Is the increase in French fry production a threat to growers?

Not a week goes by in the last six months without a potato processor announcing new plans to further expand its processing capacity at existing locations or by developing new buildings elsewhere in the world.

Below is a selection of recently completed or yet to be completed expansions or new construction for French fry production by Belgian and Dutch potato processors.

1. Agristo
   New Escaudœuvres factory/investment €350 million en North Dakota/$450 million investment
2. Aviko
   Capacity expansions in Poland, China and Western Europe
3. Clarebout
   New factory in Dunkirk/ 500.000 tons of additional potato processing
4. Ecofrost
   New factory in Péronne/200.000 tons extra potato processing
5. Farm frits
   New factory in Dooen (Australia) / investment €256 million
6. lutosa
   Expansion of Waregem/ investment €200 million
7. McCain
   Expansion of Lewedorp/ investment €75 million en plans for a production site in Germany

Processors calculated that the economy will continue to develop well and that prosperity will continue in emerging countries. It is important that no logistical problems arise (think of corona or the problems surrounding the Panama Canal) and that no world trade war will break out.

As a potato grower, you should be happy about that, because apparently the demand for potatoes is so great that it cannot be met. An old law in the market says: more demand than supply gives rising pricesThis has become visible in recent years in the contract prices and by paying record prices for free potatoes at certain times in the season.

But do trees grow to the sky? Since the beginning of this century, there has been growth in the production of French fries worldwide every year.

First decade: 2000–2010
During this decade, global demand for frozen French fries grew by an average of 2–3% per year. This was fueled by the growth of fast-food chains in emerging markets such as China, India, and Latin America, as well as the rise of retail sales of frozen French fries. In dollar terms, this is estimated to represent a growth of $7 billion in 2000 to such a $11 billion by the end of 2010.

Second decade: 2010–2020
Frozen French fry production is estimated to have reached approximately 17 million tons worldwide. The large markets in Europe (where potato consumption is high) and North America (where fast food chains are dominant) remain the largest buyers, but Asia and Africa also show strong growth potential. The market value in the second decade of this century rose to approximately $20 billion. This price increase is partly due to demand for premium and healthy alternatives (such as air-fried fries or organic fries), which has led to a shift in the market. Prices per tonne increased due to the shift to higher quality and varieties.

Third Decade: 2020 to Now
French fry production continues to grow, although growth in some markets appears to be flat due to saturation in developed markets. Global French fry production is expected to reach approximately 20 million tons per year. The French fry market is expected to grow this year $25 billion exceed, with a growth rate of approximately 4% per year. Growth is driven by continued demand from both fast food chains and supermarkets and demand for innovative products, such as fries made from alternative ingredients such as sweet potatoes or vegetables.

Early 2000, there was a surplus of potato processing capacity in Europe, which resulted in a greater supply of French fries. Processors were not well off. French fry prices had been marginal for years and a good potato price depended mainly on a bad harvest or a good harvest. Around 2010, the surplus of processing capacity seemed to have been eliminated and the supply of French fries increased in line with the supply. This resulted in a doubling of the market value of French fries in 10 years.

In 2021, after the Russian invasion of Ukraine and the sharp increase in the price of the raw materials required for the production of fries, the export value of Dutch fries per tonne rose from €810 to €1.390, an increase of more than 70%. These were golden times for processors, which created the urge to further scale up the production of fries and related products anywhere in the world.

The global demand for French fries and the high prices proved to be no guarantee for continued growth. This market also has a so-called pig cycle. Expanding faster than the growing demand results in an oversupply of products, which in turn leads to a price war in the French fry sales channel. There are several examples of overcapacity in processing industries resulting in price wars. The supplier in particular often pays the bill. After all, if the price of processed product is under pressure, the processor tries to buy the raw material cheaper in order not to have to give up too much margin. In that case, the French fry potato grower partly pays the bill for the overcapacity of an overambitious industry.

For the time being, this does not apply to the current potato processing and French fry sales. The potato market is anything but predictable if you look at the current geopolitical relations. Due to the behavior of Donald Trump, it is impossible to make expectations that make sense. Every processor must determine the strategy for the coming years in its own way: where can the production of French fries be expanded or started and in which regions will it stabilize?