The cultivation of ware potatoes normally has to deal with an annual price increase of 3% on average. This increase will be much higher for the coming growing season 2022-2023. Where are the pain points and how can you as a grower arm yourself against them?
Main points
The Dutch Arable Farming Union (NAV) has been calculating the cost price for growing potatoes for consumption on sandy and clay soil since 2010. At the beginning of this year we compared their balance calculations over the years. What turns out: on average, the cost price of a kilo of potatoes increases by 3%. That may not seem like much, but over a period of 11 years you are talking about 30% to 40% higher costs. This depends on the time of delivery and your soil type.
Fear among buyers
The coming season will be exciting for potato cultivation. There is rightly fear among potato buyers and processors. This year is a clear one signal stated that growth in the area is not possible if payments are structurally below cost price. The result was an area that decreased by an average of 5% in the EU-5. Growers are no different in the competition for next season. In fact, 2 important factors play a determining role: the high grain prices and the significant cost price increase.
Germination inhibitors in particular are more expensive
We look at the cost price calculation of the NAV again and make an estimate for the 2022 harvest year. Fertilizers, crop protection and energy in particular have risen sharply in price. It is difficult to say exactly how much, according to inquiries from people in the sector. For example, the price increase of crop protection products varies considerably per product. The average is about 2% to 4%, but for germ inhibitor 1,4Sight there is a price increase of 20%. A supplier reports this. In the past 10 years, germination inhibition has already increased in price by 450%. The cost item is now significant.
Just as important is the availability of resources. Manufacturers deliberately build up little inventory and only produce what customers think they need. If the season runs differently (such as the high disease pressure this summer), sudden shortages could arise on a large scale in Europe. That puts pressure on availability.
More expensive fertilizers
Fertilizer prices are a different story. Due to the increased energy prices, especially natural gas, fertilizer is becoming considerably more expensive. This is already visible and factories are reducing production. In pre-sales, the price of KAS has risen from €20 to €32 at the moment, a grower reports. That's an increase of 60%. In the balance calculation we stick to a slightly moderate forecast of 25% higher costs. This is based on estimates from Copa-Cogeca.
Cultivation on sandy soil has an advantage. Due to the more expensive fertilizer, more liquid manure is expected to be used next season. This is the standard on sandy soil, but it is more difficult to implement on clay soil. Arable farmers are not all looking forward to heavy machines driving across the land in the spring. An increased demand for liquid manure will undoubtedly affect the prices farmers receive. Fewer livestock does not have a positive effect on the availability of manure.
Expensive energy
Another determining factor is the price of energy. This is precisely an item in the balance calculation where decreases were visible over the last 10 years: From €895 to €200 per hectare. We expect an increase of 40% for next season. Now this is a market where major fluctuations are possible. Analysts love account with continued price fluctuations and increases next year. Gas, oil and electricity have all risen in price. This has consequences for diesel prices and therefore the costs of operations. You currently pay more than €1,10 per liter for diesel, compared to around €0,85 per liter a year ago. That is an increase of 30%.
To stick with mechanization. Anyone who has to invest in a new tractor or machine can also consider this. Price increases of 10% to 15% are not uncommon. Supplying new equipment is always a problem due to a lack of materials. The chip shortage plays a key role in this. Postponing investments is an option, but the question is whether prices will fall again. Experience shows that this is almost never the case.
Work not to be found
Labor is another important item that is not included in this calculation. The NAV uses a 15% margin as 'wage' for the grower. They assume that the arable farmer carries out all the work himself, with a little help from contractors. We have passed on a small price increase here. Anyone who has to work with foreign labor not only notices an increase in wage costs, but also in availability. This is particularly acute at the moment.
Price increase 5% to 7%
What do all these increases mean for the cost price? For delivery from the field, the NAV for 2021 calculated a basic cost price of €0,119 (sandy soil) and €0,147 (clay soil) per kilo for 55 or 50 tons of potatoes. This excludes the grower's margin. It is estimated that the average cost price next year will be €0,125 and €0,147 per kilo. That is an increase of about 5%.
The price increase will only really be reflected in storage. Here the cost price for sand potatoes is €0,169 and that for clay is €0,196 (delivery in April). That is a plus of more than 7% compared to 2021. At that time the basic cost price was €0,158 and €0,182. Including margin for the entrepreneur, the cost price is above €0,20 per kilo.
Looking at the average contract prices of 2021, these are below cost price. In week 17, €14,66 is paid for Fontane and €16,70 for Innovator. In 2020, prices were slightly higher, but still below the required level. Processors must therefore come up with a significant increase to close this gap. It is highly questionable whether this is the case. History shows that contract prices increase between 5% and 10% annually. To break even in 2022, prices must rise by 15% to 17% or perhaps more.
Cost not covered
During the potato debate in the Boerenbusinessstudio said Dick Zelhorst of Aviko Potato will implement a 'significant contract price increase' for next season. For now we have to wait and see what processors come out with. The mood of growers is clearly being gauged, but hard amounts are hardly mentioned. The idea is that an average cost price is no one's price. Growers must decide for themselves whether the contract price offered suits them. Anyone who has signed a 2 or 3-year contract in the last 2 years will be in for a rude awakening. The additional price offered does not cover the cost increase. Anyone who concludes a contract with a customer next season would therefore be wise to first calculate carefully and only then sign. The price increases for many inputs naturally also apply to other crops.