Is the grower too optimistic about higher contract prices?

Some growers argue that you can grow potatoes well for the prices offered by the industry, while others believe that the sharply increased costs of cultivation are barely covered. The Producers Organization for Consumption Potatoes (POC) calculated the cost price for potatoes from the field next season at €16 and for delivery in April at €21,90 per 100 kilos. With a margin for the grower's risk, the real selling price is €18,50 for delivery from the field and €25,20 for delivery in April. The Belgian industry is now going a long way in this direction. In terms of contract price, things seem to be going well with the contracts for the coming season. But don't forget that processors also have an interest in recording potatoes in advance. It is sometimes said that a good deal is a bit painful for both the buyer and the seller. It is difficult or impossible to determine how many potatoes are determined in advance by the industry. But the more that is contracted in advance, the less that needs to be purchased later on the daily market and the more security the industry builds in for itself.

Differences in contracts
In contrast to the Dutch industry, which contracts tonnes per hectare, Belgian processors work with tonnes contracts. The grower in Belgium determines how many tonnes he supplies and must fulfill that agreement. If he is unexpectedly unable to deliver, for example because the yield is much lower due to drought or because everything has been flooded, the grower must simply deliver the contracted quantity. If that is not possible, the buyer can purchase additional potatoes at the grower's expense. In the Netherlands, most factories work with contracts that stipulate an x ​​number of tons per hectare. If the yield is disappointing and the grower cannot deliver, the risk remains with the buyer and, unlike the Belgians, he cannot buy additional potatoes at the grower's expense. With this in mind, it is logical that Dutch contract prices are generally lower than in Belgium. In that sense, it will be interesting what the Dutch processors come up with.

A question that many growers seem to ignore is: what risk is actually covered by contracting potatoes? In a year with a somewhat tighter European supply, prices above €20 on the open market are feasible, as this season has proven so far. Registering the potatoes in advance does not offer the grower much extra security in such a season. Contracts therefore especially offer growers certainty in years with a large supply of potatoes when prices on the open market are falling. In a good growing season, as a grower you would actually want to contract everything. And there is the crux. In a year with good yields, the grower has potatoes left to sell freely, but then prices are usually at a low level. And in a year of high prices, the grower has little or nothing to sell once contractual obligations are met.

False certainty
In seasons with a fairly stable cost price, this is not the biggest problem. In the winter, as a grower you can make a reasonably good estimate of the expected costs per hectare and put together a suitable sales strategy. The yield remains the major uncertain factor, but you can, for example, cover an important part of the direct cultivation costs with contracts. However, the raw materials markets are adrift. Prices of fertilizer, fuel and crop protection products are skyrocketing.

Growers and processors are looking for certainty in turbulent times. You must remain critical and ask yourself whether you are not seeking refuge in false security. Consider, for example, the multi-year contracts that seemed like a good idea for various growers last season - after the blows of corona and a moderate current free market. Knowing that you can sell something at a pre-agreed price is nice, but as a farmer you work with nature in a currently very volatile market. The associated business risks are simply difficult to cover.