of OAI and 2.3% in terms of UAA, in Latvia, it corresponds to 6.7% of OAI and 2.6% of UAA. High shares are recorded also in Cyprus, 4% of OAI and 4.1% of UAA, and Malta, 5.4% of OAI and 9.3% of UAA. In the EU-15, the importance of potato production is relatively higher in Belgium (3.6% in terms of OAI and 4.7% in terms of UAA), in the Netherlands (3.4% of OAI and 8.1% of UAA, and in UK (3.4% of OAI and 0.9% of UAA).

Table 2-1: Importance of potato production in the countries of the EU

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In 2005, the NMS’ ware and seed potato production was 13.3 million tons, of which 73% coming from Poland (table A-4). Potato production in Poland underwent an annual reduction of –6.3%. In Estonia (209 800 t in 2005), Slovenia (144 700 t) and Czech Republic (865 100 tons), the fall was equal or even more severe. In Lithuania, production declined relatively less, that is –2.4%, with a level of 778 800 tons in 2005. The fall was –3.3% per year in Latvia (630 400 tons in 2005), –4.1% in Hungary, (657 300 tons), –4.7% in Slovakia (301 200 tons).

Poland captures 30% of total potato areas in the EU-25, equivalent to 588 200 hectares (the level was 1.77 million hectares in 1990/92). There are not very important differences in yields' levels between the NMS, although some countries record levels above the NMS average yield (17.7 t/ha in 2005), such as the Czech Republic, Hungary and Slovenia. The Polish yield reflects the NMS average (table A-5 and A-6).

The reduction of surfaces has been sustained in all the NMS, explaining a light improvement of yields over the last decade.

If there is a large gap in yields' levels between EU-5 and the NMS, there is also a difference in yields' fluctuations which are more significant in Poland and less floating in the EU-5 . In graph 2-4 , these aspects are illustrated by the annual percentage variation of yields. However, in recent years Polish yields appear to be less fluctuating than a decade ago.

Figure 2-4: Annual variation (%) of potato yields in Poland and in the EU-5 area (from 1997 to 2005)

[pic] In the Baltic MS and in Poland, production is still very small-scale , carried out by peasants that have a scarce market orientation. In recent years, 90% of Latvian potatoes have been produced in such subsistence holdings. Such a product is affected by significant quality problems and by the lack of modern storage equipment. A large number of these small family businesses are abandoning potato growing, or indeed farming altogether [16].

If there is a consistent loss of many small farmers and plantings have been on a continuous decline, there are also signs that area reduction could increase production intensity and stabilise potato production at a large scale with higher and less floating yields.

Early potatoes

Harvest and commercialisation of early potatoes are dominated by the Southern product in the first months of the year, particularly in the period from March to mid-June. After this period, early potatoes from Northern and Central Europe countries are placed on the markets.

Main crop potatoes' trade has been decisively increasing during the season of the Mediterranean earlies . Storage possibilities permit an extension of the main crop campaign and increase competition. This is one of the key factors contributing to explain why the EU’s Mediterranean production of early potatoes is characterised by an accentuated downward trend over the last decade (graph 2-5).

Information on early potatoes is incomplete as we do not have enough statistics on Cyprus, Portugal, Poland and some other new Member States.

Figure 2-5: Early potatoes production in the main producing Member States (1 000 tons) [1990–2005]

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Since the beginning of the nineties, production has been increasing in Greece, Austria and Belgium, while France, Italy and, to a bigger extent, Spain, Germany and UK are recording falling levels of early potatoes production (table A-7).

In 2005, Spain was still the main producer Member State of early potatoes in the EU's Mediterranean area, with a harvest equal to 469 000 tons, followed by Italy with 460 000 tons. Within the rest of Europe, Germany is the main producer with 476 900 tons in 2005. France, Austria and Belgium produce also significant quantities (table A-7).

Since 1990/92, the annual fall of the aggregate “ware and seed potatoes”[17] harvest in Spain and Italy has been more significant than the fall of earlies' production. In Italy, the annual rate of early production decrease is low, –0.3% per year from 1990/92 to 2003/05, while in Spain is –3.2%. Therefore, these two countries remain relatively more specialised in the production of early potatoes .

