China is a big county with a large population more than one billion people that recently have undergone a huge shift from government controlled commune farming to a market based farming economy. It still is in the process as farm land cannot be owned only lease for 30 years. Although China is big most of its land is not arable covered with deserts or mountains. The 1/3 or so that is farmed is farmed very intensively. Farm sizes are mostly small with the average farm being less than 5 acres and many less than 1 acre. Most of the work is done by hand, with animal traction or with small tractors (50 hp).
A cow being used to work the ground in Mongolia part of China
This is labor intensive, but the labor is available and this attention to detail can result in high productivity and high quality produce. When the farmers were freed to produce what they wanted the farm sector changed dramatically to producing high value crops and farm incomes have risen, although not to the level as some city dwellers. At the same time an export industry and growing middle and rich class has developed with increasing buying power. China offers opportunity to the U. S. Potato industry in increased sales of our potato products. There are already sales of frozen potatoes and this could be a huge opportunity in the future growth. China can also present a threat in increased competition for these potato products both domestically and in the nearby region. Around 20% of U.S. potato products are exported and on of our biggest export markets is the far east. (These are big numbers) China cannot compete with us presently, but the apple industry example makes it imperative to be wary of Chinese competition. This report will cover the Chinese potato industry, its potential for increased sales and limitations to these sales and its potential for increased competition and the limitations to this competition.
The Chinese potato industry is four times the size of the U.S. industry producing 73 metric tons a year or 1.6 billion cwt. This is almost exclusively consumed domestically. Yields vary widely from 15 to 45 metric tons per hectare. (130 to 400 cwt./A).
In the spring of 2007 the USPB sponsored a trip to China to investigate the Chinese potato industry of which I was a member. We were very cordially received everywhere we went and got to meet with many heads of big potato concerns. The trip was well organized and thorough. This was a short two week trip and the report that follow are my observations and theories acquired on the trip and from other reading. They are only a snapshot. The main areas of planted area are in the dry north area in Mongolia and the northeast which accounts for 50% of potato production, is the more traditional areas of potato production and characterized by low input dryland farms with low yields(15T/HA or 127cwt/A) and with one fall crop per year. The southwest mountainous area around Xingyang which we did not visit and accounts for 35% of planted area is also characterized by low yields and dryland farming we were told is mostly small plots and used internally. The central China area which accounts for 10% of the area and is double cropped and has double the yield in the before mentioned areas is farmed by richer farmers under irrigation often with good inputs. Finally the summer crop areas farther south is a small high yielding area that fills the production gap of the other areas. Growth rates in potato planted area is steady increasing by one million Ha in the last five years( 2.4 million acres). A note of caution should be taken with official production figures. The scientific sector seems to operate in their own world with little local contact. I did not get good answers on how they get their data and the official statistics were scoffed at by some industry leaders. Of the potatoes produced 30% were used for table, 30% for feed, 8% for seed and 22% for processing of which most is starch.
Potatoes at a starch plant
Processing to chips and fries is small, but growing. 51 companies are involved with potato processing in Inner Mongolia most of them starch. A lot of potatoes are sold right out of the field but many are stored in traditional below ground cellar which once you knew what to look for are everywhere in north China. They are basically root cellars and were maintaining potatoes very well when we visited after six months of storage.
Most of the potatoes we saw in fresh markets were very poor quality and sold quite cheap. Potatoes sold were mostly round yellow flesh with dusky tan skins. The most common varieties we saw were Kuxin #1, Atlantic, Shepody and Favorite.
The most common way we saw fresh potatoes prepared was sliced very thinly and stir fried.
The space for fresh potatoes in stores and outside “wet” markets was always very small. A large percentage of Chinese potatoes are turned into starch. The starch produced is mostly crude unrefined.
Of the seed there is no national Chinese potato seed organization and only about 25% of Chinese farmers used certified seed. The importance of good seed is recognized by governmental, university and industry leaders in China and a huge push in investment and development seems to be underway to correct this deficiency and seed area up by 35% recently. There are seed standards and testing labs but seems to be little used. One testing lab was very well equipped but seemed little used and the 600 yuan sample fees ($80) would discourage a lot of random testing. Problems faced by Chinese potato farmers are mostly poor marketing opportunities and low prices. Prices for starch are usually 0.30 yuan per kilo( $1.82/cwt) but can go as low as 0.03 yuan/kilo ($0.18/cwt). Fresh was sold at the city wholesale market was 1 to 1.20 yuan per kilo ($6 - 7.3/cwt). Starch is usually 60% of the fresh market price.
