2016 Potato Market Analysis and 2017 Market Forecast

As one of the important food resources, potatoes not only occupy an important position in the daily consumption of Chinese residents, but also play an important role in the new era of agricultural structural adjustment and the sustained increase of farmers' incomes. At the beginning of 2016, the Ministry of Agriculture issued the "Guiding Opinions on Promoting the Development of the Potato Industry," which clarified the role, status and goals of the potato industry in the new era of the national food security strategy, the structural reform of the agricultural supply side and the transformation of the agricultural development model.

Since the beginning of this year, China's potato industry has continued to develop steadily. Overall, the national planting area has increased steadily, and some production areas suffered large reductions in output due to extreme weather and disease, so total production declined slightly; the consumer demand potential for potatoes is relatively large, and the consumption structure has changed slightly; prices have remained high, showing an obvious “N”-shaped trend; a potato trade surplus and a potato starch trade deficit exist simultaneously, with an overall trend of both decreasing. It is expected that in 2017, agricultural structural adjustment in the “Sickle Bend” region, the shift of processing toward staple foods, and the targeted poverty alleviation strategy will further strengthen the production and supply capacity of potatoes, while consumer demand will overall maintain a trend of slight steady growth; as inventories are gradually digested, prices will remain high in the short term, and in the absence of severe natural disasters, prices are quite likely to fluctuate sharply in the second half of the year; as the “double anti” policy expires, uncertainty in the international trade of potato starch will increase. At the same time, the growth rate of potato supply is far greater than the growth rate of consumer demand, the risk of price fluctuations is continuously accumulating, and the possibility of difficulty in selling in some areas and during certain periods has increased somewhat; it is recommended to pay further close attention to market changes, market potatoes in a balanced way, sell potatoes at the appropriate time, and at the same time avoid blindly following trends in planting, while reasonably promoting grain-potato rotation.

I. Review of the Potato Market Situation in 2016

(1) Severe disasters in some areas, but production overall continued to develop steadily

In recent years, China's potato production has developed rapidly, and a planting model has initially taken shape consisting of the northern single-cropping region, the central and southern double-cropping regions, and the southwestern mixed single- and double-cropping region, covering most provinces, autonomous regions and municipalities in China, with the annual planting area stable at around 85 million mu and total production maintained at more than 90 million tons.

In 2016, although some areas suffered relatively severe disasters, China's potato production as a whole continued to maintain stable development this year. In terms of planting area, influenced by agricultural structural adjustment and the high prices in the spring of this year, enthusiasm for potato planting across the country increased noticeably, and with the accelerated progress of planting structural adjustment in the “Sickle Bend” region and the targeted poverty alleviation strategy, planting areas in Heilongjiang, Yunnan, Guizhou and other places increased steadily, with the national planting area estimated at about 85.26 million mu, up 3.0% year on year. As the penetration rate of virus-free seed potatoes and the level of field management continued to improve, potato yields per unit area rose steadily, but this year's continued drought in the main production areas of the northwest and northeast, large-scale late blight in the southwest, and severe low-temperature cold damage in the autumn-winter cropping areas of the south caused the national average yield per unit area to decline somewhat. Affected by this, total potato production for the year is estimated at about 92.01 million tons, down 3.0% year on year.

(2) Ample market supply, with the consumption structure changing slightly

In terms of use, potatoes can be eaten directly or used as a raw material in the food industry, healthcare and many other fields. However, in terms of consumption, potato consumption in China is mainly for food, with processing consumption, seed use consumption and feed consumption as secondary uses. In 2016, the overall market supply of potatoes in China was ample, and the consumption structure changed slightly. Affected by the slow recovery of the macroeconomy, the continued increase in migrant workers returning home, and the somewhat reduced supply of raw materials in the main northern processing areas, food consumption decreased slightly and processing consumption such as starch fell sharply, estimated at 55.34 million tons and 7.36 million tons for the year, down 2.8% and 13.8% year on year respectively; increased planting enthusiasm among farmers drove a slight increase in seed use consumption, estimated to reach 3.96 million tons for the year, up about 4.3% year on year; at the same time, feed consumption and losses decreased somewhat.

