Investment opportunities in seed potato production · 2014. 7. 6. · The opportunity for seed potato exports from WA has been pioneered by two grower exporters who have concentrated

Department ofAgriculture and Food

Investment opportunities in

seed potato production in Western Australia

ContentsInvestment highlights ................................................... 3

Executive summary ...................................................... 4

Industry overview ......................................................... 7

The market ................................................................. 12

The proposal .............................................................. 13

Financial analysis ....................................................... 14

Other benefits for an investor ..................................... 18

Other important information ....................................... 20

Key risks and mitigants .............................................. 21

How to progress ......................................................... 22

Reference ................................................................... 23

Investment opportunities in seed potato production in Western Australia | 3

Investment highlights“In the south of Western Australia, potatoes are produced under the most ideal climatic and phytosanitary conditions imaginable. In fact, the growing conditions there might be described as laboratory conditions, which is reflected in the yields close to what is believed to be the potential limit for producing potatoes on one hectare of land .. There is no bacterial wilt, no potato cyst nematode, no late blight … found anywhere in the seed potato growing areas of WA ... There is no other potato growing area in the world, known to CIP, where such conditions are found.”

Dr Peter Schmiediche Regional Representative

International Potato Centre (CIP) Bogor, Indonesia (1992–97)

Western Australia produces about 96 000 tonnes of potatoes annually in the south-west of the state. Some 52 000 tonnes are produced for the regulated ware (fresh) market, 32 000 tonnes for the processing sector (crisps and French fries) and 12 000 tonnes for seed (Australian Bureau of Statistics, 2012).

All three sectors offer opportunities for expanded investment, however this business case outlines potential opportunities for investment in the seed potato industry of Western Australia (WA).

The information in this document is relevant to any grower or corporation looking to diversify their investment base or expand production into an area that is very profitable, has significant scope for growth and represents a valuable opportunity both for Western Australia and for the investor. The year-in, year-out cash flow budget for year six of a 43 hectare enterprise shows, in round figures, production and export expenses of A$1 million with an operating profit before interest and tax of A$250 000.

Executive summaryA number of profitable options are available for corporations looking to invest in seed potato production in Western Australia. This document demonstrates the business case for growing certified G4 Atlantic seed potatoes from G0, that is, pre-basic seed stock (minitubers, microtubers and plantlets), in Western Australia for export to Asia.

The gross margin per hectare for certified G4 Atlantic seed produced this way is about A$12 400.

In developing countries, potato consumption increases faster than population growth. Over the last two decades, the consumption and production of potatoes in Asia has increased rapidly driven by higher disposable incomes, westernisation of diets and the need to feed a growing population.

This increase in the demand for potato needs to be matched by increasing production, however high pest and disease pressures hamper production in tropical and subtropical Asia. Pest and disease pressure also limits the production of high quality seed, and seed production systems in the tropics have had limited success.

The major constraints to booming potato production in developing countries are availability of high quality, affordable seed and efficient crop management.

Where certified seed potatoes are used in Asia, they are largely sourced from international suppliers, primarily the Netherlands, and to a lesser extent Scotland. WA has a very significant advantage over the major European producers as WA can produce seed potatoes for 12 months of the year.

Dormancy has a major impact on seed performance. Seed that is too dormant or long past the dormancy stage produces poor crops. WA’s potato industry can supply seed at correct dormancy at times of the year when international competitors cannot.

WA is a high yielding potato producer and has expert farmers, consultants and government officials to help its seed potato industry increase yields and profits through improved crop management.

The opportunity for seed potato exports from WA has been pioneered by two grower exporters who have concentrated on building markets in Mauritius, Thailand and Indonesia over the last decade.

Thai and Indonesian markets have been driven by processors who require improved seed for their growers to ensure stable supply for their factories. WA exporters have reached their production capacity to where WA now accounts for more than 70% of Australian seed potato exports and requires new producers to meet the growing demand.

China is the largest potato producer in the world, accounting for more than 20% of world production and 25% of total area sown to potatoes. However, China’s average potato yield is low at 15.7t/ha in 2010 according to Chinese Ministry of Agriculture data. The USA average potato yield is approximately 44t/ha and Western Australia’s is 41.7t/ha (Australian Bureau of Statistics, 2012) which includes seed crops.

