The potato landscape is aging and declining

A number of game changers at a glance:

1. The growth of the processing industry and the demand for fries worldwide. French fries processors have grown significantly in processing capacity in recent years due to increasing demand for French fries in the world, the growing climate in the Northwest European Delta and the ideal location in the vicinity of world ports such as Antwerp and Rotterdam. These factors provided sufficient opportunities for growth, with processors in Belgium in particular meeting that need more adequately than their Dutch competitors. They have gone from leading to following in Europe.
2. Claiming and handing over licensed varieties to processors meant that 'seed potato guarantees' could be linked to delivery contracts. This gave the processing industry more control over the market.
3. The increasing scale and cost structure of arable farms have caused potato growers to exhibit different risk behavior. More certainty in balances, but also in logistics agreements. The rise of chip potato cultivation in sandy areas also resulted in different risk behavior. Various studies conducted by DCA among growers showed that potato growers on the sand exhibit different risk behavior and have a greater need to limit or avoid risks than their colleagues on the clay.
4. The significant increase in potato prices under fixed price contracts has been the major change in the market, especially in the last three years. Contract prices have now risen so quickly that almost no potato grower puts potatoes in the ground without (partially) signing a contract. In 2018, a Fontane potato contract for delivery from the field (week 40) was still €8,70, but this has increased to €17,25 for the upcoming growing season. For potatoes from storage, an Innovator contract (week 17) has increased from €14,40 in 2018 to €27,50 for delivery in April 2025. These are not percentage increases, but doublings. This has caused growers to look differently at their risks and sales strategy. The sharply increased cultivation costs also mean that they can increasingly afford a 'bad' year. While in the past the input costs for a hectare (ha) of potatoes were €3.500 to €5.000, this has now risen to €7.500 to €10.000. This changes the risk perception among growers. Moreover, from a historical perspective, the upward potential in the market is smaller than the downward potential. Historically speaking, a €27,50 contract on April has an upward potential of €8, but a downward potential of €23.
5. The devastation in the intermediary trade of potatoes also makes the market less flexible. As a result, in the event of a surplus (or shortage), there are no longer any safety nets or shock absorbers in the market. In the past, these were often absorbed by the intermediaries because they had already taken positions or (re)parked their risks on the potato futures market. Due to the disappearance of this intermediary trade, the number of transactions on both the physical and futures markets is also noticeably decreasing. Processors are not a safety net in the market, they have 90% of their flows fixed and can shift at will. This has a dampening effect in an upward market, but in a downward market it causes enormous movements. The inability to create more demand at lower price levels makes the potato market very volatile, which leads to higher risks. While there were dozens of potato traders twenty years ago, many of them have ceased their activities in the years that followed. Traders have closed down or merged or become agents for large processors.

Price risks are increasingly leveling off
While cultivation risks are increasing in the sector, price risk appears to be increasingly being leveled off. Free trade has virtually disappeared and the futures market also leaves a deserted impression. Less physicality leads to a decrease in the number of transactions to be reported. Even the PAT list (the transaction list where Dutch processors register all their free purchase transactions) is very small compared to the volume of potatoes that are processed.

This creates a number of challenges for the sector in the future:

1. What is the frame of reference for the various quotations if there are hardly any free potatoes being traded?
2. What are the shock absorbers of the potato market if there is a surplus of potatoes?
3. How is the mood in the market translated into the price of potatoes?
4. Who determines what a good contract price is?
5. What mood indicator would still be there if the futures market were no longer there?

Who takes control?
There are plenty of challenges for the coming years. But who or what is in charge of this? Looking at the sector, a huge aging of the potato market is imminent. The average age of the head of purchasing at Dutch processors is currently 61,5 years and in the trade this is 59 years. This means that in the next five years a completely new generation will take the lead in the sector. How do they view challenges such as risks, logistics, cultivation and earning capacity? Are they only going to manage things via a spreadsheet or sometimes also go to the farm?

The changes that have taken place in recent years do not seem to be reversing. But they do ask for adjustments for the future. The potato sector therefore faces tough challenges.