Just in time for new Euro rollout, prepare to pay more of them for fries: retail prices for frozen potato products are rising, though perhaps not so noticeably as EU national currencies are replaced by a new coin of the realm. Increases not likely to soon get passed on by major fast food operators, who don't want to see a repeat slowdown in customer traffic that occurred last year due to meat safety concerns. (News from Europe).

Consumers in Europe can expect to pay about 15% more for frozen french flied potatoes and value-added spud specialties during the first half of this year, as a shortfall in suitable raw material for processing is likely to keep prices up until the next crop of tubers is pulled this summer.

Unusually heavy rains in Holland last September reduced yields by approximately 10%, only to be followed with more losses due to high moisture content in stored potatoes, explained Dick van der Aart, marketing manager for Steenderen-headquartered Aviko BV. "On top of that," he added, "less acreage was planted in 2001 by farmers -- some of whom switched to carrots and sugar beets after two years of realizing little or no gain from potato sales. Curtailed cultivation alone accounted for a three to five percent fall in volume."

Holland is the largest industrial french fry producing country in Europe, packing some 2.5 million metric tons in Y2K. Since more than 95% of output is typically exported, when the Dutch are short it usually figures that higher prices are in the offing.

Joop J. van Gurp, director of sales and marketing for Lamb Weston/Meijer (LWM), told Quick Frozen Foods International that September's steady downpours had his company on the verge of importing finished product from sister factories in the USA to fill potential gaps.

"Fortunately we did not have to exercise that option as October brought clear, unusually mild weather," he said. "But with only one-third of the crop harvested in Europe when the rains came, we had to think seriously about gearing up production in the United States. This could easily have been realized by running additional shifts at the American plants."

As things now stand, imports will not be needed to fulfill contracts in Europe and beyond. "Per hectare tonnage yields in Holland have been reasonable," said Joop, "though size and shape are problematic as rounder than normal potatoes make it more difficult to achieve length specifications preferred by our clients."

The last time that imports of french fries from the USA were substantial was in 1994-95, when Dutch domestic supplies were also scarce following the summer drought. As a result, over 20,000 metric tons were imported from the United States.

In 1998, Holland had an extraordinarily rainy September which hampered harvesting. However, imports were not necessary at that time.

What has the LWM executive most concerned these days is the question of whether or not there will be raw material left to process come May and June. The company's flagship factory in Kruiningen was operating at full-tilt in December. "We will be running our lines every hour in scheduled shifts well into the new year, building up inventory to meet rising demand," he told Quick Frozen Foods International.

Meanwhile, expert potato storage management has become all the more important in guarding against higher incidence of bacterial wet rot. Farmers in the Benelux reportedly released a lot of marginal quality spuds onto the market in September, anxious to move them while they still could.

"There will be more problems with potato storage than was anticipated due to wetness, though large fans and ventilation systems can minimize deterioration," said Geert Demeester of Nieuwkerke, Belgium-based Clarebout Potatoes. "Nonetheless, we fear that storage challenges will be critical throughout Europe -- from Denmark down to France."

Having said that, Demeester was not surprised to see potato futures prices [for July 2002 deliveries] heading upward in November. "Uncertainty has brought nervousness, as there is doubt in the market at several levels: purchasing, selling and marketing," he said. "There is no question that reserves are being held back. I have opted to withdraw from buying for the moment, even though we have been shorted a percentage of our contracted tonnage and will have to buy in the open market sometime next year."

At the October Anuga trade fair in Cologne, where long-term contract deals are generally struck with retail and wholesale customers, the Clarebout chief executive could guarantee delivery of finished product at fixed prices for a four-month period only. Typically, a six-month span is the norm.

"Prices can go either way, and customers prefer not to play this casino game," said Demeester. "We all have unpleasant memories of the 1998-99 chaos, when a short crop in Holland resulted in the cost of raw materials skyrocketing 300% to 400%."

Indeed, in December of 1998 wholesale prices for Bintje variety spuds offered on the Rotterdam Auction hit an astronomical 67.50 Dutch guilders (Dfl.) per 100 kilos of 50 millimeter or larger tubers, compared to Dfl. 18 during the same month in 1997. By June and July of the following year -- just before the next harvest -- the price was still extremely high at Dfl. 57.75 [compared to Dfl. 11.40 and Dfl. 12.36 for the corresponding months in Y2K and 2001].