For many years China imposed a total ban on the import of seed potatoes. The Netherlands, Canada and the USA had all attempted to negotiate for their seed potatoes to be sold into China, but none of them were successful.


In 2006 the Chinese Government agreed to a protocol for the import of Scottish seed potato minitubers, which was a major breakthrough to a potentially huge market. Although import is limited to minitubers, it provides encouragement that in future, field-grown seed potatoes from ideal climatic and phytosanitary seed potato regions, like WA, may be permitted into China.

Why invest in seed potato production in Western Australia?

Western Australia is an ideal location in which to establish a seed potato enterprise aimed at producing seed potatoes for export, interstate and domestic markets.

It has many significant advantages over other regions both within and outside of Australia. The WA seed potato industry has:

• freedom from major pests and diseases including potato cyst nematode

• a comprehensive government Seed Certification Scheme

• proximity to the developing Asian market

• ability to produce 12 months of the year

• strong technical support from the Department of Agriculture and Food, Western Australia (DAFWA) which has an expert multidisciplinary potato team covering all aspects of growing seed potatoes.

The future for WA seed potatoes is not limited to overseas markets. There are opportunities for WA seed potatoes within Australia including:

• Atlantic seed potatoes in Queensland, for autumn-planted crisp processing crops

• demand for WA seed from the south-eastern states for the fresh market variety Nadine

• increased domestic demand for WA seed potatoes as a result of the spread of potato cyst nematode in Victoria, Australia’s largest domestic seed potato producer.

More generally, Western Australia represents a safe and stable environment in which to make investments in agricultural activities. Western Australia has a:

• stable political environment

• well-regulated and transparent commercial environment

• low sovereign risk

• strong and growing economy

• ample opportunities for broadacre agriculture

• highly skilled workforce

• ready access to relevant research and development

• matching time zone with China.

While the seed potato industry in WA has been slow to develop to this stage, a number of recent changes now make WA seed potato production even more attractive including:

• the recent fall in the value of the Australian dollar means WA seed potatoes are more competitive against Dutch and Scottish producers

• continued growth in demand from South-East Asian potato processors for certified Atlantic seed

• emergence of new marketing entities in WA to export seed potatoes

• proven profitability of growing and exporting seed

• potential for new market development in the Middle East supplying Dutch and Scottish varieties on a counter-seasonal basis to the northern hemisphere.

Domestic seed is certified or registered by the State Government AGWEST Plant Health Laboratories which also provides plant heath certificates for interstate sales. Export seed is certified by AGWEST Plant Health Laboratories, and phytosanitary documents and inspections are undertaken by the Australian Department of Agriculture.

The many other horticultural production opportunities for land suitable for seed potato production in the higher rainfall south-west of WA, means that suitable land purchases may be expensive. For this reason, and because rotation options for seed potato growers may be limited, growers often lease land on a seasonal basis. The growth in the dairy industry in the south-west also provides opportunity to lease land from dairy farmers who are looking for a rotation option out of pasture. As a result, there is significant land and water for irrigation available in Western Australia for seed potato production.

New investors in WA seed potato production would not need a high level of capital outlay to establish a new seed potato industry if they:

• contract out many activities

• gain access to existing infrastructure through leasing agreements

• lease land for production which enables the producer to meet the rotational requirement for seed potatoes without the expense of holding prime horticultural land in fallow.


Industry overview Although the seed potato industry is the world’s largest seed industry both in terms of value and volume of seed produced annually, there is a worldwide shortage of quality seed potatoes, leading to reduced crop yields and poor tuber quality. This has limited the expansion of the fresh and processing potato industries in many countries.

The main seed potato producing countries are in Central and Eastern Europe along with China and India (see Table 1).

Table 1 Major seed potato producing countries

Country Production (kt)

Russian Federation 6500

India 3040

China 2900

Belarus 1400

USA 1137

Poland 1030

Romania 993

Netherlands 900

Peru 750

Germany 598

Total world 31 941

(Source: FAO stats, 2012; aardappelpagina.nl/explorer/pagina/sdnetherlands.htm)

Many of these countries are producing seed potatoes for their own use and therefore are not large exporters. There are some noticeable exceptions with some countries exporting large quantities but which are not comparatively large in terms of seed potato production (Table 2). For example, the Netherlands exports over 880 000 tonnes (t) per annum, from an estimated seed potato production base of just 900 000t.

