With a new report on cost of production for processing potatoes in north-west Europe due to be published later this year, Teresa Rush joined UK growers on a Potato Council study tour of Belgium, France and The Netherlands to find out how the region’s potato businesses were faring.
It is a challenging time for the potato sector. Oversupply is exerting downward pressure on prices, leading to tensions along the supply chain and there is only limited relief in terms of falling input prices.
There is a perception growers in Belgium, France, Germany and the Netherlands are adapting more readily to changing market dynamics, particularly a rapid expansion in the processing sector. But is this really the case? In February, a party of 22 UK growers, together with Andersons director Jay Wootton, a leading authority on the business of growing potatoes, and Phil Bradshaw and Phil Burgess of the Potato Council set out to find out more.
RDPE funding enabled English growers to see first-hand the key production and marketing differences in the processing sector.
The last Potato Council cost of production (COP) report, published in 2012, reaffirmed the view there were some important differences between countries in north west Europe when COP was evaluated on a common platform. In particular, the need to take account of family labour, storage costs and the cost of land when assessing COP was highlighted.
Marketable yield had the biggest single influence on cost per tonne and attention was drawn to the more demanding crop specification seen in Great Britain, compared to a whole crop specification commonly accepted in Europe.
The greatest challenge for growers in north-west Europe was ‘to establish clear recognition of the full cost of production,” noted the report.
Four years on and, according to Jay Wootton, one of the questions British potato growers should be asking is, ‘Are we vulnerable to competition from our European neighbours?’
He says: “The fresh market is in decline, both in sales and consumption. The growth is all in processing but how do we get at this growth?
"We have no spare capacity and would you, as an investor, invest in a high cost market? This is the threat. We have to focus on being competitive.”
He says the solution, unpalatable as it may seem, is a 10 per cent cut in the GB potato area. “In 1980 we had 20,000 growers. We now have fewer than 2,000 but they are still growing five million tonnes of spuds.
“Unless we get a serious drop in area we are going to go on producing too much of everything and more importantly too much of the wrong thing.”
He believes the cost of production figures shared by the growers visited - ranging from €90-€120 per tonne (£65-£86/t*) for processing potatoes - were, ‘not far out’. But it was clear from talking to growers there was considerable variation in the approach taken to calculating these costs, with family labour, land ownership, own capital and storage often not factored into calculations.
The Belgian, Dutch, French and German farmers involved in the study tour typically put their costs of production in the range €90-120 per tonne (£65-85/t*)
Jay Wootton comments: “A big chunk of our costs of production are taken up by achieving specifications.”
Potato Council figures put the UK’s cost of production for processing potatoes (excluding rent and finance) for the last two years at about £110/t.
The next Potato Council cost of production in north-west Europe report will be published this autumn and key findings presented at the BP2015 event at Harrogate on November 12-13.
(* Based on £1 = €1.37)
There can be no doubt the north-west European potato industry is changing, with demand for processing potatoes, and French fry production in particular, increasing, while fresh consumption continues to decline.
While there are undoubtedly similarities between potato production in the UK and mainland north-west Europe, a number of key differences became apparent during the farm visits.
These included widespread use of liquid CIPC for sprout suppression in store (approved for use in the UK but not widely used because of concerns over skin damage and residues), which was often applied by the farmer; little or no destoning; few reported problems with potato cyst nematode despite typical one in four rotations (although apparently little testing done); simple bulk storage (often ambient); little employed labour; wholecrop delivery (little or no grading); different contract structures (production for contract and free-buy); good transport access to several processing outlets.
But while there has been an expansion in the area of potatoes grown for processing in north-west mainland Europe, there has not necessarily been an increase in the value of the ware market, as a result of underlying supply pressures.
However, with the major processing plants in relatively close proximity, and good transport links, growers are benefiting from the relative ease of moving stocks around, including to the UK, to meet demand.
Another significant difference, in comparison with the UK processing sector, is the practice of contract-plus, enabling growers to fix a contract tonnage per hectare and then sell any surplus on contract at a free-buy price.
“The free market has produced one or two decent years in the last five – 2012 and 2013 were good years, but last year was diabolical. It (contract-plus) is a great way to keep the market weak,” says Mr Wootton.
According to the North-western European Potato Growers group (NEPG), of which Potato Council is a member, last year’s total ware
production, excluding seed and starch, for the five NEPG countries (GB, Belgium, France, Germany and the Netherlands) was 28.5 million tonnes, an 18 per cent increase on 2013.
Processing demand in Belgium has been strong with last year’s output estimated to be substantially up on the year, with exports the driving force behind demand. In Germany, factories are reported to be working at full capacity.
Peter Grewar, Grewar Farming, Perthshire
“If we reduce our acres, it will fill from Europe – all we will have done is export our industry. With packing varieties we can compete.”
Chris Yardley, Wholecrop Marketing, Yorkshire
“It is costing them £90/t to grow the crop, £20/t cheaper than us. They are giving them [potatoes] away at cost of production and relying on the free market to give an uplift.”
Stuart Stark, Fridlington Farms, Yorkshire
“We are going to be under pressure at home for a bit longer yet. Prices are low and the acreage is not going down.”
Mark Jones, Maincrop Potatoes, Shropshire
“I feel slightly threatened to be honest. We need more money to enable us to reinvest in our businesses. Close customer relationships are crucial to ensure economical and sustainable supply.”
Michael Bubb, J.M. Bubb & Sons, Shropshire
“I think the potential demise of Bintjie and the price of sugar beet in 2017 could have huge ramifications on European farmers’ views on ‘taking a gamble’ in the future.”
Leon Kranenburg – potato grower/contractor/potato exporter, Riijinlanderweg, the Netherlands
Dik Kruijthoff, Novifarm – grower, Numansdorp, the Netherlands
Samuel Degeuser – grower, Remy, France
Gabriel Delory, Chocques, France – grower and board member of GAPPI, a grower organisation which negotiates with McCain
Christian Durot, Lamain, Belgium, farmer
Jan de Causmaecker, Waterland-Oudeman, Belgium, farmer and contractor