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This is how potato contract prices change

9 November 2022 - Niels van der Boom - 7 comments

Cautiously, the major European potato processors have started gauging the mood among their growers when it comes to potato contracts for 2023-2024. The first proposals are known and they show a significant increase. The question is whether this is sufficient and whether the potato grower would not rather grow another crop with fewer risks.

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At the Interpom potato trade fair in Kortrijk, it is tradition for Belgian potato processors to kick off the contracting of early potatoes from the field. A few weeks before the fair, the mood of major growers is being gauged to see whether buyers and growers are on the same page.

The potato as a closing item
Every factory realizes that a significant price increase is needed this year to enthuse growers. But processors – just like growers – have to deal with costs that are increasing across the board, such as energy costs, packaging materials, frying oil and transport costs. The raw material potatoes can be seen by a critic as a closing item in the budget. Moreover, it is the only 'button' that the industry can influence. A multinational also has to accept price increases for other inputs to a certain extent.

However, it is not that simple. Chip manufacturers and growers went from one extreme to the other. From a complete drop in demand for fries to a gigantic revival - with a shrinking area - and a historically small harvest. Given the ambitions of the industry in Northwestern Europe, significantly more hectares and potatoes are needed by 2023-2024 to fully utilize all those new lines from Aviko Potato, Lutosa and McCain, among others, in the Netherlands and Belgium. Poland is also a country where processors are eagerly looking to expand cultivation.

Contract price up to 40% higher
In 2022, the averages rose contract prices for ex-country delivery from Fontane (in the Netherlands) by 32% and that for Innovator by 29%. This is an unprecedented price increase in recent history and therefore the highest contract price ever. Insiders report that in Belgium and Poland, various processors are now talking about an ex-field price of €15 to €17 per 100 kilos for Fontane and Innovator. That is an increase from €2,75 to €4,75 or 22% to 39%.

An 'average' cost price is not anyone's cost price, but it does show the trend. Anyone who calculates conservatively with the calculation example of the POC quickly results in a cost price increase of €3 to €4, excluding any costs for irrigation. The prices above are not so crazy. Especially when you consider that processors have to use their potatoes sparingly this season in order to reach the finish line in August 2023, before the new potatoes arrive.

Price in April
Prices for delivery in April or June have not yet been mentioned, insiders indicate. A simple comparison, based on previous seasons, shows that the price for delivery in April (week 17) is between €5 and €5,50 above the level of the ex-country delivery period. As a rule, slightly more is paid for Innovator in April than for Fontane. If we continue that line, we arrive at a week 17 price of €22 to €23 per 100 kilos. Growers sometimes charge even higher prices, up to €26. With current energy prices, storage has become a costly affair. Only time will tell whether processors will go along with this. These are prices that are above the level of the potato futures market.

potato chips
In the Netherlands, the chip industry is a relatively small player with a fixed grower group. In Poland this is an important segment with various processors, including the large Fritolay and Intersnack. Fritolay is building a new one in Wroclaw, in southwestern Poland chip factory which should be running from next summer. Production of the €212 million project will be scaled up in phases until 2025. Parent company PepsiCo needs potatoes for this factory and has to work with growers who have had a series of disappointing years.

Contracts for potato chips are currently offered starting at €25,50 ex-land and rising to €32 for delivery in April. The yields of potato chips are lower and the costs are higher. It also raises the bar for other segments such as chip potatoes. This has the greatest impact, especially on the relatively nearby McCain factory.

NEPG assumes that this year in the EU-4 between 20 and 21 million tons of ware potatoes will be harvested on almost 511.000 hectares, with a hectare yield of more than 40 tons. With a European processing capacity (EU-4 + Poland) for fries, flakes, etc. of 15,6 million tons, this is tight. In six years, European processing grew by more than 12% and expansion is again on the program for this year and next year. If the EU-4 is faced with a year like 2017, a harvest of 25,5 million tons is also possible if the acreage remains the same, resulting in oversupply and unhealthy market development. The fact is that in addition to the cost price, the cultivation risk due to extreme weather also increases. That also plays an important role, especially when considering whether to grow grain or beets.

Timing crucial
Until at least the end of November, it will remain a guess what the exact contract prices will be. This season has taught us that processors can also adjust their prices during the contracting period if it appears that the price does not match current events. Perhaps that experience also makes processors hesitant to come out with a contract too quickly. Most winter grains have now been sown and are doing exceptionally well. If a potato grower chooses to reduce the area, summer grain, beets, corn or a crop such as onions must be replaced. This gives factories a few months to reach an agreement that both parties can agree to.

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