Table 2 Major seed potato exporting countries. Value and quantity of seed potato exports 2012 (only includes trade value to individual countries >A$1m)

Rank Country Trade value (A$) Quantity (t)

1 Netherlands 497 432 103 884 205

2 France 69 460 499 125 792

3 United Kingdom 95 971 978 116 851

4 Canada 37 857 941 91 376

5 Germany 40 099 286 81 412

6 Denmark 27 910 136 49 346

7 Belgium 19 971 192 46 130

8 USA 8 485 446 18 041

9 Egypt 11 858 107 17 468

10 Spain 14 497 380 14 864

11 Ethiopia 2 662 178 11 897

12 Czech Republic 2 803 329 6763

13 Portugal 4 630 573 6077

14 South Africa 3 314 929 4940

15 Australia 4 764 422 4602

(Source: comtrade.un.org)

The bulk of exports are sent to Southern European and Middle Eastern countries which grow early season ware potatoes for the European market and for local consumption. The Netherlands and UK are both facing disease pressures and there is a move to grow production of potatoes in Eastern Europe which has cheaper land and labour and access to the European market.

Asia is a relatively small but growing market for European seed exporters. WA is ideally placed to service the Asian market and the Western Australian seed potato industry has been expanding in response to the growing demand from South-East Asian processing factories that require seed of the Atlantic variety for their growers. This growth has led to the increases in export seed sales depicted in Figure 1. Concurrent to this increased demand from South-East Asia, there has also been a growing market for WA quality seed potatoes in the Australian domestic (interstate) market.


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Figure 1 Value (A$ millions) of Western Australian seed potato exports by market (shaded area shows the appreciation of the Australian dollar against the euro) (Source: Agrifood Infonet and oanda.com/currency/historical-rates/)

In addition, the value of WA exports of seed potatoes has increased despite the appreciation of the Australian dollar against the euro (seed from the Netherlands is denominated in euros) as shown in Figure 1. This increase in sales reflects the price premium WA seed attracts.

Western Australia’s proximity to South-East Asia and South Asia affords it a significant transport advantage both in terms of costs and timeliness over other horticultural regions in Australia and also over seed potato export competitors.

Physiological age has a major impact on seed performance. WA has the significant advantage over European producers of being able to produce seed potatoes all year round at the correct physiological age when competitors cannot.

Western Australia has traditionally produced seed in the Albany region due to its suitability with low summer temperatures and strong on-shore, aphid-deterring winds. Expansion in seed potato production to service new markets overseas and in eastern Australia is now occurring at Albany, Manjimup/Pemberton and along the coast from Scott River to Yarloop (Shires 1–5, 11 and 13 in Figure 2, next page). With ample irrigation water available in other areas of the south-west, there is scope for further expansion into other non-traditional potato growing areas.

Figure 2 Potato producing shires (>10ha) in Western Australia

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(ha) Map ID (ha) Map IDManjimup 1474 1 Kwinana 47 8

Busselton 495 2 Cockburn 47 9

Nannup 422 3 Gingin 28 10

Harvey 174 4 Cranbrook 22 11

Albany 115 5 Wanneroo 14 12

Donnybrook Balingup 89 6 Dardanup 13 13

Rockingham 75 7


There are currently 38 seed potato growers in WA, producing from 412 hectares of land primarily in the south-west (Australian Bureau of Statistics, 2012).

Seed potato production in Western Australia is subject to the WA Certified Seed Potato Scheme administered by AGWEST Plant Laboratories of the Department of Agriculture and Food, Western Australia. The Seed Certification Scheme ensures that WA-produced seed potatoes meet all export market requirements with improved minimum standards for disease and tuber damage levels as well as improved biosecurity measures. Buyers can be confident that they are buying high quality disease-free seed potatoes.

All modern seed potato certification schemes are based on a ‘flow through’ principle in which material of high health status, generation zero (G0), enters the top end of the seed scheme as minitubers, microtubers or plantlets produced in accredited laboratories from pathogen-tested tissue culture stocks.