As for the NMS, Cyprus is a traditional exporter of earlies in the first part of the season. According to Cypriot sources, production is about 120 000 tons.

Seed potatoes

The main feature of the seed stage in the EU’s potato chain is the strong and increasing concentration operated by few firms , mainly situated in the Netherlands. These companies make important investments for developing new varieties and commercialise their seeds everywhere with the support of local traders. Seed growers are more specialised than their colleagues that produce food potatoes.

Seed potatoes' area in the Netherlands was almost 39 500 hectares in 2004, rising by + 0.7% per year from 1999. In Germany surfaces destined to seeds reached 18 570 ha (–1.3% per year from 1999 to 2004), in France 15 000 ha (+ 0.5%), and in UK 14 000 ha (–4.7%). From the beginning of the nineties, seed potatoes' area has increased only in the Netherlands and in France (table 2-2). More than one third of the EU-25 seed potatoes area is concentrated in the Netherlands .

The reduction of hectares under seed potatoes is strong in the NMS, particularly in Latvia, –9.3% (284 ha in 2004), Slovakia, –8.5% (1 250 ha), Hungary, –6.9% (1 100 ha), and Poland, –3.7% (6 200 ha).

In Poland and in some other NMS, the process of certification of utilised seeds is not as developed as in Western Europe and its improvement is a necessary step to overcome some constraints that still limit the commercialisation of NMS’ potatoes on the EU-15 markets . There are signs of positive changes, especially in the Czech Republic where good quality varieties, with dynamic market prospects, are being produced and commercialised.

Although there are still important varieties that can be used for both processing and fresh consumption, such as Bintje , the prevailing trend is towards an increasing segmentation.

New varieties are created to respond to specific needs. Manufacturing firms continuously demand new varieties to launch innovating products from which they can gain a certain selling power and to adapt their merchandise to evolving consumers’ requirements.

Table 2-2: Area under seed potatoes in the EU (hectares) [1999–2004]

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Evolution of farm structures

Potato is a rotational crop, implying that it can be replaced by other crops – and vice versa – without incurring in elevated costs. Rotation offers the opportunity to reduce production risks , if it is adequately carried out so as to minimise yield losses and improve the soil fertility, but also marketing and price risks .

Wholesalers and supermarkets chain are more receptive to producers who can provide an adequate, regular and disease free supply for as long as possible .

Big farms are the best positioned to apply rotational systems and, at the same time, satisfy demand requirements . In 2003, the number of holding producing potatoes was 2.7 million, of which 57% were localised in Poland. From 1990 to 2003, potato holdings declined in all the EU countries, particularly in Italy, –10.7% per year, Ireland, –8.3% per year, and Luxembourg, –8.1% per year. In France, Spain and Portugal the yearly rate of decline was higher than –6% while in Greece the fall was comparatively small, –1.4% per year. The same process also involved the three countries that joined the EU in 1995, with an annual reduction of –9.3% in Sweden from 1995 to 2003, –6% in Austria and –3.9% in Finland. The decrease is about between –4.5% and –6% in the Netherlands, Denmark and Belgium (table 2-3).

Graphs A-1 a-n[18] illustrate the distribution of potato surfaces by holdings according to classes of agricultural area. They show that there is a general tendency towards the concentration of the potato cultivation in larger holdings. In the Southern MS, small holdings still capture a remarkable part of potato areas although the strengthening of medium-big farms is observable there too.

Table 2-3: Number of holdings producing potatoes in the EU Member states (1990–2003)

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Very few specialised potato farms exist: only ten per cent of the EU potato area is concentrated within holdings that get at least two thirds [19] of their Gross Margin from the cultivation of potatoes .

The incidence of specialised potato holdings is relatively more important in Finland, where 53% of potato area is captured by farms specialised in potatoes, Malta (40%), Italy and Ireland (about 35%) and Greece (25%). In all the other MS, the weight in terms of surfaces of specialised potato farms is not above 20%, with the lowest values recorded in the NMS (table A-8).

The importance of potato cultivation in the total area of holdings that produce potatoes is not generally higher than 10%, with few exceptions: Italy, 11%, Belgium, 13%, Denmark, 15%, Cyprus, 19%, Malta, 20% and the Netherlands, 27% (graph 2-6). In France, UK, Germany and Poland the weight of potatoes in potato-holdings’ area is about 8-9%.

