THABILE NKUNJANA: How anti-dumping duties have affected frozen potato prices

Since the beginning of the war in Ukraine in February, the escalation of food prices has been at the centre of attention globally. Though this is largely apparent in cereals and oilseeds, it appears SA is following the same trend for several vegetables as well, including potatoes.

Statistics SA’s September consumer price index (CPI) data, released in October, showed that the prices of various vegetable products have clearly risen. For instance, the price of 1kg of fresh potatoes at retail outlets increased by 1.7%, 1.6% and 0.9% in July, August and September, respectively. Nevertheless, the price was 4.5% lower at the end of September year-on-year, which was attributed to a rise in the supply of fresh potatoes.

The rising prices of vegetables coincided with the introduction of anti-dumping tariffs on frozen potatoes in the country, whereafter the price of frozen potatoes started increasing sharply — far faster than that of fresh potatoes.

In 2021 SA produced about 2.6-million tonnes of potatoes, making the country self-sufficient in fresh potato. Depending on productivity, exports of fresh potatoes and potato seeds to neighbouring countries make up 8%-11% of the country’s annual potato production.

However, due to weather-related issues there are frequent short-term variations, which often result in erratic price changes in the potato market, despite production growing steadily over the long term.

In SA fresh potatoes are often offered in smaller bunches of 1kg, 2kg or 3kg, or in bags weighing 10kg, while frozen potatoes are mostly sold to fast food restaurants. About 35% of the total local potato crop is sold on the formal market, while 29% is sold on the informal market. Depending on the year’s production season, SA imports about 80% of the frozen potato fries consumed a year.

About 30,000 tonnes of frozen potatoes were imported in 2021, with Belgium accounting for 67%, the Netherlands 17% and Germany 10%. These countries are the target of anti-dumping duties after the International Trade Administration Commission (Itac) concluded that they were dumping frozen potato into the country and Southern African Customs Union region.

The immediate to short-term effect of the introduction of anti-dumping duties on frozen potato was reduced availability in the country, which typically leads to increased prices. As the country is self-sufficient in fresh potatoes, this would probably only apply to frozen potato prices.

As expected, since the anti-dumping measures came into effect frozen potato prices increased by 11.3% between July and September, reaching a 14.3% yearly rise in September in response to the supply shortage.

But fresh potato prices at retail level should not be going up, at least not when the supply of potatoes is considered. At the end of September the supply of potatoes at fresh produce markets was 11% higher than the corresponding period in 2021.

Therefore, even though profit margins would be constrained by increased input costs, such fertilisers due to the war in Ukraine, and higher fuel prices, farmers producing potatoes meant for processing are likely to benefit from the current prices, but not fresh potato producers.

In SA fresh potato producers outnumber frozen potato producers, which can be partly attributed to the dominant cultivars used across the industry. Due to the cultivar variety employed, only 20% of the potatoes grown in SA are suitable for making fries or crisps, and processors buy them straight from the farm.

Because of the inherent inequalities generated by this, there are more fresh potato suppliers than frozen potato suppliers, and fresh potato growers are the ones most affected by the current high input costs, lower prices and other market-related risks.

In addition, given that the potato industry is traditionally labour intensive despite recent increases in mechanisation, fresh potato farmers are crucial for job growth in the broader potato industry.

How does the industry go about dealing with the uneven supply of potatoes domestically? The popularity of potatoes has increased over the years, and it is expected that from 2019 to 2029 the average yearly rise in potato consumption will be at least 1%.

The industry must first increase production of frozen potatoes and balance supply. Farmers who enter the potato industry in the near future should be planting cultivars best suited for fries manufacturing. This can be accomplished through partnerships between departments, farmers and the potato industry.

The National Agricultural Marketing Council is working with Potato SA to link farmers with the market. Such initiatives need to also accommodate the future, including addressing the current issue of frozen potato shortages. Key producing areas can be areas of concentration.

In addition, new farmers need to be acquainted with the certified varieties that will result in higher yields for potato production suitable for making fries and crisps. This not only has the capacity to deal with the supply of frozen potatoes, but also puts them in a better position to deliver the right potatoes for market demands.

The country appears to have enough processing capacity to support the existing local production of frozen potatoes, but demand is growing. According to projections from the Bureau for Food & Agricultural Policy, processed potato consumption increased by at least 3% between 2009 and 2019 and is likely to increase further in future.

As a result, increased investments in potato processing are also required to go along with the development of production. However, since this cannot be done right away it will not help with the current existing shortages of frozen potatoes.

• Nkunjana is an agricultural economist with the National Agricultural Marketing Council. He writes in his personal capacity.