(3) Prices running high, with an overall “N”-shaped trend

This year, China's potato wholesale prices showed an “N”-shaped trend of first rising, then falling, then rebounding, with the price level relatively high. In terms of monthly changes, price fluctuations generally conformed to the usual annual pattern, that is, prices at the beginning of the year continued the carry-over trend from the end of last year and continued to rise. After the Spring Festival, affected by this spring's “king-level” late cold spell that caused shortages in the supply of other substitute vegetables, potato prices remained high, reaching the year's highest level of 3.47 yuan/kg in May, up 53.3% year on year; afterward prices tended to fall back, dropping to this year's lowest level of 1.84 yuan/kg in September; starting in October, northern autumn potatoes came onto the market one after another, but Gansu and other places experienced the most severe sustained high-temperature weather in nearly 60 years during the summer, and Ningxia, Inner Mongolia, Heilongjiang and the southwest also suffered disasters to varying degrees, making market supply relatively tight and driving potato prices to rebound for three consecutive months, with the average price in December at 2.35 yuan/kg, up 7.9% month on month and up 15.2% year on year. In terms of annual price changes, the average potato price in 2016 was 2.40 yuan/kg, up 13.2% year on year, the second-highest level in the past five years.

(4) International trade surplus and deficit exist simultaneously

Affected by relatively high domestic potato prices, this year's potato export momentum was insufficient, export volume decreased somewhat, and export value was basically flat; at the same time, as the penetration rate of virus-free seed potatoes and planting techniques and processing levels continued to improve, the quality of Chinese potatoes and processed products such as French fries continued to improve, and potato imports decreased somewhat. According to customs data, from January to November, cumulative national export volume was 396,000 tons, down 4.3% year on year, and export value was 238 million USD, up 0.6% year on year; import volume was 136,100 tons, down 2.0% year on year, and import value was 165 million USD, down 3.7% year on year; the trade surplus was 73 million USD, up 10.3% year on year. During the same period, cumulative national exports of potato starch were 524.91 tons, with export value of 588,600 USD, down 15.3% and 17.7% year on year respectively; imports were 37,200 tons, with import value of 28 million USD, down 38.6% and 35.1% year on year respectively; the trade deficit was 27.1574 million USD, down 35.4% year on year. It is estimated that for the full year, export volume will be about 500,000 tons, down 4.2% year on year, and import volume will be about 330,000 tons, down 31.5% year on year.

II. Outlook for the Potato Market Situation in 2017

(1) Production will continue to develop steadily

As China's agricultural supply-side structural adjustment accelerates, it is expected that the conversion of corn and other grain crops to potatoes in the “Sickle Bend” region will continue to increase; at the same time, given that China's main potato production areas highly overlap with the distribution of poverty-stricken counties nationwide, under the background of continuously increasing targeted poverty alleviation efforts and the integrated development of the primary, secondary and tertiary industries, the potato planting area in suitable impoverished areas such as the northwest and southwest may continue to increase. Therefore, in the absence of large-scale, deep-seated disease, national potato production will continue to maintain rapid development, and it is expected that the planting area in 2017 will reach 86.96 million mu, with total production possibly reaching a record 96.82 million tons, up 2.0% and 5.2% year on year respectively.

(2) Consumption will grow steadily

Historical data show that food consumption accounts for less than 70% of total potato consumption, but it is still the most important part of China's potato consumption. In terms of consumption trends, with the total population basically stable and the supply of vegetables generally balanced, residents' daily consumption of potatoes will remain basically stable, while group consumption such as by farmers working away from home will continue to shrink as more people return home to start businesses and work, and although various consumption channels such as fast food and snack foods may increase somewhat, their role in driving overall consumption is limited. Affected by ample market supply, the shortage of raw materials in starch and other processing industries is expected to ease more quickly, and with the deepening of the strategy of shifting processing toward staple foods, potato processing consumption may rise substantially, with the annual processing volume expected to recover to 8.23 million tons, up 11.8% year on year. As the penetration rate of China's pre-elite seed potatoes, first-grade and second-grade virus-free seed potatoes further increases, seed potato consumption will continue to maintain an increasing trend. At the same time, affected by the continuous improvement of harvesting mechanization and production levels, the damage rate and marketable rate will continue to rise, the proportion of broken small potatoes will decline somewhat, and feed raw material potatoes may decrease somewhat.

