Strategic Business Area Europe is occupied with the well-known HZPC business activities in Europe and from Europe to other countries. It includes our production and commercial activities in more than 80 countries and it provides approximately 85% of our commercial turnover.
We reached a new milestone this year. We have a growth in acreage of 6% and we once again sold more seed potatoes than in preceding years and we also produced the greatest quantity of our own seed potatoes ever in the Netherlands. It is a magnificent result, which has been achieved in spite of challenges such as political turbulence, falling oil prices and devaluation of currencies. The weather conditions contributed to higher yields of seed potatoes than the long-term average in the Netherlands, the United Kingdom, Poland and Finland. The sales season found it hard to get going and the high percentage of oversized seed potatoes also provided a challenge. Active risk management and our various market strategies enabled us to succeed in achieving healthy growth in our turnover and our gross margin.
We have been implementing the new EU classification system from the 2016 production season onwards. This means a reduction in the production of seed potatoes to a maximum of nine field generations in the EU. The number of field generations is lower in practice in order to ensure healthy seed potato production.
Recovery in Europe
The European market recovered in 2015/2016 with higher prices for ware potatoes than the previous season. A higher price for ware potatoes generally means greater sales of seed potatoes. It is good to see that the market in Western Europe and Central Europe is returning to its normal level. Our sales and the market share grew with the market but the growth was extra quick in some countries. This led to us achieving a 10% increase in turnover compared with the previous year in Italy, France, Germany, Great Britain and Portugal.
Dealing with instability
The market in the Middle East and North Africa was limited due to the unstable political situation and the low price of oil, which meant that less hard currency was available. There has been turbulence in several countries in the Middle East and North Africa for many years. Nevertheless we are managing to maintain our turnover in the region. This requires a great deal of creativity in terms of logistics but we think it is important to provide the growers in these areas with good seed potatoes for local food production. A number of oil exporting countries limited the import of various goods this year. This had an effect on our turnover on the Algerian market in particular. Unfortunately we were not able to export what our clients wanted to buy in Algeria.
The Russian market was really difficult this year. The Russian market is in principle closed for potatoes from Western Europe but exceptions have been made for seed potatoes in recent years. This year the borders did however open up for import at a very late stage. As the Russian rouble has been subject to heavy devaluation, it was also expensive to purchase imported seed potatoes. This resulted in a very small demand. The acquisition of all shares of HZPC Sadokas in Russia puts us in a position to develop the local production of seed potatoes further. Our aim is to be prepared for all possible political situations and to put local growers in a position to cultivate our varieties.
The consequences of El Niño and drought had an effect on the cultivation of potatoes in the southern hemisphere. South Africa was particularly affected by this. Many of our varieties are grown under licence in South Africa and neighbouring countries. As a number of farmers were not able to irrigate, they decided to plant fewer potatoes or none at all. This led to our licence incomes from this area being lower than normal.
Booming business: French fries and crisps
The market for French fries is still growing particularly quickly. Our turnover growth in this sector was far above the growth of the market, primarily due to our strong varieties.
Our Innovator variety is still a best seller in fast food restaurants. Most European processors have increased their capacity with Innovator so we are expecting further growth. The Challenger is another popular variety which performs well. Following a long period of testing we are proud to announce that McDonald’s has placed our Ivory Russet on the global Gold Standard list of varieties. We also expect a great deal of the following new variety in the next few years: Alverstone Russet.
For crisps we are seeing a very good performance and development of Taurus in various countries. The introduction of Heraclea was very successful and we also expect a great deal of the new Alcander variety. We are aiming for a big increase in sales in the crisp sector.
Future ambition at the highest level
Over the next few years the Strategic Business Area Europe will be focused on the expansion in sales of seed potatoes by increasing our share of the market in various countries. Although we are recognised as market leader worldwide and we are currently active in more than 80 countries throughout the world, we are not always the market leader in all the separate countries and market segments. This means that there are still lots of opportunities for further growth.
Aiming for the highest level is of crucial importance if we are to grow. We want to offer the best varieties and the best seed potatoes, provide the best knowledge and service and continue to develop. HZPC has introduced the Dutch HZPC standard as a European HZPC quality standard for countries where seed potatoes are produced and exported. This standard is stricter on various quality elements: scab, silver scurf and black scurf. We are seeing an increase in the percentage of basic seed potatoes in the Netherlands. This was 61% class S + SE in 2015, compared with 38% in 2010. This is a consequence of an increase in the use of mini-tubers and therefore fewer field generations.
We have a solid distribution structure with committed partners in most countries. We continue to work together with partners in the chain and we aim to understand the consumer and their market even better. Meeting their needs is becoming ever more important.
We again experienced the benefit of working in various areas and market segments this year. We can spread our risks and opportunities when large shifts occur from one year to the next. By keeping our sectors in balance, we can grasp the opportunities which present themselves.