Back to the present, Clarebout Potatoes aims to end the calendar year having packed some 150,000 tons of finished product. "We had hoped to have reached that level already, but the incessant rains in September collapsed the reservoir that provides us with water," explained Demeester. "Production was at a complete standstill for about a week, and the damage still has not been fully repaired."

The acquisition of Vriezo and Frid'Or over the past two years makes Lamb Weston/Meijer the largest producer of french fries in Holland, with capacity for 500,000 metric tons per annum. It ranks number two in Europe behind McCain Foods, which has an extensive network of production plants stretching from the UK [where another facility will soon be built near Birmingham] to Belgium, France, Holland and Poland.

Aviko Leads Dutch Retail Market

It is Aviko, however, which is the retail market leader in Holland. The Cebeco cooperative holding, which also claims to be the chilled french fry pacesetter in northwest Europe, saw its share of the 50,000 metric ton frozen potato market in the Netherlands rise from 42% to 46% of sales value during 2001, according to IRI data. It is the brand leader in volume terms at 33.3%, with various private labels accounting for 44.3% of volume and 36% of sales.

LWM is also supplying the private label market, both in retail and food-service channels. Farm Frites BV of Oudenhoorn, Holland, does a good deal of private label business in the foodservice sector. Outside of Europe, Farm Frites has a strategic alliance with J.R. Simplot Co., a USA-headquartered firm that ranks No. 3 globally in the frozen potato business.

Domestic production of french fries in the Netherlands has risen 21.4% to 1,480,000 metric tons from 1997-2001, according the Dutch Potato Processors Association (VAVI). At the same time, imports -- primarily from Belgium, France and Germany -- have advanced 332% from a relatively small base of 40,000 tons to 173,000 tons, making for a total supply of 1,653,000 tons (+3%).

Meanwhile, exports -- mainly to the United Kingdom, Germany and France -- have risen at an average rate of five percent per year, or 25.7%, to reach 1,368,000 metric tons. From 1997-2001 domestic consumption spiked upward 67% to 285,000 tons, as total distribution rose 31% to 653,000 tons.

"We have more than doubled our turnover in the last 18 months, and fully expect volume to continue rising," said LWM's Joop van Gurp. "But to keep it going, availability of raw materials must be sustained. If farmers are to keep growing the quantities of potatoes required for processing, they need to be paid the right price for their harvests."

It is estimated that 90 farmers go out of business every month in Holland. This, coupled with a gradual reduction of acreage dedicated to potato cultivation, gives processors reason for worry.

"We are losing land to transport project expansions and other real estate development, as well as to the economic realities of competitive pressure," said Joop. "Today, on average, a hectare of farmland sells for 100,000 guilders. Ten years ago it was going for about 20,000 guilders. So it's very tempting for growers who are losing money to simply cash out."

Many farmers keen on maintaining their agrarian lifestyle nonetheless prefer to work the soil, but they must make a living at some point in order to sustain their desired way of life.

Report Analyzes Pricing Trends

The USDA Foreign Agriculture Service analyzed pricing trends in a Global Agriculture Information Network (GAIN) Report issued last Nov. 5 on the Netherlands' frozen french fry market. It noted, in part:

"In January of 2001, Dutch french fry producers and traders offered potato growers fixed contract prices which were much lower than the cost of potato growing. According to the Dutch farmers organization (LTO), it costs Dfl. 16 to 17 (US $6.53 to $6.94) to harvest 100 kilos of potatoes. The processors and traders offered to pay Dfl. 13 (US $5.31) per 100 kilos.

"In February 2001, Dutch potato growers protested against these `unreasonable contracts' at the processing plants of the four main french fry producers. In addition, LTO recommended that growers not sign contracts for the 2001/02 season.

"According to the Dutch french fry producers, however, the low prices are caused by overproduction and increasing market power of large supermarket organizations. In fact, the industry is facing margin erosion coupled with rising costs for fuel, packaging and personnel. It is expected that the price pressure will continue in the short term, mainly due to some french fry processors that undercut prices to keep their factories running."