The Chinese markets offer some opportunities. The most obvious are frozen french fries. Income is rising fast in China and western style quick service restaurants (QSR) are growing. We heard over and over that businesses were trying to meet the “McDonald” standard in fries. This is great news for U.S. Growers as this is a standard we are used to producing and it makes it harder for European and Australian producers to match. Anything the USPB can do to firmly establish the “McDonald’s” standard of long white fries will go a long way to keep Chinese markets open to our exports. I was told by some Chinese people they didn’t care if the fries were white or yellow, but people representing companies trying to supply this market all mentioned long white fires. This market would be limited by the local demand and local competition. Chipstock is another market. Potato chips were sold at most food stores, highway rest stops and gas stations. Although the U.S. company did a lot of advertising, this did not translate well to shelf space. A Filipino company seemed to be beating the pants of FritoLay in shelf space which is probably very related to sales. We heard they have 60 - 70% of the market share. Chips were mostly from chipstock with some reconstituted. Seed is another potential market and much interest was in our seed. They would love to get some our seed to get started. The is a big Chinese potato breeding industry, both governmental and private. Everyone seemed to breeding. Breeding is the easy part, its selecting the winners and it’s crucial to have industry support in this endeavor. There is a huge disconnect between breeders and producers. Breeders didn’t know the industry needs well or if their varieties released were being grown. The one exception that might change this is well-known breeders being hired off by private companies. Many U.S. and European varieties were observed in breeding facilities, some of them probably should be there like Umatilla, and we even saw a Frito Lay numbered line in the rural wilds of Inner Mongolian being grown. The down side of selling seed to China is there is absolutely no control of vanities and plenty of local mini tuber production to locally reproduce any introduced variety. Any seed sales would be temporary and the variety would be lost. Officially it takes 4 years to register a new variety in China and foreign varieties have been registered, but not all varieties grown in China are registered. They are especially interested in short season processing varieties. The short season is not because they don’t have the growing season in many potato production areas, it’s because many areas are double and triple crops and the potatoes have to get done and out of the way for other crops. In Inner Mongolia were there is only one season water shortage is the limiting factor. Fresh market would be the last potential market. Most of the fresh market is served by poor quality potatoes that are sold quite cheap. The most common price repeated found was I yuan per ½ Kilo retail which is $ 0.12/lb In the high end stores in the city supplies very high quality potatoes washed with smooth yellow kin and flesh for 35 yuan/kilo or $2.12/lb
People with money will pay for high quality. There is also another potential positive movement in the fresh produce industry that could be an advantage in “Green Food” marketing push. This is better translated as “food that does not harm the environment.” This is not organic food and it is sprayed a lot yet with pesticides. The big difference seems to be that the fields are scouted and pesticides applied when thresholds are reached. Other producers all said they sprayed every week with a fungicide and insecticide. It seemed mostly good marketing and higher quality produce. Food safety concerns will only get worse in the high end consumer sector and as recent experience has shown there are definite problems in some areas of Chinese produce from growing on old contaminated soils to excessive pesticide use.
The Chinese government for now keeps a very tight control over media stories so these problems may not be well known. U.S. producers could easily piggy back on this promotion as we are already used to this kind of production so it’s mostly the marketing end to concentrate on. The fresh market could be a potential market if market access is given, but only in this high quality “safe food” sector. Starch and flakes are another potato sales sector, but local production is well established and can supple these markets at a much cheaper price than we could approach. Refined starch is in demand and the local starch producers are just starting to get into this market. It’s just a matter of time before they can produce refined starch and there are probably enough European equipment manufacturers that will be happy to help them. There was much interest in how to produce refined starch.
The potential for Chinese competition could also be a serious concern. Very good export markets for U.S. potato products are right in China’s back yard. Multinational potato product companies are operating in China, setting up local processing plants, taking delivery at harvest of raw product and storing them in modern storages and getting very good governmental support. The state government of Inner Mongolian seemed particularity involved in promoting potatoes and local processing to be lead by “leading companies” instead of the government (read Simplot and others). The government will provide production equipment(all of which was European we saw), wells and irrigation equipment and short term loans. These companies have the know how, and import that equipment they need and have access to cheap labor and excellent roads and transportation infrastructure. Other positive advantages for local production are great soils. The areas in inner Mongolia coming out of a millennium of grasslands while highly erodible is excellent potato soil. The central areas near the yellow river are also excellent having fed the cradle of Chinese civilization also for millenniums. This big limiting factor is affordable quality raw products. The big limitation in raw products are water, affordable land, knowledgeable local producers and for now seed. These companies have somewhat already made their initial misstates in trying to do it like home on company farms and failed. These companies as we have seen in the past will try to source they products from the closest and cheapest sources to supple their markets and not care about national borders. In these local raw product limitations what follows is a grower’s perspective.
Land and water are the most serious and most intractable problems. Much is made of the shortage of clean seed, good varieties and diseases, but these are temporary problems that can be overcome. Affordable land and/or water are mush more serious.
Most potatoes grown in China are grown in the dry north China is a big country, but large areas are not arable. The lack of water in the north has been a problem for millennium. Governments in the past have undertaken huge irrigation projects in the past to move water north like the great canal. Kuxin #1 is a very popular variety not because it looks nice but because it is very drought tolerant.
