Where the coronavirus first caused headaches in the potato processing industry, the sector is now rolling on to an even greater challenge: the war in Ukraine. The demand for French fries led to expansion. An intricate logistics network is of great importance, both for your potatoes and for other raw materials that are needed for the production of French fries.
At the outbreak of corona, the industry was already confronted with rapidly rising prices of container transport, packaging and cooking oil. Furthermore, energy costs have also become a major challenge. With the outbreak of war in Ukraine, the aforementioned headaches seem to be amplified even further!
A brief overview of the ingredients/raw materials for frying fries:
Potatoes
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Due to the increase in input costs for growers, potatoes have caused an increase in the contract price of at least €2,50. Assuming that the average European processor purchases 80% on the basis of the contract price or a directly derived price, this is an increase in the cost item of: processing capacity x 80% x €2,50.
Transport
The transport of potatoes to the factories and the transport of the end product to customers has become significantly more expensive due to the increase in fuel prices. With the current diesel price, the processing industry will have to factor in a significant percentage of additional costs, and we are soon talking many millions!
Another challenge regarding transport comes from a completely different angle, namely the lack of drivers. Major transport companies employ Polish and Ukrainian drivers. If Ukrainian drivers in particular return to the mother country to fight in the army, a large part of the transport will come to a standstill. This is already happening in Germany, where large transport companies have part of their fleet idle.
Cooking oil
French fries are fried in sunflower oil or palm oil. The process of frying in palm oil is different from sunflower oil and it is possible to switch, but it causes technical problems.
Although the market prices of palm oil in particular increased due to the corona effect, there is an additional problem, especially for sunflower oil, due to the war in Ukraine. Ukraine is the largest producing sunflower country (80%) in the world and the availability of sunflower oil therefore depends on that country.
Prices are rising sharply and availability is already difficult due to the hoarding behavior of many parties in the world. But even more important is whether sowing will/can take place in Ukraine. If further shortages arise, users of sunflower oil will come to a standstill. This may also have consequences for the potato processing industry to a greater or lesser extent. Think especially of the manufacturers of chips. The challenges are great and will be associated with high costs. However, sometimes things cannot be paid for with money (it has to be there!).
A logical consequence is that buyers are becoming more careful about committing potatoes to delivery later in the storage season (April, May and June), but certainly also for the 2022/2023 season. No one knows what the world will look like then, whether it concerns transport, availability and cost of cooking oil and supply and demand of potatoes. And then we haven't even talked about the sales of fries. Will people just keep eating fries? Opinions are divided on whether it is a luxury product.