Not only a competitive potato price, but especially the bottom line return and a reliable relationship with the buyer are important for Lamb Weston in the contract agreements. This year, the availability and affordability of seed potatoes obviously plays an important role. The processor tries to find a good balance in a challenging market.
Jan Willem Sepers, senior director of agriculture for Europe at the American potato processor, speaks of an 'explosive market situation' in several areas. Consider the availability of seed potatoes, competition within potato cultivation, but also legislation and regulations that arable farmers increasingly have to deal with. "In this situation it is important that you are a reliable partner for the potato grower," says Sepers. "For me, this means in concrete terms that we solve problems together if they arise, you pay quickly and you don't play games."
Seed potatoes are not a revenue model
The purchasing director acknowledges that Lamb Weston is also affected this season by the tight availability of seed potatoes. This can be felt across the board in all breeds. "At the same time, seed potatoes are not an earning opportunity for us, but a service item," says Sepers. "Fortunately, we have our position in good order, which means we can provide growers with sufficient seed potatoes. Naturally, more will be cut, partly because the seed potatoes are very coarse this year."
On average, a potato grower at LWM will spend around €1.700 per hectare on starting material next season. This amount is slightly lower for cut seed potatoes. The company does not have different rates between autumn and spring delivery. Sepers acknowledges that the seed potato problem has not gone away in one year. "Everyone in the sector must be able to earn a good living. The seed and consumption potato grower, but also the trading house and the processor. The (potato) world is changing and we must jointly anticipate this. In North America there are no trading houses in the chain. It is not inconceivable that processors here too will become more involved with the starting material, but that is emphatically not an aim at the moment. Whether we will see more ATR seed potatoes from consumer growers remains to be seen. Perhaps that will happen when popular varieties can be purchased without a license increased."
Saving is better rewarded
Lamb Weston chooses to increase the amounts in the fixed price contract mainly during the retention period. The processor has been committed to long-term storage of potatoes for years in order to maintain control over quality and security of supply. That strategy will not be compromised. For Fontane, €172,50 per tonne is paid for delivery from land in week 36. Innovator then costs €190 per tonne. In week 17 (April) Fontane is at €268,50 and Innovator at €286. At the end of June (week 26) these amounts increased to €283,50 and €301. These are the basic prices without premiums and reimbursements.
The prices mentioned are for the well-known hectare contract. Lamb Weston does not oblige growers to supply the entire potato volume at this fixed price. Part can be recorded in another contract form. The exact size of the fixed volume is determined by the processor on a case-by-case basis. Growers who want to make multi-year price agreements (for two, three or more years) are facilitated by the company.
Bottom line result
Sepers: "Bottom line, I think we are very competitive as a processor in the Netherlands. A grower is usually quick to start talking about the price, but it's about much more. It's about what is left at the bottom of the line and that the money is paid out quickly. Being a good partner for the grower is in our DNA. We cannot afford to make mistakes. Lamb Weston is listed on the stock exchange, so you are held accountable for that."
Lamb Weston, without Meijer since the beginning of last year after taking over all shares, is investing in expanding production in Kruiningen. A new line is being installed there. It should be operational by the end of 2024. The plans had been there for some time, but corona put the investment on hold. Sepers: "We have been working on increasing potato volume for several years. Our strategy remains focused on growth, both with existing and new growers." At the same time, he expresses his concerns about expansion opportunities for cultivation in the Netherlands. Partly because of the aforementioned legal and regulatory burden. "We notice that the method of production is becoming an important item. That is only logical, it suits the times. In the course of this year we will therefore launch an extensive plan aimed at sustainable cultivation."
Europe continues to play a leading role
Will Northwestern Europe continue to lead the world market for potato products in the long term? Sepers thinks so. "Don't forget that in addition to good potato production, we also have many logistical advantages compared to other continents. World consumption of fries and other potato products continues to grow. As a company, we are very positive about the opportunities. Sustainability is a global topic, but in Europe I think we are also at the forefront of that. We must try to maintain that position."