After a limited number of field multiplications or generations, certified seed passes out the ‘bottom end’ of the scheme. In WA, certified seed potatoes are produced over a maximum of five field generations as follows:

• Costly G0 seed produces generation one (G1) seed.

• Next season less costly G1 seed is multiplied to produce G2 seed.

• In the third season, G2 seed is multiplied to produce G3 seed.

• Similarly G3 seed is multiplied to produce G4 seed which is now affordable enough to be purchased by some commercial growers.

• Finally, G4 seed is multiplied to produce G5 seed, the final product of the WA Certified Seed Potato Scheme.

• One minituber of G0 could be expected to produce 1kg of G1 seed, with subsequent generations increasing 15-fold per generation to give 15kg of G2, 225kg of G3, 3.3 tonnes of G4 seed and 50 tonnes of G5 seed.

To ensure freedom from pests and diseases the WA Seed Certification Scheme prescribes a one-year-in-six rotation for production of G1 to G3 and a one-year-in-four rotation for production of G4 and G5.

As WA domestic seed is produced to order, major varieties need to be ordered 18 months before delivery to enable the seed producer to assign seed required for multiplication. Minor varieties may require further time for suitable quantities to be multiplied. Domestic seed plant heath certificates for interstate sales are issued by the State Government AGWEST Plant Health Laboratories.

Domestic seed is either graded and packed by the seed producer or by packing houses. Buyers arrange pick up from the grading premises. Appropriate post-harvest storage is usually arranged by the seed buyer through a third party cool storage provider.

WA export seed is produced to forward contracts between seed potato exporters and buyers. The trade is characterised by long-term relationships with exporters specialising in specific markets. The exporters have grading and storage facilities. These exporters produce seed but also contract supply from other seed producers. Exporters can also supply planting and contracting services to their growers. Export seed phytosanitary documents and inspections are undertaken by the Australian Department of Agriculture.

The marketIn Australia, potato consumption has been declining relative to population as fresh product is replaced by rice and pasta. From 1990 to 2010 Australian population grew by 30% but potato consumption only grew 6%. However, this situation is reversed in many neighbouring countries. China is a good example where potato consumption has increased 155% since 1990 while population has grown 17% (see Table 3).

Table 3 Fresh potato consumption of Australia and neighbouring countries

CountryConsumption Change 1990 to 2010

1990 1995 2000 2005 2010 Consumption Population‘000 tonnes %

Australia 1171 1105 1169 1238 1242 6 30

Bangladesh 1069 1470 2934 4854 7924 641 41

China 31 940 45 954 66 279 70 679 81 344 155 17

Indonesia 552 933 953 1002 1081 96 30

Philippines 58 85 65 81 131 126 51

Thailand 18 71 110 130 161 794 21

Sri Lanka 87 107 168 126 183 110 20

(Source: consumption FAO; population World Bank)

In developing countries, potato consumption increases faster than population growth. Over the last two decades, the consumption and production of potatoes in Asia has increased rapidly driven by higher disposable incomes, the westernisation of diets with increasing demand for potatoes and potato products like French fries and crisps, and the need to feed an increasing population.

This increase in the demand for potato needs to be matched by increasing production, however high pest and disease pressures hamper potato production in Asia, particularly in tropical and subtropical regions. This also limits the production of high quality seed with domestic seed production systems in the tropics having limited success.

The major constraints to booming potato production in developing countries are availability of high quality, affordable seed and efficient crop management. It is estimated that only about 11% of the world’s potato crop is grown from certified seed. This not only affects current production but also constrains future expansion of the fresh and processed potato industries.

In 2011/12 and 2012/13, WA was responsible for between 78% and 96% of Australian seed potato exports. Indonesia and Mauritius have been the main destinations with exports to these two countries in 2011/12 valued at A$1.8 million and A$1.7 million respectively. Indonesia’s imports of seed potatoes from WA increased by a further 10% in volume and 12% in value in 2012/13 (Source: Agrifood Infonet).

Between 2001/02 and 2011/12, exports of seed potatoes to Indonesia increased 50-fold to meet increasing demand for Atlantic seed for growers producing crisping potatoes for Indonesian factories. Mauritius has also seen imports more than double as the major sugar estates have sought to diversify in response to falling quotas for their sugar in the European Union.


