Producers of frozen fries achieved billions more in turnover last season. A record high price of chips has ensured this, despite a shortage of potatoes. The prices of fries are no longer rising, but there is no sign of a decrease either.
Update 11:50: Text adjusted and supplemented.
Insiders in the French fries world have been indicating for some time that the prices of frozen French fries on the global market are under pressure. At this time of year it is common for European processors to buy potatoes and sell fries in return to hedge their risk. This tactic is now reportedly more difficult to implement due to the very high chip price level, with international buyers hesitant and preferring to see the price normalize first.
Increasing margin
The EU-5 may be heading for a potato harvest that may turn out better than expected this spring and summer, but the volume is certainly not yet in line with the increased processing capacity. There are also quality problems to consider, which certainly play a role in the first half of the new processing season. The fact that chip prices have slowed down slightly is not a problem on the factories' balance sheets. After all, the raw material price for free potatoes – the most important purchasing factor – has also been significantly reduced. Even with the high contract prices, at which the majority of the potato volume is fixed, a good profit can be made.
According to data from the Harmonized Trading System, an average of €1.270 per tonne was paid for European frozen chips in July this year. This was partly cut from potatoes that were purchased at high free prices (up to €60 per 100 kilos). That is slightly less than was paid in June, but still a quarter more than last year. The average sales price during the entire season is €1.220, which is 50% more than in the previous season and even 80% more than in the 'corona season' 2020/21.
European chip profits rise 50%
Figures for the EU-4 and Poland run through June. Poland has taken over the position as a price fighter from Belgium. Factories in that country saw their average sales price increase by more than 50% last season. For the Netherlands - where fries are slightly more expensive on average - this was almost 40% more. In total, French fries sales in the EU-5 amounted to €7,3 billion between July 2022 and June 2023. That is no less than half more than the previous season, when sales amounted to €4,8 billion. .
With €3,7 billion, Belgium has the largest influence, followed by the Netherlands with €2,4 billion. The Belgians saw their total turnover increase by almost 70%. For our country that was 38%. This is special, given the fact that the availability of potatoes in the Netherlands was better than with its southern neighbors. A combination of lower sales prices, more processing capacity and a good position on the world market give the Belgians a clear advantage. Despite the loss of Russia as a customer, Poland saw its turnover increase by 40%. Germany and France are growing rapidly, but turnover is a lot less than in the big two.
Profit margins
In most cases it is difficult to say how much of these billions of additional turnover will ultimately remain at the bottom line. The figures are often not public and factories do not advertise them. Even before the corona crisis in 2020, chip prices skyrocketed. Transportation became a bottleneck, which was greatly exacerbated during the global pandemic. The packaging material also became more expensive. As the pandemic subsided, the war in Ukraine broke out early last year. Energy prices exploded. This also applied to the price of frying oil, often based on sunflower oil. This year, the prices of all these inputs have normalized somewhat, while the price of chips has increased. The margin between turnover and profit must therefore also have increased.
US growth market
The largest buyer of European fries last season was Saudi Arabia, with 255.000 tons, followed by the United States with 230.000 tons. A growth of 36% compared to two seasons ago. European exporters have benefited greatly from American demand, but that may turn out differently this season. For the first time in five years, the US has a good potato harvest, allowing its own market to be better served. The most notable gainer is Australia, which almost doubled its imported volume. The cause of this must also be sought in a poor own harvest.
Brazil, Colombia and Jordan are the countries with the largest decline. They purchased a quarter fewer fries. Nevertheless, the first-mentioned country still ranks third among the largest French fries buyers. Russia also shows a 25% decline in sales. The EU has still sold 125.000 tons of fries to the country.
Sales are growing slightly
Expressed in tonnes of product, sales of the EU-27 plus the UK fell by almost 12% in July. Viewed over the entire season, the volume is up 3%. The European market, and especially exports to the United Kingdom, is showing more growth than elsewhere in the world. Factories have therefore mainly earned more euros and have not sold significantly more volume.
We already know that the Dutch processing suffered little from lower availability of potatoes in August. There is a good chance that total sales this month will also be positive. How the new season will turn out is anyone's guess. Even if the average sales price drops from more than €1.200 to €1.000 per tonne, this is sufficiently profitable. Given the pace at which new factories are being built and lines are being added, European processors expect stable growth in the long term. Looking at the billion-dollar profit (€2,5 billion more in 2022/23), this strategy is a logical choice.