Figure 2-6: Weight of potato surfaces in total area of holdings producing potatoes in the EU Member States (2003)

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Final remarks

The EU production of potatoes is becoming increasingly concentrated in five MS (Germany, Belgium, Netherlands, UK and France). In particular, the importance of potatoes in the agriculture of Belgium and the Netherlands reveals a relatively higher degree of specialisation. The increasing concentration of potato production in the EU-5 zone is due prevalently to marketing advantages (being situated near huge consumer areas) and to production-cost advantages. We will address the issue of competitiveness in Section 5, where the type of economic relationships between the agents of the potato chain in different areas will be described and qualitatively assessed.

Spain, Italy and other Southern countries are loosing market shares . One of the major problems that Mediterranean operators have to face is the overlap of the early potatoes season with the prolongation of the main crop potatoes’ marketing. Improvements in storage techniques and a strong organisation of marketing activities have made main crop potatoes the main competitor for the earlies produced in Southern Europe.

In the NMS, production and areas are falling at a very high speed. The decline is still projected to happen in the next years. The presence of small-scale holdings and obsolete commercialisation structures still pose constraints. However, a certain number of small family businesses are abandoning potato growing, production intensity is increasing and potato production could be stabilised at a larger scale.

The general structure of potato holdings reveals an increasing concentration of production in big holdings that are not specialised in potatoes. Big farms are well placed to get advantages from rotations that respond to technical necessities and economic signals while providing regular supplies to their customers.

MAIN DETERMINANTS IN THE DEMAND FOR POTATOES

World demand for potatoes is undergoing important changes, both in terms of localisation and composition. The overall trend is characterised by an increasing demand (graph 2-1), led mainly by a surge of human consumption in the most dynamic markets of Asia and, to a lesser extent, South America .

Global demand for frozen potatoes and other processed potato products has robustly augmented in Northern America and Northern-Continental Europe and is developing further in the emerging economies .

In the affluent societies the consumption of table potatoes is falling as consumers have less time for home-prepared meals and many have become well off enough to spend more evenings in restaurants and other food services.

The demand for potatoes for animal feed is much weaker than some decades ago. Its overall pattern is characterised by a continuous fall, particularly in Europe. Seed potatoes' demand is slightly diminishing in Europe and US, but is increasing in other important areas.

Globally, the wastes related to potatoes' production and the utilisation of potatoes for non-food purposes are more or less stable (graph 3-1).

Figure 3-1: Evolution of the components of world potato demand (1 000 metric tons) [1961–2003]

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A snapshot on the usages of potatoes in the EU will be provided in § 3.1. The successive paragraphs will be devoted to the scrutiny of the main components that shape the aggregate demand for potatoes in the EU. As starting point, we will present potatoes for animal feed, whose importance has strongly diminished over the last decade (§ 3.2), then a brief paragraph will illustrate the importance of starch potatoes in total domestic uses (§ 3.3). The core of this section will however be devoted to the determinants of potatoes' human consumption (§ 3.4), while the concluding paragraph will present the main factors that are destined to have an impact on the consumers preferences and, consequently, on firms' strategies in the next years.

Overall trends in the EU

In the EU-25, total domestic uses[20] were about 72 million tons on average in the three years 2001, 2002 and 2003. Human consumption of potatoes (for table use and for food processing) represented 53.3% of total domestic uses, while the weights of animal feed and starch were respectively 16% and 12%. The remaining potatoes were distributed between seeds, 8.5%, losses, about 8.2%, and industrial uses for non-food purposes, less than 2%.

In the EU-15, total domestic uses amounted to 45.9 million tons in 2001/03. The weight of human consumption was higher than in the EU-25 with a share of almost 65%. Potatoes used as seeds captured 6% of EU-15 domestic uses, starch counted for 16,7%, while potatoes destined for animal feed and for other no-food industries were respectively 4.2% and 1.9% of total domestic uses. Losses attained a percentage of about 6%.