The future for WA seed potatoes is not limited to overseas markets. There are opportunities for WA Atlantic seed potatoes in Queensland, for the autumn-planted crisp processing crops. There is also demand for WA seed from the southern eastern states for the fresh market variety Nadine. There is increased demand for WA seed potatoes domestically as a result of the spread of potato cyst nematode in Victoria, Australia’s largest domestic seed potato producer.

The proposal Traditionally, growth in WA’s horticultural sector has come primarily from existing growers, with industries consolidating around fewer, larger growers. The potential for growth in the seed potato industry goes well beyond this traditional path for expansion. An investment in seed potato production in WA is an opportunity to be involved in what has been a small industry and yet one which has proven its viability, sees market opportunities opening up and which has very good prospects for significant profitable growth.

While the seed potato industry in WA has been slow to develop to this stage, there have been a number of recent changes which now make WA seed potato production even more attractive:

• The fall in the value of the Australian dollar against the euro and the British pound means WA seed potatoes are more competitive against Dutch and Scottish producers.

• Continued growth in demand from South-East Asian potato processors for certified Atlantic seed.

• The emergence of new marketing entities in WA to export seed potatoes.

• Proven profitability of growing and exporting seed.

• The 2008 discovery of potato cyst nematode (PCN) in a Victorian seed production area limits the trade of seed potatoes from Victoria.

• Potential for new market development in the Middle East supplying Dutch and Scottish varieties on a counter-seasonal basis to the northern hemisphere.

• Continued growth in the supply of seed to interstate markets particularly in response to the outbreak of PCN in Victoria.

An expanding seed potato industry in WA will require access to land and water. The south-west of the state has significant areas of land which historically were used for cauliflower production and processing potato production. The contraction of WA’s export cauliflower industry and the fall in the production of processing potatoes with the departure of Simplot from Manjimup in 1999 has left significant spare capacity in horticultural land in areas suitable for seed potato production.

The growth in the dairy industry in the south-west of WA provides an opportunity to lease land from dairy farmers who are looking for a rotation option out of pasture. Accordingly there is significant land and water available in the south-west for lease or joint venture development.

Purchasing land is expensive and rotation options are often limited and accordingly, many growers lease land on a seasonal basis. Land is traditionally leased between farmers with no intermediaries. Anecdotal evidence indicates land costs about A$70 000 for 40ha leased over one season including the use of a centre pivot and water.

Financial analysis A financial analysis is presented here for the standard practice of producing and selling G4-certified seed using seed grown for three generations from G0 minitubers.

New investors in WA seed potato production would not need the level of capital that would be required were they to be establishing a new seed potato industry if they:

• contract out many activities

• gain access to existing infrastructure through leasing agreements

• lease land to meet the rotational requirement for seed potatoes without the expense of holding prime horticultural land in fallow.

The analysis of the costs and returns is based on the production of Atlantic seed. Atlantic is the main variety grown for export and is sent to growers in South-East Asia to be grown out for crisping potatoes. The gross margins below reflect returns from sales minus variable costs. Overheads such as interest, repairs and maintenance of equipment and rates and capital equipment depreciation are not included.

Small tubers (35–65mm) are preferred by growers in South-East Asia as they do not need to be cut and so avoid potential problems with pests and diseases in a tropical climate. Accordingly, small tubers attract a price premium. In G3-planted seed crops, growers aim to maximise the yield of small round tubers by increasing planting density. Medium size tubers can be sold as G4 seed on the domestic market where they are used by processing growers. Larger tubers can be sold to processing factories or retained for use as seed to grow a G5 crop. This means growers can aim for a higher yield for a G3-planted seed crop than for a G4-planted seed crop.

Grading and cool storage charges are significant, accounting for 35% of total variable costs. Most growers use a third party to grade and store their potatoes. The cost of seed used in growing this G4 crop is A$414. This is the cost incurred in growing seed out from G0 through to G3 (Table 4a).


