The Canadian McCain Foods announced at the beginning of May that it would take a majority stake in the Brazilian 'Sérya'. That company produces potato products such as croquettes. Insiders see the move as a move to circumvent the European anti-dumping duty, which Brazil introduced in 2017.
Brazil is the fifth largest buyer of frozen potato products in the world. McCain believes that this position will grow to 3rd place in the next 3 years. McCain supplies French fries to McDonald's in Brazil. The product for this is mainly imported from Argentina. The rest comes from the United States and the Netherlands, among others.
Anti-dumping
Imports from Europe are causing headaches for chip manufacturers. In early 2017 it stated one anti-dumping duty on fries from the Netherlands, Belgium, Germany and France. Dutch fries in particular were heavily taxed. McCain's move is therefore mainly seen by the sector as an opportunity to produce fries in the country for the local market. According to the company, it is the first international player to settle in Brazil.
In 2018, McCain entered into a partnership with potato company 'Forno de Minas'. It owns 49% of the shares and now has a 70% share in the Sérya factory. Forno de Minas owns the remaining 30%. It does not disclose the amount involved. The potato factory is located in the state of Minas Gerais, the largest potato producing state in the country. The largest Brazilian fries producer Bem Brasil also has a factory here. In this state, 2 cultivations per year are possible, on an area of more than 9.000 hectares per cultivation.
New factory
Sérya produces 12.000 tons of end product annually, while Bem Brazil produces 250.000 tons. Local media report that this number will be increased considerably. McCain is therefore investing $60 million to start a French fries line. The production facility should create 800 jobs, which the region is particularly happy with. According to the news report, the first potatoes that McCain will process in Araxá should go into the ground next summer.
It's not the only investment McCain has announced. It happened a few days earlier known Invest $300 million in the Othello (Washington) plant. To meet demand, the required potato area will be expanded by 4.450 hectares. This expansion is good for 190.000 tons of fries annually. The finished product will primarily be delivered to the United States, but will also be exported worldwide. The new lines should be running at full capacity at the beginning of 2021.
Brazilian fries market
During the 2018/2019 season, the export of fries outside the European Union grew considerably: more than 8%. The export volume in March was almost 20% higher than 1 year earlier. After Saudi Arabia, Brazil is the largest buyer of European fries: both in March and over a period of 12 years. However, volume has decreased by 25% as a result of the levy. In March, volume was 33% lower.
The significantly smaller volume from the European Union is compensated by neighboring country Argentina. During the first quarter of the year, the volume of fries exported was 80% higher compared to 1 year earlier.
Declining share
Brazil imported 5% fewer fries during the first quarter compared to 2018. Argentina's share has actually increased sharply: from 25% to more than 50% of the total volume. There are particular doubts about the accuracy of the figures. Local production is also increasing, due to the opening of a new chip factory in 2017.
Argentina is also building capacity to supply its neighbors. Europe is bearing the brunt of this, with almost 50% less imports in the first 3 months of 2019. For years, the EU-5 dominated the Brazilian market.