The consumption of processed potato products is comparatively more developed in North-Western Europe , where it represents even more than half of human consumption of potatoes in some areas. It is relatively low but increasing in the Mediterranean area of the EU (about 10% of human consumption). For the totality of the new Member States, the importance of processed potatoes in total human consumption is limited to 7% but is moving up there too.

Animal feed

The decline of potatoes for animal feed has contributed to the general decline of EU-25’s potato production over the last decade . An increasingly specialised feed industry has given strong incentives to use alternatives such as cereals and other inputs. The 1992 CAP reform has also played role since it reduced market price support for cereals.

From 1990/92 to 2001/03, potatoes utilised for animal feed have declined annually by about 10% in Germany, 15% in Spain, 26% in Ireland, 20% in Italy and 3% in UK.

In 2001/03, total use of potatoes destined to animal feed was about 11.4 million tons in the EU-25 and 1.9 million tons in the EU-15. In Poland, the level was much higher than the one recorded for the whole EU-15, reaching 8.5 million tons (graph 3-2). As percentage of total domestic uses, potatoes for animal feed are particularly important in Poland, where this kind of use covers 44% of potatoes' utilisations, followed by Estonia 34%, Lithuania, 33.5% and Latvia, 24% (graph 3-3).

Nowadays, the ongoing restructuring process is causing a strong reduction of this use in the NMS due to the fall of cattle stock and the increasing competition of other inputs[21].

Figure 3-2: Potatoes destined to animal feed in the EU (1 000 t) [average 2001/03]

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Figure 3-3: Importance (%) of animal feed as destination of domestic uses of potatoes (average 2001/03)

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Starch potatoes

Potatoes used by the EU’s starch manufacturing firms in 2001/03 totalled 9.2 million tons in the EU-25 and 7.7 million tons in the EU-15. In particular, companies located in Germany, the Netherlands, France and Denmark concentrate 80% of starch potatoes (graph 3-4). In the EU-15, total potato starch uses have increased by 0.3% per year from 1995/97 to 2001/03.

At Member State level, potatoes for starch are more important in Denmark, where they cover up to 60% of total domestic uses of potatoes, in the Netherlands, where the share is 39%, in Germany, 28%, in Sweden 22% and France, 19%. The starch industry in the NMS is relatively less important: first comes the Czech Republic, with an incidence in total domestic uses of 10%, while in Poland the weight is 4% (graph 3-5).

Figure 3-4: Potatoes for the production of starch in the EU (1 000 t) [average 2001/03]

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Figure 3-5: Importance (%) of potatoes for starch in domestic uses of potatoes (average 2001/03)

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Potatoes for human consumption

Human consumption is the most important element in the aggregate demand for potatoes. Within the set "potatoes for human consumption", potatoes for food manufacturing tend to gain weight while the demand for table potatoes is declining. The main factors that have an impact on human consumption of potatoes are:

- Demand for convenience products. Convenience is especially related to saving time due to peoples' busier lifestyles and more women in the workforce.

- An increased competition of substitute products , such as pasta or rice.

- A strengthened attention on the health aspects of food (low calories, low fat, etc.).

- Development of special products that are linked to certain methods of production or to certain territories;

The first factor is the key force behind the increase of consumption in processed potato products and the relative decline of table potatoes. The market of special products, often tied to local recipes, is projected to grow rapidly in the next years and could offer an opportunity for the potato industry.

Aggregate patterns

In the average of the period 2001/03, total human consumption of potatoes was about 38 million tons in the EU-25 and 29.8 million tons in the EU-15 (graph 3-6).

Figure 3-6: Gross human consumption of potatoes in the EU's Member States (1 000 t) [average 2001/03]

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In terms of percentage of total domestic uses, potatoes for human consumption are especially important in Spain, Italy, Portugal and Greece where the share is about 90%, and also in UK, 85%, Slovakia, 83%, and Hungary, 78% (graph 3-7).

Figure 3-7: Gross human consumption in total domestic uses of potatoes (%) by Member State (average 2001/03)

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In the North-Continental part of EU-15, from 1994 to 2002 overall human consumption of potatoes remained rather stable at more than 20 million tons, but its composition had been changing as consumption of processed potatoes tends to equalise and is probably destined to overcome the consumption of table potatoes (graph 3-8).