Table 4a G4 harvested Atlantic seed gross margin

Income

Grade

A$/unit A$/haDiameter (mm)

% Tonnes

Export seed 35–65 68 30 1089 /t 32 298

Domestic seed >65 25 11 643 /t 7098

Oversize – processing

3 1 300 /t 340

Waste & soil 4 2 0 /t 0

Total income 44 950 /t 39 736

Variable costs

Establishment 185

Labour 2152

Crop inputs 4169

Harvesting 887

Irrigation pumping 977

Grading & cool storage 10 105

Seed certification 402

Levies 230

Freight to Perth 1973

Shipping costs 4131

Other 2085

Total variable costs 27 296

Gross margin per hectare 12 440

The impact on the gross margin to changes in price and yield is demonstrated in Table 4b.

Table 4b G4 harvested Atlantic seed gross margin sensitivity analysis

Saleable yield (t/ha)

Yield (% of) expected

60% 80% Expected 120% 140%

Price 25.1 33.5 41.8 50.2 58.6

(% of) expected

Average (A$/t)

60 570 -5582 -4518 -3455 -2391 -1328

80 760 -814 1839 4492 7145 9798

100 950 3955 8197 12 440 16 682 20 924

120 1140 8723 14 555 20 387 26 218 32 050

140 1330 13 491 20 913 28 334 35 755 43 176

Estimates of the capital costs of establishing seed potato production in the Manjimup area are presented in Table 5. This includes a relatively small area of land, 40ha, suitable for low generation seed production with later generations being grown on leased land.

Key assumptions:

• Purchase relatively small home farm for low generation seed production.

• Purchase new or near-new equipment from commercial machinery agents in Australia, although it may be cheaper to source equipment direct from overseas.

• Generate a cash flow initially through growing a G4 crop on leased land using purchased G3 seed.

• Gradually move out of the G4 production into a G1–G5 system with later generations (G4 and G5) grown out on leased land.

• Grading, packing and cool storage are all outsourced so no capital equipment is required for these activities.


Table 5 Estimates of capital costs for seed potato production

Salvage rate %

Useful life in years

Purchase price (A$)

Land purchase including stamp duty 613 800

Tractors 100, 80 & 50 hp+ 35 23 300 000

Sprayer & spreader 15 10 42 000

Cultivation equipment 10 20 26 000

Potato planter & harvester 50 10 195 000

Bins 0 30 160 000

Shed 10 25 175 000

Forklift, utility, motorbikes 50 12 75 000

Centre pivot, generator & spares 20 25 141 000

Pumps 20 15 45 000

Other irrigation equipment 20 15 114 000

Total equipment including land 1 886 800 A year-in, year-out budget for production at Manjimup is shown in Table 6. This assumes an average price of A$950/tonne.

Table 6 Year-in, year-out budget

Total

Area (hectares) 43

Seed sold (tonnes) 1594

A$

Total income 1 503 496

Production & export expenses 1 048 766

Leasing of land 70 000

Overheads 24 000

Repairs & maintenance 38 190

Capital (depreciation) 58 356

Operating profit (before interest & tax) 264 184

These costs are presented as a general guide and potential investors should prepare their own budgets using current information.

Other benefits for an investorOne option for an investor in a seed potato enterprise in Western Australia would be for the seed potatoes to be exported to China for use as inputs in the Chinese ware and processing potato production industries.

Although China is the largest potato producer in the world, accounting for more than 20% of world production and 25% of total area sown to potatoes, its average yield is low. According to Chinese Ministry of Agriculture data, China’s potato yield in 2010 was 15.7t/ha while the US potato yield is approximately 44t/ha and Western Australia’s yield is 41.7t/ha (Australian Bureau of Statistics, 2012) which includes seed crops.

Although potato yields are affected by several factors, quality seed is a very important factor and it is likely that the use of low quality seed potatoes is the major cause of these lower yields. The results of investigations carried out in 2005 in Shandong, China, showed that good quality seed accounted for 24% of sown area, medium quality seed accounted for 43.3%, and 32.7% of production was based on poor quality seed.

The yield difference between good quality and poor quality was 28.4% (Source: Workshop to commemorate the International Year of the Potato - 2008, The importance of quality potato seed in increasing potato production in Asia and the Pacific Region, Dr Fengyi Wang).

