Potato producers in South Africa are lobbying government to institute a temporary ban on imports of frozen potato chips from the EU.
The Potato and Vegetable Processors Forum (PVPF) – which includes McCain Foods SA, Potatoes SA, Nature’s Garden and Lamberts Bay Foods – on Tuesday said the potato industry was under threat owing to a surplus of frozen and processed potato products coming in from Europe.
The forum said government should protect local producers from imports coming from the EU.
Potatoes SA CEO André Jooste said the EU had an unfair comparative advantage – owing to its ability to produce goods and services at a lower opportunity cost than that of trade partners – over South Africa.
As an indication of the size of the markets and potential severity of a surge in low-priced imports, the EU produced 52 million tons of potatoes in 2018, of which 73.7% was produced in only six countries, said Jooste.
He said in 2019 alone the EU was responsible for 68% of global export trade of chips.
Jooste said volumes exported by the EU increased from 4.5 million tons in 2015 to 5.7 million tons in 2019.
“Now compare this with South Africa, which produces approximately 230 000 tons of chips annually. The potential volumes available to be imported could have a detrimental effect on our market for years to come,” he said, adding that New Zealand, Australia and the US shared similar concerns with South Africa.
According to Potatoes SA, the potato is the leading consumable vegetable in the country and globally because of its affordability and nutrient content (starch and proteins). In South Africa, potato contributes about 45% of the vegetable sales and is a key product from both commercial and emerging farmers.
Statistics show that for the past decade, the potato industry witnessed a steady growth of 3% per annum on average.
Jooste said the leading processor of potatoes and vegetable products in the country supports in excess of 6 800 full-time jobs and procures potatoes from more than 100 local farmers, who plant in excess of 4 500 hectares of potatoes annually.
According to Potatoes SA, the starchy tuber has accounted for approximately 45% of total vegetable crops produced in South Africa and contributes about R8.5 billion to the economy.
But these numbers are under threat, said Jooste.
“The surplus of frozen and processed potato products in Europe, as a result of a decreased demand brought on by the Covid-19 coronavirus pandemic worldwide, has significantly depressed prices,” he said
The demand side of the agricultural value chains in South Africa was significantly affected.
The local potato industry suffered from a decrease in demand as a result of Covid-19-related regulations, such as the closure of restaurants and fast food outlets, and the restricted trade and movement of informal traders.
While the domestic market struggles with the demand slump from the Covid-19 lockdown, the imports of processed potato products such as potato chips pose a significant threat to the survival of the local potato industry.
The PVPF said low-priced imports from other countries could be catastrophic.
Agriculturist Thabiso Mdletshe said the closure of fast food outlets, restaurants, hotels and informal trading heavily affected potato demand, which consequently suppressed potato producer prices.
“The average price of the potatoes in the fresh produce markets changed from R49.50 in January 2020 to R37.95 in May 2020. Furthermore, statistics show that in February 2020 sales were high by 1.08%, compared with February 2019,” said Mdletshe.
He added that the trend displayed a drastic decline of 11.12% in April, with the mondial potato – the main South African cultivar – dropping in price by R12.13 per bag.
Globally, the closure of food service outlets left millions of tons of potato and potato products in storage, leading to an oversupply in the market.
In May the EU announced a €650 million (R12.79 billion) Dutch scheme that compensated companies in the floriculture, specialty horticulture and potato sectors for the loss of revenue or additional costs related to the collapse in demand of their products.
EU executive vice-president Margrethe Vestager, who is in charge of competition policy, said the damage suffered by the floriculture, horticulture and potato sectors owing to the Covid-19 outbreak would be compensated.
Under the scheme, operators were entitled to compensation for certain damages suffered, with direct grants covering a maximum of 70% of the loss of revenue or additional costs for farmers, traders and companies.
The PVPF said this support, combined with low-priced surpluses, would drive export prices down further, with a significant risk of increasing dumping margins threatening the South African potato industry.
The PVPF also said South Africa was a key destination for processed potato product exports from the EU, where there is a history of dumping, which is set to have a negative impact on the country’s agricultural sector and surrounding communities.
Jooste added that there was no guarantee that the benefit of lower prices as a result of imports from Europe would be passed on to consumers.
“In fact, a longer-term consequence is that consumers could face higher prices if South African growers and processors are forced out of business as a result of cheap imports on the back of Covid-19-inflicted reasons,” he said.
Potatoes SA says while it waits for government to respond to the request for a temporary ban on EU frozen chips, it will take its appeal to buyers and other decision-makers to think twice about where they source their potato products.
Jooste asked that buyers and policymakers continue to support the local industry, which “so desperately needs to recover from the pandemic and keep operations afloat”.
The PVPF said it was essential that trade remedies within the ambit of South Africa’s commitment to international trade agreement be used to support local potato farmers.
“This is to protect the sustainability of the potato industry, inclusive of employment by local potato growers and processors. Potato growers and processors have significant economic multipliers for rural towns and cities,” said the forum.
Jooste said it was important to prioritise local growers, the local supply chain and the expansion of the local agricultural economy to combat the financial effects of Covid-19.
“By raising concerns against the importation of these products, we have an opportunity to buy and support the local industry, and help rebuild the South African economy in a time when it is more critical than ever before, especially if one considers the strong labour multiplier of the industry,” said Jooste.