What can Suiker Unie learn from Avebe?

After the starch subsidies came to an end, the traditional potato starch factory Avebe managed to grow into the world market leader in high-quality starch derivatives and protein. How did they manage this and what can Suiker Unie, which has also been subject to a free sugar market from October 2017, learn from this?

However uncertain and turbulent the future (after the decoupling in 2012) of the starch support may have been, 5 years later the renewed Avebe is flourishing. Although the group was already able to prepare for the new situation from 2006, the measures below have worked out well. From October 2017, Suiker Unie will face the same. Seven measures that Avebe took and from which Suiker Unie can learn. 

1. Reduce your costs and focus on your core competencies
The cost price had to be kept as low as possible. Avebe did this by divesting all activities not related to the starch potato. In addition, the focus was on automation, in combination with natural attrition. Avebe was also able to significantly reduce energy costs and water consumption.

The costs of road transport were also cut. On the cultivation side, daughter Averis, the breeding company in Valthermond, focused on varieties that produce more tons of starch per hectare at lower costs. In addition to the fact that these choices contribute to the financial return (more with less), Avebe also immediately realizes its sustainability objectives. 

From a generalist in starch, the company became an innovative specialist in high-quality ingredients extracted from the starch potato for the food industry. All activities, investments and developments are aimed at maximizing the value of the starch potatoes grown by its growers.

2. Limit supply and produce market-oriented
At the start of the decoupling, Avebe limited the solid supply of raw materials to 80 to 90 percent. And even after that, the multinational adjusted the annual quantity of potatoes delivered to the expected relevant market demand by means of the ABC system. 

After the decoupling, the acreage of starch potatoes decreased. Both in the Netherlands (minus 9 percent) and in the surrounding countries. For example, German starch potato growers switched to maize en masse due to a subsidy on maize for bio-fermentation. The acreage is now quite stable and interest in the cultivation of starch potatoes in Germany is increasing again.

Sugar, on the other hand, is undergoing a significant expansion. The French are growing 70.000 hectares more beet this year, the Germans about 20,7 percent more. That is a similar volume as in the Netherlands. The British are building a new sugar factory. All in all, this leads to a record EU sugar output. 

3. Focus on high-quality products
Making potato starch is a relatively simple process that has been going on for decades, especially in Europe, but also in China, Japan and the US. However, this bulk product is sensitive to price fluctuations. The manufacture of innovative derivatives of that starch and other raw materials from the starch potato is still relatively undiscovered territory with many possibilities. 

These Avebe derivatives have a higher added value in segments such as dairy (including cheese), bakery and confectionery. In addition, these derivatives are highly preferred over starch from maize and wheat, providing a competitive advantage.

Avebe is therefore focusing more on the development of new products for markets where higher margins can be made, such as the food market. Successful and sometimes award-winning solutions for human nutrition are marketed under various brands, including Eliane, Etenia and Solanic (vegetable protein).

4. Realize a wide sales area
A wide market spread across the world reduces trading risks. In recent years, the cooperative has invested in sales channels. It did this, among other things, by opening sales offices in the Middle East (Dubai) and North America (New Jersey), because more than 90 percent of the total production is sold outside the Netherlands. This concerns human food and industrial applications. In 2015, approximately two-thirds of the turnover consists of starch derivatives.  

5. Make investing in innovation a priority
Around 2012, Avebe pumped a lot of money into overdue maintenance and automation. A new factory for high-quality starch for foodstuffs was also built in Ter Apelkanaal. In 2015, a substantial cash injection of 45 million euros took place. Half of this was earmarked for innovation. A year later, Solanic, part of Avebe, expanded its capacity significantly due to the growing demand for vegetable proteins, which are also non-allergenic and non-genetically modified.

The new factory will increase production by a factor of 5. For the 2016/2017 season, 45 million euros has been reserved for the planned investment level. This money is largely intended for innovation and further scaling up of the capacity of potato protein.

This year, the potato starch producer is opening a knowledge center (see point 6). In the future, the company expects to be able to extract even more valuable substances from the potato. However, this requires more research and therefore more money.

6. Find the collaboration 
Avebe does not shy away from collaboration. For example, the group developed the Etenia product together with DSM. It also had a distribution agreement for North America and part of Asia with the American food group Ingredion from 2007 to 2015.

To accelerate innovation, Avebe will collaborate with scientists, students and PhD students from the University of Groningen (RUG) and Hanze University of Applied Sciences. The innovation center, which will be located in Groningen, offers space for a laboratory, a pilot factory and workplaces for approximately 100 Avebe employees in research & development, marketing and sales. Agreements have also been made about cooperation in the field of education and research.

7. Respond to trends
To be fair, because she was lucky too. Derivatives and proteins are doing so well in part due to the trend of replacing animal ingredients with plant-based alternatives and the growth of convenience foods in China. New developments for industrial applications are also doing well. This includes food packaging based on materials and adhesives of natural origin, in which starch offers a good alternative.

Threats:

• New persistent nematode;
• Earthquake damage at the Foxhol site;
• Financial risks such as currency, interest and credit risks;
• Compliance risks such as violations of laws and regulations and integrity violations;
• Unfair competition due to re-coupling in some countries.

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