The battle to contract the potatoes is slowly getting underway. Several potato processors have now announced their prices. Compared to last season they show a plus. However, growers are generally not very enthusiastic about the contract prices that the processors come up with, especially in light of the rising cost of cultivation that is expected for the season.
Growers' association POC is taking the lead and is supported by VTA and NAV, among others, to unite growers and jointly improve the negotiating position vis-à-vis the processing industry. From a cost-plus approach, it makes sense to take this route. The reasons why an entrepreneur would choose to grow under contract or not remain underexposed.
The choice to grow (part of) the potatoes under contract is part of the entrepreneur's sales strategy. The grower and processor are assured of a fixed quantity of potatoes at a predetermined price before the start of the season. Contracts therefore form an instrument for covering risks for both the supplier and the customer. The value of this instrument as part of a risk management strategy for the grower was proven in 2020 and 2021, when both the price and demand for potatoes collapsed.
Is a drop in demand the biggest risk?
From the growers' perspective, the question can be justified as to whether, given the current developments on the potato market in a broad sense, the risk for the coming season is no longer at the front, with the input costs. Commodity markets have gone adrift in the last year. As a result, the price of fertilizers and crop protection products, among other things, has risen sharply, regardless of (expected) problems with delivery and the thinned product package. An expected cost price calculation (the actual cost price can only be calculated afterwards) or the elaboration of various scenarios can be used to estimate the costs for the coming season. There are many uncertainties, no matter how you look at it. The uncertainties surrounding cultivation - will it be a wet or dry year, high or low disease pressure, etc. - are largely the responsibility of the grower.
In contrast to, for example, a pool - where supply and demand play a more dominant role in price formation during the season - these risks with contract cultivation must be calculated in advance. For the coming season, where the input costs of cultivation are a very uncertain factor, you can ask whether potatoes on contract do not offer a false sense of security.