In 2010 less than 20% of China’s total potato acreage was sown using good quality virus-free seed potatoes. The average yield increase from the use of good quality seed can be as high as 30 to 50% compared to farmers’ seeds. As a result, the Government of China has a goal to increase the use of virus-free seed potato to 50% of all potato plantings by 2015 and yields are projected to increase to around 20t/ha.

To facilitate the increased production of virus-free seed potatoes, the Chinese Government’s seed subsidy has been expanded to include potato production. According to the new policy, basic seed potato (G2 seed) production will be subsidised at a rate of A$1100/ha (RMB500/mu); virus-free seed potato (G3 seed) production will be subsidised at a rate of A$220/ha (RMB100/mu).

Industry experts have suggested that the subsidy policy will not be as successful as anticipated in increasing the availability of quality seed potatoes because the subsidy is relatively low (only about RMB0.04/kg for virus-free potato) and the subsidy goes to seed producers, not farmers (Source: USDA Global Agricultural Information Network Reports CH10051 8/16/2010 and 12076 12/20/2012).

Therefore, there appears to be opportunity for a Chinese investor to access this increased demand for virus-free seed potatoes. The constraint to taking advantage of this opportunity to supply seed potatoes into China will be the issue of market access.

No country currently has access to China’s fresh potato market. Securing market access for fresh potatoes has been a major priority for the US potato industry and while China’s General Administration of Quality Supervision, Inspection, and Quarantine has initiated a pest risk assessment and ongoing technical discussions, very little progress has been made.


Market access for seed potatoes may be less problematic. Whereas imported fresh potatoes would compete directly with Chinese grown product, Australian grown quality virus-free seed potatoes could be of significant assistance to the Chinese industry by increasing yields of Chinese grown processing and fresh potatoes and would be in line with Chinese Government policy to improve the seed stocks used in China.

It needs to be recognised that until recently, China had operated a total ban on the importation of seed potatoes into the country. The Netherlands, Canada and the USA all attempted to negotiate for their seed potatoes to be sold into China, but none of them were successful.

However, recently the Chinese Government has given permission for the importation of Scottish seed potato minitubers (pathogen-tested pre-basic seed) and this is being seen as a major breakthrough in a potentially huge market. Although at this stage this is only for minitubers, it provides encouragement that negotiations may be successful in achieving a similar agreement with China for the importation of WA field-grown seed potatoes.

Other important informationIt is extremely important that all applications for regulatory approvals are underpinned by a clear and concise intent to achieve full disclosure based on a properly developed project proposal. This is because regulators need full disclosure of all required information from a properly developed project for quick and efficient processing of an application.

A comprehensive, integrated development application could be used to attain concurrent development approval from the Local Government, Department of Environmental Regulation, Department of Transport and Department of Water. This could result in the time required for a total approval process of three to six months.

The Department of Agriculture and Food, Western Australia is skilled in assisting proponents to seek approvals and will work closely with proponents for the inception of the project.

The time period for all regulatory bodies to access a proponent’s application commences from the point at which they receive all the information required to make a decision in an appropriate format. This time period should not be confused with the point at which the proponent makes first contact with the regulators.

Proponents from overseas also need to comply with the requirements of the Australian Government’s Foreign Investment Review Board (firb.gov.au).


Key risks and mitigantsThere has been some concern that seed production of ware varieties has limited opportunities for expansion as the local fresh potato market is regulated and Mauritius, one of the main export markets for seed of ware varieties is a mature market and hence represents limited scope for expansion. However, there is opportunity to develop exports of seed and ware varieties used in the Middle East, and DAFWA and industry members are working to develop this market.

Another significant risk may be the difficulties associated with getting market access for WA seed potatoes into China because of China’s phytosanitary requirements. In negotiations with Scotland, The General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China outlined requirements in regards to a range of potato pathogens – see list below. Of these, WA is free of all but three. Agreements would need to be negotiated around the last three pathogens and could involve protocols such as the delivery of seed free of visible symptoms in the case of Phytophthora erythroseptica.

