Impact of Higher Prices on U.S. Potato Exports

Published in the June 2009 Issue Published online: Jun 05, 2009 John Toaspern, VP, USPB International Marketing
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U.S. potato exports have reached record levels the last two years, with both the quantity and value increasing; however, the value has risen much faster than the quantity. From 2004 to 2008, the quantity of exports rose 40 percent, while the value increased 61 percent. For 2008, the increase in quantity to 1,235,905 metric tons was 7 percent, while the value increased 14 percent to $1,181,999,616. The unit value (total value divided by total quantity) of potato product exports in 2004 was $834 per metric ton; it increased to $957 per MT in 2008, a 15 percent increase in "price." The increase in price has led to a slowdown in the growth of demand for U.S. potato products.

The first economic principle every college student learns is that price is set by the intersection of supply and demand, but the secondary aspect of that principle is that this also sets the quantity of product sold. So if the supply is reduced, resulting in an increase in price, then demand will decline and the quantity sold will be reduced. Consumers will switch to substitute goods which are lower priced or that they perceive to be a better value.

International markets for potatoes are complicated by the fact prices are set by supply and demand equations and cost of production in the producing country and not as much by the supply and demand situation in the foreign market. The cost to the foreign consumer is also impacted by exchange rates, shipping costs and tariffs. The consumer is able to choose from a number of different priced products, with of course, differing quality.

In 2002 and 2003, U.S. products were expensive relative to products from other countries because of the strong U.S. dollar. As the dollar weakened relative to competitor's currencies, and U.S. prices were relatively low in 2004, 2005 and 2006, U.S. exports increased steadily, both in quantity and value. But as was shown above as the price of U.S. potatoes increased in 2007 and 2008, the increase in the quantity sold was much slower than the increase in value. In 2008 and now into 2009, U.S. product is also being impacted by the strengthening of the dollar relative to competitor currencies, up 35 percent to the New Zealand dollar, 24 percent to the Canadian dollar, and five percent to the Euro from January 2008 to January 2009.

Exports for the first six months of the current marketing year (July-December 2008), compared with the same period in 2007, provide further clarification. The value of fresh potato exports increased 32 percent, while the quantity exported actually declined by 9 percent. The unit value for fresh potatoes exported during these two periods was $403/MT in 2007 and $583/MT in 2008. The value of dehy exports declined 5 percent, while the quantity went down 6 percent, with the unit value increasing from $1509/MT to $1529/MT. The quantity of frozen product exports increased 9 percent, while the value increased 15 percent, with the unit value increasing from $856/MT to $898/MT.

Worldwide demand for potatoes continues to increase, even with the current economic turmoil taking place. While the slowing of economies around the world will certainly lead to a slowdown in the rate of increase in demand, we do not foresee a decline. Further, most economist are predicting that the recovery will be under way in 2010 and that worldwide economic growth will be in full swing again by 2011.

The question facing the U.S. potato industry is if we are going to price our potatoes to take advantage of this growing demand. There are a number of competing suppliers who will take away market share if the U.S. price gets too high, which would be a shame as the international market place is where U.S. growers should be looking for growth.