The market for French fries in China is growing rapidly but barriers to entry exist for foreign providers, as Peter Peverelli explains.

The potato, a staple of many European nations, has traditionally only had a supporting role in Chinese cuisine. It is known as tudou (literally: ‘earth bean’) in colloquial Chinese, or malingshu (‘horse bell tuber’) in formal texts.

These names indicate that potatoes used to be seen as a vegetable in Chinese cooking. In north-west China (Shanxi, Inner Mongolia), where the potato is indigenous, chunks of potato are added to stews.

The Chinese potato output for the marketing year 2019/20 is estimated at 98m metric tonnes, according to the US Department of Agriculture.

Interest in potatoes in China increased considerably, when, in 2015, the Chinese government launched the plan to make the potato the nation’s fifth staple food, after rice, wheat, soy beans and maize. However, it has so far not significantly affected potato production.

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Only 10% of the output is further processed into (semi) finished products. In recent years, China’s rapidly-changing eating habits have resulted in a booming fast-food industry. Chinese consumers, especially those in urban areas, have accepted Western-style fast-food restaurants that serve French fries and other popular side dishes as a way of life in China.

China’s frozen French fries production in the market year 2019/20 is forecast at 310,000 metric tonnes, a 10% increase from 2018/19 as a result of increased fresh potato production.

The country imports the majority of its frozen French fries from the US. However, due to the additional tariffs Beijing has levied on many US agricultural products amid the ongoing trade tension between the two nations, the share of US companies in the Chinese market fell from 64% in 2016/17 to 53% in 2018/19.

As a result, forecasts for 2019/20 have China’s imports of frozen French fries decreasing by 10%, to 129,000 metric tonnes. The next largest suppliers, Belgium, Turkey and the Netherlands, together accounted for 40% of China’s imports of frozen French fries, according to the USDA.

Frozen French fries require raw materials compliant with strict specifications (shape, starch and sugar content, colour). Therefore, processors usually contract with farmers to produce suitable potatoes.

After a poultry disease and other problems that affected KFC and McDonald’s, the largest buyers, production of frozen French fries has decreased considerably. Although these animal diseases seem to be over, consumption of fast food now is affected by the coronavirus outbreak.

In spite of these challenges, all major international producers have started projects in China, with various levels of success.

US-based J.R. Simplot has a joint venture primarily producing French fries and hash browns for McDonald’s outlets in China and in other East Asian customers.

Canada-based McCain Foods’ first factory in Asia was its plant in Harbin in the north of China.

Dutch peer Aviko has had a production facility in Minle in Gansu province since 2008.

Six years later, Aviko embarked on another project further east in Zhangjiakou in Hebei province, near Beijing, with local business Snow Valley Agriculture. However, in 2018, Aviko sold its shares to Snow Valley, which, since then, has intensified its marketing activities, positioning itself as China’s leading frozen French fries supplier. While J.R. Simplot and McCain seem to concentrate on the big fast food chains, Snow Valley also markets towards consumers.

Last month, Aviko moved to beef up its position in China with the acquisition of a majority stake in local French-fries supplier Hongyuan Louis.

Another Dutch firm, FarmFrites, signed an agreement with Inner Mongolia Linkage Potato Co. in 2014 to set up a local joint venture, which is said to be building a new frozen French fries plant targeting the premium segment of the market, i.e. the major fast food chains.

Linkage Farm Frites will be 75% owned by Linkage, while Farm Frites will own 25%. Production was to start in 2017, but has been postponed a number of times. No news has been published about this project since early 2019.

Numerous domestic companies claim to produce ‘French fries’, but the bulk of these produce crisp-type potato-based snacks resembling fries.

Apart from Snow Valley, two major domestic producers of frozen French fries are Landun Xumei, based in Shanxi, and Beijing-based Kaida Hengye Agricultural Technology Development (Beijing).

Landun claims to have a capacity of 100,000 metric tonnes per annum; Kaida 30,000. The latter seems to be now mainly producing crisps from potatoes and other tubers such as sweet potatoes. However, its website reveals it is seeking a partner for French fries production.

French fries are consumed in fast food restaurants or on the street. Apart from the international fast-food brands, a growing number of Chinese chains are offering French fries, including Dicos, which has Taiwanese noodle maker Ting Hsin as a major shareholder and operates 2,400 outlets. Its flagship product is chicken, following the success of KFC in China.

Another is Potato Wish, founded in 2007 and owned by South Korean confectionery maker Orion. The chain operates 3,500 outlets nationwide. It offers a combination of Asian and Western fast food.

The opportunities are huge, but the market is hard to enter. Consumption of French fries will keep increasing, and so will demand. However, most manufacturers seem too concentrated on the fast food chains, slighting consumers.

The bulk of frozen French fries are still imported. International suppliers will be able to increase their exports to China for a while, but to safeguard a long-term market share, they need to produce locally.

A major problem for most international investors so far has been the lack of potatoes complying with the strict specifications for frozen French fries. To be successful in producing frozen French fries in China means that you simultaneously have to invest in potato production. In that respect, it is no surprise that most international suppliers have tried to forge partnerships with potato growers.

The only domestic producer that is paying attention to this is Landun Xumei, which advertises itself with its home grown Shepody and Russet Burbank. Interestingly, none of the major foreign investors has knocked on Landun’s doors to seek cooperation.

But cultural barriers also have to be overcome. A major problem for any supplier, domestic of foreign, is that Chinese consumers do not prepare French fries at home. Chinese cuisine does, of course, include fried dishes, but generally these are not often cooked at home, to avoid excessive oily fumes.

Chinese Internet sites teaching people how to prepare French fries all start from raw potatoes, not from frozen French fries.

Appliances such as air fryers are on sale in specialist stores but Chinese consumers are not buying them. Good advice for any party trying to push frozen French fries among Chinese consumers might be to encourage them to link up with a supplier of air fryers.