(3) Prices will fluctuate

From the pattern of price movements, the high points of potato market prices mostly occur in April-May of each year, while the years that broke historical highs occurred in the spring of 2010, 2013 and 2016 respectively, basically showing a characteristic of breaking through once every 3 years. It is expected that potato price fluctuations in 2017 will still follow the usual annual fluctuation pattern, showing an overall oscillating trend. Specifically, it can be divided into two stages: the first stage is January-April 2017, in which the market will mainly digest the 2016 stored potatoes, and factors such as holiday effects and the spring slack season will support potato prices in continuing to remain at a relatively high level; the second stage is May-December, as early-maturing potatoes come onto the market one after another, storage traders will accelerate selling off goods in mid-to-late May and early June, and prices may fall rapidly, while later in the year autumn potatoes will come onto the market in large quantities, market supply will increase substantially, and downward pressure on prices will continue to grow. Therefore, if no large-area, wide-ranging, heavily impactful disease or meteorological disasters occur in 2017, it is expected that after the concentrated market period for northern autumn potatoes in the second half of the year, prices may fluctuate sharply.

(4) International trade will develop soundly

As China's economic and trade cooperation with neighboring countries, especially countries along the “Belt and Road,” continues to deepen, it is expected that potato export trade will continue to grow steadily, and in particular, regions such as Gansu with relatively outstanding natural and technical conditions for variety breeding will further demonstrate their advantages in seed potato exports. At the same time, exports of fresh and frozen potatoes with excellent processing characteristics and French fries, potato chips and their freeze-dried products will continue to maintain an increasing trend. Under the protection of the “double anti” policy, the domestic market for potato starch is gradually improving, but after this policy expires within the next two years it will bring uncertain effects on the stable development of the industry; at the same time, potato starch export trade may further decrease due to the low-price impact of cassava starch from Vietnam and other Southeast Asian countries, while imports of high-quality starch may continue to maintain a growth trend. Overall, China's international potato trade will still maintain a good development trend, and it is expected that annual export volume will recover to the level of 600,000 tons, a sharp increase of about 20% year on year.

III. Risk Warnings and Related Recommendations

First, the risk of concentrated potato sales next spring is prominent. At present, with the release of potato market demand, plus the New Year's Day and Spring Festival effects and reduced substitute consumption of other vegetables, prices will continue to rise slowly in the short term; however, the market generally believes that because disasters were severe in 2016, marketable potatoes decreased and supply is insufficient, expectations of later price increases have strengthened, producers and dealers have a strong willingness to stockpile in warehouses and hold back sales, and inventories remain at a relatively high level, while as potato storage conditions change next spring, the possibility of concentrated selling will increase, and prices may also fluctuate sharply. It is recommended to pay close attention to market dynamics, market potatoes in a balanced way, sell potatoes at the appropriate time, and prevent a recurrence of phenomena such as sharp market fluctuations and unsalable goods caused by large concentrated market releases.

Second, the risk of an imbalance between potato supply and demand is increasing day by day. Since 2015, the state has vigorously advanced the strategy of shifting potato processing toward staple foods and has successively carried out pilot projects in 10 provinces and regions including Beijing, Hebei and Gansu, strongly promoting the development of local potato production; and potatoes have still become the unchallenged choice for agricultural structural adjustment in the “Sickle Bend” region and the targeted poverty alleviation strategy in the western region. It is expected that in the future China's potato production area will increase substantially, and at the same time, with the continuous increase in the penetration rate of virus-free seed potatoes, the continuous improvement of irrigation and other water and fertilizer conditions, and the continuous improvement of cold storage and cold chain infrastructure, potato production capacity will be greatly enhanced and market supply will increase substantially, but consumption growth will be relatively slow, the possibility that the market supply-demand balance will be broken will increase, and the risk of sharp price fluctuations will become prominent. It is recommended that in agricultural structural adjustment, grain-potato rotation be advanced in an orderly manner, and farmers be guided to arrange planting rationally and avoid blindly following trends, which can both promote the restoration of soil fertility and disease prevention and control, and also ease market fluctuations.