• Synchytrium endobioticum (Potato wart disease) [WA is free]

• Globodera pallida and G. rostochiensis (Potato cyst nematode) [WA is free]

• Potato mop top virus (PMTV) [WA is free]

• Tobacco ringspot virus (TRV) [WA is free]

• Potato viruses A, Y (N strain), V, Tobacco rattle virus & Tomato black ring virus [WA free, although PVY O or ordinary strain is present]

• Colletotrichum coccodes (Black dot) [WA not free]

• Phytophthora erythroseptica (Pink rot) [WA not free]

• Potato witch’s broom phytoplasma [WA not free].

In contrast, Scotland which has successfully negotiated the export of its minitubers to China, is free of only one of these, although two are described as rare.

Potato cyst nematode (PCN) would be a very significant risk to the seed potato industry. An outbreak of PCN would see the closure of WA’s access to seed potato export markets.

The value of the Australian dollar is also important for the viability of seed potato exports. Current weakening benefits export-based industries such as agriculture, by making the Australian product relatively cheaper.

How to progressWestern Australia is looking to consolidate its position supplying processing varieties to Asia. This region is experiencing strong growth in the demand for seed stocks. DAFWA and the industry are also looking to develop new markets in the Middle East supplying Dutch and Scottish varieties on a counter seasonal basis to the northern hemisphere.

To achieve this, DAFWA and the WA seed potato industry are keen to see further investment in the industry. Accordingly, DAFWA will provide support to potential investors in the form of:

• agronomic support

• post-harvest support

• financial modelling of individual businesses

• marketing information.

DAFWA has an expert multidisciplinary potato team covering all aspects of growing seed potatoes. The team has international experience and in a recent project in Indonesia confirmed that by using the best quality seed combined with our agronomic recommendations, farmers reported a yield increase from 8 to 26t/ha. Their increased income more than compensated for increased seed costs and resulted in an increase in profit of A$3000 per hectare.

For any corporation interested in investing in the WA seed potato industry, DAFWA would also facilitate industry linkages and introductions to members of the existing supply chain. This would involve the WA Seed Potato Producers Inc. (WASPP Inc.) and contact details for existing exporters and domestic suppliers could be obtained from WASPP Inc.

Further information on the opportunity for investment is available from:

Mr Peter Dawson Activity Leader, Potatoes Department of Agriculture and Food, Western Australia Phone: +61 (0)8 9892 8461 Mobile: +61 (0)428 171 824 Email: [email protected]


Disclaimer

This business case provides indicative modelling on the seed potato industry in Western Australia. The business case and any additional information or documents that the state of Western Australia through the Department of Agriculture and Food, Western Australia (DAFWA) may supply, are to be used only as preliminary and indicative information, to be considered and used by prospective investors in the Western Australian dairy industry in conjunction with other information and appropriate financial, legal, industry and other expert advice tailored to their individual circumstances and intentions. Prospective investors should conduct (or engage appropriate professional advisers to conduct) their own analysis and due diligence on any proposed investments, including the process for obtaining approvals. No part of this business case or any additional information or documents that DAFWA may supply constitutes or should be relied on as financial, investment, legal or other advice.

The Chief Executive Officer of the Department of Agriculture and Food and the state of Western Australia accept no liability whatsoever by reason of negligence or otherwise arising from any use or release of material (which in this disclaimer includes this business case, any information in it or other part of it, and any other information, advice or material, oral or written, DAFWA may supply in relation to any aspect of the Western Australian dairy industry, regulation of it or investment in it) or any error, inaccuracy or omission in the material. Although reasonable care is taken to make the material accurate, the Chief Executive Officer of the Department of Agriculture and Food and the state of Western Australia do not make any representations or warranties about its accuracy, reliability, completeness or suitability for any particular purpose.

Copyright © Western Australian Agriculture Authority 2014.

ABN: 86 611 226 341

ReferenceAustralian Bureau of Statistics (ABS) 2012, 71210DO001_201011 Agricultural Commodities, Australia, 2010-11, Released at 11:30am (Canberra time) Friday 29 Jun 2012, Table 1 Agricultural commodities, National and State–2010-11.

Department of Agriculture and Food, Western Australia 3 Baron-Hay Court, South Perth, Western Australia 6151 Telephone: +61 (0)8 9368 3333 Email: [email protected]

agric.wa.gov.au

Documents

Investment opportunities in seed potato production · 2014. 7. 6. · The opportunity for seed potato exports from WA has been pioneered by two grower exporters who have concentrated