Wells are being drilled in many areas to irrigate fields. They are using ancient water to irrigate wish no foreseeable recharge potential. We talked to well drillers and farmers who told use that water tables we dropping as much as 5 meters /year (15 ft/yr). This is not sustainable over the long run, but can go on for awhile as is the case of the Ogallalah aquifer in the U.S.
The water bearing material in the aquifer is quite tight and wells specific capacity and yields seam low. Wells we surveys we producing around 80 - 100 tons/hr which is 260-340 gpm. They are stretching this water to a 5 gal/Acre watering rate which is very minimal. To irrigate a potato crop well its best to have 8 gal/A and a minimum of 6.5 gal/A. This means the way these irrigation systems are being set up only for supplemental irrigation and they will not be able to keep up with plant water needs during a prolonged dry period. In the short run these newly irrigated areas will really unlock the good potential of these northern Chinese soils. In these areas well financed investors are increasing potato production with modern equipment and inputs. These areas could be an excellent area for seed production.
In the more heavily farmed areas land is intensely cultivated and every inch is cropped. Processor companies are negotiating with local businessmen to put together larger pieces of land for 2 year leases to put up center pivot irrigation systems and farm potatoes under contract for delivery to their modern cellars. Everything is supervised by company agronomists and the managers are businessmen new to potatoes. The workers are usually the land rentees. The price we heard over and over for rent was 240 to 300 yuan per mu of land which is $ 190 to 240/A which is close to some U.S. land rents in outlying areas. Potato farmers we talked to all said potatoes were more profitable than staple crops. No comparisons were made with other high value crops. These well managed irrigated fields using certified field had 2.5 to 3.4 times the normal yield or 35 to 50t/Ha (300 to 425cwt/A). Since potatoes have to compete with land with other produce crops the land will never be as cheap as hilly ground that can be used for apples as mentioned earlier.
Seed quality is a big problem affecting potato yields and production. Virus diseases are a big problem in China. We were told that Late blight, bacterial ring rot, bacterial wilt, potato virus S,X, and Y (PVS, PVX, PVY), potato leaf roll virus (PLRV), spindle tuber (PSTV), and some scab and wart. The fields varied widely in infection we saw. Some were pretty clean and some were loaded with PVY and PLRV. Some of this variation was due to more resistant varieties and some to new seed. Late blight was controlled with lots of fungicides but we weren’t there during the wet period when it will be more of a problem. We saw and heard of no evidence of any nematode problems and the potatoes were stored long enough at our visit to find nematodes if present. Insect problems were tuber moth followed by the usual aphids, worms and grubs and leaf eating insects. Abundant insecticide use probably keeps these problems at bay. Weed pressure seamed low everywhere we went. Years of excellent weed control often pulled by hand has minimized this problem. The Chinese seed industry seams disorganized and not well regulated so it will depend on reputation. Using good seed seems to be a big step to jumping from low yield (15 T/Ha) to the better yields (35-50T/Ha). We saw huge investments in tissue culture and mintuber facilities and plans to raise large averages of seed in isolated northern areas under irrigation.
Resistant varieties are a big way to eliminate to most prevalent virus problems and that is why Kuxin#1 is so popular as well as drought resistance since it is virus and late blight resistant as well. Unfortunately for them some of the most popular processing varieties, Shepody for fries and Atlantic for chips, are very virus susceptible. A seed program in the works if adapted could take 5 years to really ramp up production. Resistant processing varieties can take much longer or not if they get lucky. As such I think the seed problem is huge now but not unsolvable. I don’t think we should rely on this obstacle to protect us forever.
In summary its hard to really make firm conclusions about the Chinese market as things are changing fast. Its also hard to know what the multinational processing companies have for there long range plans. China already is a frozen fry export market for a growing section of QSR and this will continue to grow. Local production seems ready to grow as well. Processing facilities are not running presently at capacity. They seem to be developing a working method to organize production of local raw product with local businessmen. Can this cut into our exports? Yes. Will it be significant and compete with other Asian sales? Probably not in the next 3 - 4 years because of shortage of seed and land but after that I think we should be worried. For fries they are already trying to meet the standard we set and can meet. Chips need to keep up to date with local favors, but we can easily produce quality chipstock. The U.S. is set up to produce high quality large scale cost efficient frozen fries and chipstock. Price will be hard to compete forever so stressing quality is very important. The recent food quality scare from Chinese goods will be a problem for them to expand into nearby markets to which we also ship. China industrialized fast with little official control just like we did years ago. Even now China has incredible power in some areas and seemingly little control over all the new private business changing fast. Certified seed is a great example of this in there are standards on the books and testing labs, but they are not mandatory and little used. These problems could get worse as many farmland is contaminated with heavy metals. This could be an advantage. Seed exports to China are limited by this lack of official protection of varieties. Fresh market has some limited potential for high quality and specialty varieties. The U.S. breeding program has a lot of varieties and is a strength to export.
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ReplyDeletevery nice article which shows all steps of farming potatoes in farm
ReplyDeletethere is also an article who shows growing potato farming in home garden
thanks for sharing this article!!