Competition pushes contract price up

As usual, we compare the contract prices for Fontane and Innovator with the five potato processors that have one or more factories in the Netherlands. These are: Agristo, Aviko Potato, Farm Frites, McCain and Lamb Weston/Meijer. It is logical that they unanimously increase their prices. The fact that this happens with percentages between 30% and 50% is exceptional. This is mainly due to mutual competition, as the processors themselves sometimes indicate.

35mm size sorting
A number of trends are visible across the board. For example, from this year onwards, all processors will use 35 millimeters upwards as the minimum size sorting in their contracts. Previously, only Agristo and Farm Frites did this. The Belgian and Dutch contracts have thus become closer to each other, which also applies to the price levels. Not surprising because many factories contract on both sides of the border. There are buyers who relax their conditions and pay a higher custody fee. The value of the product increases and that requires a higher storage premium, it is judged.

It is good to know that most processors have already included a surcharge for storage in mechanical cooling in their prices. Only Agristo does not pay a separate surcharge for this. This premium is often paid from week 17 (end of April). Nowadays, delivery at the end of June is almost always with mechanical cooling and increasingly also from a box store. These are potato growers who have specially adapted themselves to long-term storage.

More potatoes needed
All five parties are looking for more hectares and more tons of potatoes. This certainly plays a role at McCain because the company has significantly expanded its processing capacity in Lelystad. Aviko also wants to produce more in the Netherlands next season and at LWM the plans for capacity expansion are being shelved, although this mainly plays a role for 2024 and beyond. Sales of the end product remain good and so do the prices - despite high costs. This results in all factories wanting to ensure sufficient potatoes at historically high price levels.

*This table is intended as an overview and not as a comparison between the processors. The table uses basic prices including storage fees, but without quality premiums or surcharges. From this harvest year onwards, the grading will be 35mm upwards for all contracts.

The average price level for Fontane in the three delivery periods (external, week 17 and week 26) is €17,15, €25,00 and €27,24 per 100 kilos. These are increases of €4,90, €7,08 and €7. For Innovator the averages are €19,15, €27,04 and €29,01. A difference of €5,05, €7,10 and €6,77. The increases in April are therefore greater than at the end of the season. In week 28 Aviko even pays €30,10 for Innovator.

Of the individual processors, McCain in particular is introducing major changes. For example, the company is introducing a contract with a price floor and McCain is the only processor to commit to multi-year agreements, with a flexible price system. LWM introduces a bonus system for growers with more than 100 hectares. The other processors do not change their strategy.

Relatively high prices
Compared to the multi-year average in the potato market, the current contract prices are relatively high. It is certainly not impossible that the market will exceed €25 to €27 in April, but the years in which this is the case are relatively rare. Given the approach of European processors, the potato area in Northwest Europe may increase slightly again this year. If cultivation expands by 3%, the area will reach more than 512.000 hectares. That is still less than was planted in 2019 and 2020. The only question is which hectare yield should be taken into account. Is that the 37,6 tons of 2022 or the 45 tons of 2020 or even 50 tons that were harvested in 2017? You are then talking about a volume of 23 to 25,6 million tons of potatoes. Ultimately, this determines the potato market and therefore also the price.

The key question is whether arable farmers will actually grow more. The pressure on the availability of land is great. When the wheat was sown, the price level was still well above €300. In mid-October even €350 was reached. The price has now fallen to pre-war price levels. Beet cultivation, which many European arable farmers were more likely to partially abandon, is in a more positive light after it became known that payment prices for 2022 - and sometimes also 2023 - have improved considerably. What is also putting considerable pressure on the land is the new CAP and the reluctance of livestock farmers to rent out land.

Cost price and contract price in line
According to the NAV, the cost price for French fries potatoes on clay is €27,40 per 100 kilos (delivery week 17) including a 15% margin for the grower. On sandy soil that is €25. Looking at the overview, the contract prices offered can accommodate this. The costs for irrigation are not included. Cost price and contract price are in line, but another erratic growing season can quickly disrupt this. However, it does provide a solid basis for European potato growers who are in turbulent times. With about two months left before the potatoes go into the ground, he still has some time to think about his strategy for the 2023/24 season.