Value-Added Solution

Aviko's Dick van der Aart suggested that further introductions of higher-value potato products and expansion of the market for same could help raise profit margins for all links of the distribution chain -- including farmers.

So it comes as no surprise that his company has been actively launching innovative products that go well beyond french fries and traditional European specialties.

"With growth in the overall market in Europe now at only 2% and leveling off, we must be creative in generating more value for sellers and users of potato products in both retail and foodservice sectors," he told Quick Frozen Foods International. "The launching of ready-made dishes and specialty items is what is required to stimulate consumer interest."

In that vein, in the fourth quarter of 2001 Aviko successfully rolled out a mashed potato item shaped in the form of the new EU common currency symbol [see page 72]. Distribution is in cartons containing two 2,500g bags.

"The Aviko euro is being extremely well received, especially in France," said the marketing manager. "It has given us entree to new customers looking for a novel side dish or snack to menu in addition to traditional french fries."

Products with high flavor profiles, such as spicy Jacket Wedges, Spicy Slices and Curry-seasoned potatoes have also been brought out. So have adult-oriented potato-based quiche items known as Fondants. One features a Mediterranean recipe consisting of potatoes, bechamel sauce, milk, eggs, peas, tomatoes and chorizo.

Another new pan-European item from Aviko is Potizer. The spud-based appetizer is a shredded potato envelope stuffed with sauce. "It is largely being distributed within the away-from-home dining sector," said Van der Aart.

The Aviko marketing manager is thoroughly convinced that busy lifestyles and mounting demands on time will pave the way for greater acceptance and sales of ready-made potato dishes in Europe. "More and more, it seems that young people are losing touch with the kitchen. Many just do not want to bother with cooking anymore," he said. "They would rather use their time to pursue other interests than to go to the trouble of peeling potatoes and preparing them for consumption."

Consumer market trends certainly bear out Van der Aart's assessment. According to GFK statistics, sales of potato specialties in Holland account for almost 42% of the frozen spud market in turnover terms, while representing only 29% of volume.

The Nov. 5, 2001 USDA Foreign Agriculture Service GAIN Report observed as follows:

"In 2000, the market share of frozen potato dishes rose to 11%, increasing by 18%. In the future many people might eat five small meals a day. Therefore, the challenge is to produce easy-to-eat, readily available potato products. In addition, functional foods are being developed such as potatoes with higher starch levels, to provide french fries which absorb less fat. However, potatoes and potato products face ever-increasing competition from other sources of starch, including pasta and rice."

Lamb Weston/Meijer Broadens Line

Lamb Weston/Meijer, from the beginning of its operation in Europe more than a decade ago, has emphasized American-style products, ranging from Seasoned Wedges and Seasoned Fries to CrissCuts and Hash Browns.

More recently, it has broadened the line with the introduction of Mild Curry Fries, Seasoned Wavelength[R] Fries, Stealth CrissCuts[R] and Crispy Onion Rings. The last-named item is distributed under the Munchers range.

Ocean of Specialties from Lutosa

Value-added potato products have been on the "front burner" of recipe development at Van den Broeke-Lutosa for a long time. The effort is directed by Chef Jean Paul De Deken, who has been with the/ Belgium-based company since it started out in business almost 25 years ago.

Quick Frozen Foods International visited his test kitchen in Leuze-en-Hainaut recently to sample a number of new products, including Rosti Ocean. Shaped to resemble a fish, fully 25% of the specialty item's volume consists of Alaska pollock cubes. Served as either an entree, side dish or snack, the product may be prepared by frying, grilling or steaming. Nine 50g units come per 450g box distributed to the retail trade.

Tartiflette, a traditional Haute Savoie potato gratin, features a rich presence of melted Reblochon cheese (8%), smoked bacon strips, cream, onions and spices. A third one is called Aligot. Featuring tomme cheese, it was launched just in time for year-end party occasions. Distribution is in 750g retail packs as well as in 2.5 kilo foodservice sachets.

Also offered is Gratin Dauphinois, made with sliced potatoes, cream, emmental cheese, hydrogenated vegetable oil, spices and other ingredients.