Figure 3-8: Gross human consumption of potatoes for food processing and total gross human consumption of potatoes for a group of EU-15 countries 1 (1 000 t) [1994–2002]

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The importance of potatoes for food making within the set of “total human consumption of potatoes” is rising in the EU-5 area, in Ireland, Finland, Sweden, Austria and Ireland but not in Greece and Finland. The highest values are recorded in the EU-5 and Ireland where it overcomes 40% of total human consumption (graph 3-9). In the NMS the importance of potatoes for food processing in total human consumption of potatoes is generally not higher than 10%, except in Slovenia (18% in 2001/03).

Figure 3-9: Consumption of processed potatoes (in raw material equivalent) in total human consumption of potatoes in selected EU countries [1990/92 – 1995/97 – 2001/03]

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A for Spain, Italy and Portugal, national sources indicate that the ratio of table potatoes' consumption to total potatoes consumption is about 0.9. Consumers in the Mediterranean MS of the EU are strong purchasers of table potatoes but the importance of processed potato products is rising there too .

In 2001/03, the average level of per capita consumption was 80.3 kg/head in the EU-25, higher than in EU-15 (73.2 kg/head). The highest levels are recorded in the Baltic countries, in Poland, Malta, in UK and Ireland. In all these MS, per capita human consumption of potatoes surpasses 100 kg/head, while the lowest levels are registered in Italy, 43 kg/head, France, 47 kg/head, Austria, 56 kg/head (graph 3-10).

In the NMS, there is a differentiation between the Baltic region plus Poland where levels are the highest ones in the EU-25 and Czech Republic, Slovenia, Hungary and Slovenia. In the latter group of countries, per capita human consumption varies between 69 kg/head in Slovakia and 76 kg/head in the Czech Republic.

The distribution of per capita consumption in the EU-15 does not allow to identify geographical patterns . For example, the similarity of climatic conditions in Southern Europe does not entail alike levels of consumption per capita. In Spain, Portugal and Greece, we observe numbers that are above 80 kg/head while in Italy the indicator goes down to 43 kg/head. This illustrates the limitations of climate as a factor explaining consumers’ behaviour. Rather, food habits and traditions seems to play a determinant role.

Figure 3-10: Per capita human consumption per capita by MS (kg per head) [average 2001/03]

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Data on EU-15 permit to look at the evolution of per capita human consumption in recent years. If the yearly rate of variation for the whole EU-15 over the periods 1995/97 and 2001/03 is –0.4%[22], there are also contrasting trends amongst Member States. In the Netherlands, in Italy, UK, Sweden and Finland the indicator is moving up, while in Spain there is a slight increase after the drastic fall registered from the beginning of nineties till mid-nineties. In all the other MS, per capita human consumption is decreasing. Between 1995/97 and 2001/03, in Portugal the annual decline reaches –4.8%, in France –2.1%, in Ireland –1.8%, in Greece –1.6% and in Germany –1%. In Austria, Denmark and Belgium the decline is lower than –1% per year.

Data provided by the German Minister of Agriculture (BWVEL) show that consumption of table potatoes in Germany diminished to 32.5 kg per inhabitant in 2003/04 from 32.9 kg/pers of the previous commercial year. The trend is reversed for processed products: the consumption was 34.3 kg/head in 2003/04 against 34.1 kg/head during 2002/03. Similar trends are recorded in Spain, where, according to official national statistics, per capita consumption of table potatoes declined by 12.7% from 1998 to 2002.

A gradual shift is also taking place in the consumption habits of the Polish population, as consumption of table potatoes is declining while more frozen fries and chips are being purchased. Total annual per capita consumption in Poland[23] fell by 7 kg between 1995/96 and 2004/05, from 135 kg to 128 kg. Over the same period fresh consumption showed a 13% decline from 132 kg to 115 kg. Polish consumers were eating 13 kg of frozen fries per person in 2004/05, i.e. 3 kg more than ten years earlier.

Typologies of potato products

Our analysis will be integrated with figures on processed potato products provided by UEITP[24]. In decreasing order of importance, the manufacturing companies are located in the Netherlands, Belgium, UK, Germany and France. Not negligible quantities are also processed in Italy and Sweden.