Van den Broeke-Lutosa continues to closely collaborate with Joel Robuchon, the renown master chef whose 400g boxes of dual-branded frozen mashed potatoes have been well received by the most discerning of haute gastronomie critics. Current offerings are Puree pur Beurre and Puree with Extra-Virgin Olive Oil. A third recipe, featuring ham, is expected to be launched in the near future.

Meanwhile, Lutosa unveiled a new tortilla product range at the Anuga fair in Cologne last October. Three fillings are available: potatoes and onions; potatoes, mushrooms and ham; and potatoes and shrimp.

Lutosa exports 85% of its output to some 45 countries. While Europe is the main area of penetration, it also ships well beyond the continent to clients in North and South America, the Middle East and Asia.

"In the past year or so China has become a very important market for us, as both the Carrefour and Metro retail chains have listed our products there," said Dirk Desloovere, sales and export manager (Fax: [phone]). "Specialties represent 75% of what we are sending to China."

Lutosa is working on the Chinese market in close cooperation with Pinguin NV, a frozen vegetable specialist based in the Flanders region of Belgium. The two companies are .jointly marketing their products in the PRC through an office in Shanghai managed by Zhao Zhenzhou.

Specialties account for 40-45% of Lutosa's production. "We expect that this percentage will rise further, as greater efforts will be made outside of the highly competitive french fry market," said Desloovere.

More Capacity Comes on Line

The company has greatly boosted capacity of late, with the construction of a state-of-the-part processing plant in Leuze-en-Hainaut that will officially open early this year. It will add 16 tons per hour to the pipeline.

When Quick Frozen Foods International visited the factory last summer it was still under construction, though much of the processing equipment was already on site awaiting hook-up. Some 50 new jobs are being created to staff the facility. Once operational, it will be possible to turn out 80,000 additional tons of product, giving Lutosa system-wide capacity exceeding 300,000 tons from three sites.

"This is the single biggest potato processing unit in Europe," pointed out Desloovere as he showed Quick Frozen Foods International personnel around the premises. "Cold storage capacity for finished products at two of our locations now surpasses 56,000 pallet positions. But that's not enough, so another coldstore will be built in the future."

Certainly the family-owned company, which is run by Guy and Luc Van den Broeke, is maneuvering in a way that will secure its position in the hard-fought international market for frozen and chilled potato products. An investment of 1.5 billion Belgian francs (approximately 37 million euros) was made in 2001, on top of 600 million francs spent in 2000.

"The Van den Broeke brothers have made it clear that their strategy is to expand by building customer demand and constructing the factories that will supply same, rather than by growing through acquisition," said Desloovere. "You can be sure that we aim to step up exports of value-added Belgian-style specialties. They will be strongly promoted in the United States, China, Russia and other markets where opportunity presents itself."

The Netherlands: 2001 Frozen Potato Market Shares (percentage)

Supplier         Sales    Volume

Aviko BV          46.0     33.3

Private Labels    36.0     44.3

McCain Foods      11.0      8.8

Other              7.0     13.5

Total            100.0    100.0

Source:  IRI, 2001

Note: Canada-headquater McCain Foods is reportedly the world market
leader. In the Netherlands, McCain is market leader in the Dutch
foodservice market. The company supplies McDonald's. Dutch-based
Aviko has a 20% market share in Europe and a 10% world share, ranking
it fourth globally.
The Netherlands: Quantity of Potatoes Processed by Type (1,000 Metric
Tons)

Product Segment                   1996    1997    1998    1999    2000

French Fries                      2,144   2,336   2,443   2,191   2,469

Dried (Granulates, Flakes etc.)     367     391     374     397     443

Snacks (Chip etc.)                  137     127     141     125     138

Other Products                       18      20      18      16      14

Total                             2,666   2,874   2,967   2,729   3,064

Product Segment                   Product Share
                                    in 2000

French Fries                         80.6%

Dried (Granulates, Flakes etc.)      14.5%

Snacks (Chip etc.)                   4.5%

Other Products                       0.4%

Total                               100.%

Source: VAVI (calendar year)
The Netherlands: 2000 Frozen Potato Segments

Segment        Turnover   Growth Rate   Volume   Growth Rate

French Fries      58.4%        +10.0     71.0%          +4.4

Specialties       41.6%        +14.6     29.0%          +3.4

Total              100%        +11.9    100.0%          +4.1

Source: GFK, 2001