Pre-cooked products are the most relevant item within the group of processed potato products, representing over 70% of potato-based products. Next come snacks , 8%, and dehydrated products , 7.5% (table 3-1). The Netherlands and Belgium are relatively more specialised in pre-cooked products, with a quantity of about 2 million tons or 60% of the entire UEITP production of pre-cooked products. On dehydrated products, Germany is the main producing country with about 207 000 tons, concentrating 57% of the UEITP production. UK is instead prevailing for snacks, producing slightly less than 167 000 tons or 43% of the UEITP production in this sector. France has a constant share of about 10–12% in all the above mentioned sectors.

The potato processing sector in the EU is becoming increasingly concentrated in the Netherlands, Belgium and some areas of Germany, while in France the processing industry has not improved as strongly as the sector of table potatoes. Italy and Sweden have some important industrial poles in snacks production.

Table 3-1: Production of processed potato products in the EU (tons) [1999–2003]

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Potato products in the NMS

Consumption of processed potato products is strongly increasing in the NMS. We will see in § 4.5 that expeditions of frozen potatoes and other potato products from the EU-15 to the NMS moved up from €1.2 million to €38 million in 2004, that corresponds to a thirty-fold increase. Besides, in recent years some multinational firms have started to set up manufacturing plants in Eastern Europe.

However, this is not the beginning of a delocalisation process from the traditional potato-manufacturing areas. The NMS potato industry faces a severe challenge as farmers have to match their production methods with industry requirements that growingly rely on strict phytosanitary and quality controls. In many NMS, a big part of potato production is not marketed as it is used for the own family consumption (i.e. three fifths of human potato consumption in Poland is still not commercialised), and the efficiency is not as developed as it is in the EU-15.

Therefore, considerable investment is required before NMS will be able to have a significant impact on the market for processed product .

Evolution of potatoes' demand and market prospects

A main concern of the EU's potato operators is to prevent further falls in table potatoes' consumption. A very alarming projection was carried out by the German Agency ZMP[25], according to which German table potato consumption could disappear by 2020. In the Netherlands, price reductions practiced by some big retailers have caused a further shift from small to big retailers but have not stimulated new purchases of table potatoes. In other terms, the Dutch consumer has not increased consumption of table potatoes although gradually turned towards the low-cost supplier.

Similar trends occurred in other countries. In Germany, Belgium and France, promotional campaign carried out by big retailers were effective to expand their market shares but have not been enough to prevent the aggregate fall of table potatoes' consumption.

It is often questioned whether the decline of table potatoes could be stopped and how this could be done. There is no evidence that table potatoes are harmful for health and a clear distinction should be made between some potato products and table potatoes. It is widely recognised that some classes of frozen potatoes have high calories and high fat contents, but that evidence should not automatically be considered as valid for table potatoes (as well as for some "new" French fries). An active approach could be based firstly on facts , based on studies for measuring the impact of (different varieties of) table potatoes on human health, and then on updated marketing strategies .

In the last decade, the consumption of processed potato products has grown mainly because of the corresponding increase in fries' demand. The fries' market remains predominant but there are worries caused by the mounting health concerns of consumers .

Manufacturers are responding by innovating the production process for fries (e.g. potatoes fried in special oils, microwavable, etc) as well as by introducing new lines of convenience-products. In particular, business in refrigerated products with individual characteristics (recipes based linked to specific production methods, composition or origin) is projected to rise fast in the next years.

Potato products that maintain the characteristics of the fresh product have also been launched but it is too early to get a detailed assessment of consumers' response. As the shelf life of these products is very short, final manufacturers should be located very near to the retailers' centres and should enhance their links with other potential customers such as restaurants and catering chains.

Overall, the introduction of products with individual characteristics (i.e. traditional recipes) could open new opportunities for operators in regions which are currently not very dynamic as suppliers of potatoes and potato products. However, the revitalisation of the systems of production in these areas involves a well-coordinated network of relationships at local level and brave marketing strategies.

Trade

EU-25 trade in potato products (not including starch and sweet potatoes) was worth about €2.76 billion in the period 2003/05. The transactions between EU operators covered almost 78% of total EU trade, exports to third countries captured 15% while the remaining 7% was generated by EU imports (table 4-1). The EU exported products corresponding to a value of €410.5 million and is a net exporter with a surplus of €215.7 million.

The EU is a net exporter for all the potato products but early potatoes . In value terms, earlies from third countries provide 89% of total EU imports in potato products (table 4-1). Egyptian, Israeli and Moroccan early potatoes activate a large volume of traffic in the EU.

On the other side, seed potatoes and processed potato products feed a remarkable flow of exports to third countries . Exports play a very important role particularly for the EU seed potato industry as 45% of the contracts take place outside the EU. Exports of processed potato products amounted to €204.5 million, while EU-25 exports of seed potatoes are valued €121.6 million. Main crop potatoes of EU origin purchased in third countries were valued €73.4 million in 2003/05, with a 18% share in total EU exports of potato products.

Third countries are less important for main crop potatoes and for processed potato products . In these two sectors, the incidence of intra-EU trade in total trade is about 85–90% (table 4-1).

Table 4-1: Main components in the EU-25's trade of potato products (average 2003/05)

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The evolution of trade patterns is affected by a set of variables. The most important ones are:

- period of production: countries that are situated in the Mediterranean area can commercialise their early potato production during the first semester of the calendar year, while earlies from Northern-Continental Europe are placed on the markets since late May/Mid June. This normally rears flows from South to North Europe in the first part of the year and North-South afterwards;

- costs of production and improvements in storage techniques: as already emphasised in § 2, continuous progresses in storage techniques create the conditions for an overlap in the commercial year of early and main crop potatoes. Main crop potatoes from France have increasingly penetrated in the Southern part of the EU even during the earlies' season;

- transport costs: the impact of transport costs' increases could be important for some segments of the potato industry. For example, it could induce seed breeders to opt for taking over foreign plants and distributing patent rights rather than trading seeds abroad.

- consumer preferences: as we have seen in § 3.4, consumers in Southern Europe prefer table potatoes, while in North-Western Europe processed potato products are more important. These differences contribute to shape the direction of intra-EU trade;

- phytosanitary measures: as it will be reported in § 6.1, it is forbidden to import potatoes from a number of countries. Other nations are also imposing bans to exports of EU potatoes.

In the coming paragraphs, we will provide an analytical description of how EU trade evolved in the last decade. We will start dealing with seed potatoes (§ 4.1), then early potatoes (§ 4.2), main crop potatoes (§ 4.3) and processed potato products (§ 4.4).

We will use COMEXT data on EU trade. This data will be often disaggregated in three main components: intra-EU trade, EU imports and EU exports. As there is a break in certain trade statistics due to the entry of ten new Member States on May 2004, we will examine in § 4.5 the changes undergone in trade between EU-15 and the block of NMS. We will also use FAO data when global tendencies are under scrutiny. In the last paragraph (§ 4.6), we will succinctly present the main findings of this section.

Seed potatoes

EU-15's total trade of seed potatoes amounted to about 822 000 tons in the average of the period 2004/05, of which 45% are originated by exports and 55% by intra EU-15 trade. Imports are very low, about 2 200 tons in 2004/05, and are falling by –13% per year. EU-15 exports are more fluctuating than intra-EU trade. The main destination markets are situated in North Africa, in primis Egypt and Algeria that absorb 35–40% of EU exports. Turkey represents a very interesting market for EU seed companies. Expeditions to this country are currently not high, about 10 000 tons, but are rapidly increasing (+ 58% per year)[26]. Intra-EU-15 trade moved up by + 1.5% since 1990 (graph 4-1).

The growth in intra-EU trade is mainly a consequence of an increasing concentration of the EU seed companies in the Netherlands. Some Dutch firms, such as Agrico[27] and HZPC, are world leaders. These companies have consolidated their position in the EU and search for dynamic markets in third countries. In 2002/04, Netherlands shipped about 660 000 tons to other countries (EU plus non-EU countries) and is the main provider of seed potatoes with a market share fluctuating between 65% and 70% in the total of intra-EU trade plus EU exports (graph 4-2). Germany shipped 43 800 tons to other countries in 2002/04, corresponding to a share of 4.4% in total EU trade (exports plus expeditions to other MS). UK ranks second in the table of EU exporters with a share of 9.1% in 2002/04 (90 420 tons), France’s share is 8.