Potato Council
2012 - a watershed year for the UK potato industry.
“The combination of low yielding potato crops, increased crop spraying costs and increased wastage from problems such as greening, soft rots and growth cracks has massively increased the average cost of producing a tonne of potatoes in 2012 to over £200 per tonne. There is now a perfect storm of misery in the industry as most fresh and processing potatoes are sold by farmers to packers and processors at fixed prices far lower than the cost of production and they in turn are not able to cover their costs from retail and food service customers. We are now starting to store and there will be further problems with sustaining quality through until next season. Consequently almost everyone is experiencing financial pain and there are some tensions in the supply chain as there is not enough margin to cover costs and purchasers are starting to force contract terms on growers who cannot meet volume commitments given in good faith. We urgently need some relief from price increases by retailers which can be shared by their supply chain. There is no sense in making a terrible situation worse than it needs to be in the British potato industry by holding down prices artificially” says Allan Stevenson, Chairman of the Potato Council.
The dry start to the season in England and Wales followed by persistent and prolonged rainfall made it very difficult for growers to achieve their yield potential while Scotland experienced another waterlogged season.
The result was that although a quarter of the crop had been planted by the end of March, the heavy April rainfall interrupted planting, with only 61 per cent of planting having taken place by the end of May, compared with 95 per cent the year before. In June, many early planted crops had not yet emerged. Some fields were replanted and some Scottish growers continued planting into July.
“Although some of the weather conditions were localised, every region experienced challenges, these varied by topography and soil type. The cold, wet weather resulted in the Early Crop being late;whilst prices for the 2011 crop remained strong.” said Jim Davies, AHDB market analyst.
“The situation continued with just 4,810 ha being cleared before the end of July, whereas last year we were at 8,324 at the same time. With the summer months (June, July and August) recording the highest rainfall for a hundred years, in addition to being the dullest since 1987 and with temperatures 0.4oC below average. The climatic conditions also led to a late cereal harvest interrupting potato operations.
“As of week commencing September 24, just 27 per cent had been harvested, so there is 73 per cent still to go. Although the storage campaign is now underway some growers are still holding back crops to maximise yield. Many crops however ran out of steam and senesced naturally. In general, the season continues to run three weeks behind.
Current weather patterns are impacting on tubers in a number of ways;they are smaller, some are green, and many crops have had high blight pressure to contend with. By the end of August this year, records show more than twice the number of Smith Periods than last year, with 10,069 Smith Periods compared with just 4,441 in 2011. Confirmed blight outbreaks have more than doubled in number, from 161 last year to 359.
Mr Davies noted that prices are normally high at the start of the season, falling as more supplies come on-line, but gradually rising throughout storage. However, this year prices are currently high at £185/t, nearly 75% up from this time last year – but it is important to note that the marketable yield will have fallen, so profit margins could be squeezed.
£200/t is the new £150 per tonne, declares Jay Wootton of farm business consultants Andersons. “As profit is driven by margin, it is crucial for growers to be able to identify their exact costs and divide them across the sold yield. Costs of production are higher this year, typically moving from £140/t to £190/t. This means that prices, which look high at £200/t, actually only offer the same margin as £150/t when costs were just £140/t.”
Mr Wootton also points out that whilst there are some very good crops out there this year, most have been subject to difficult growing conditions that could impact on quality once stored. The real issue is that if growers are unable to make sufficient profits this year, next year they may suffer from cash flow problems and lack of credit facilities, he warns.
“When yields are higher, it is often possible to mask inefficiencies in the production system. However, this year in particular, it has been vital to undertake a thorough risk assessment to ensure any increase in input costs is outweighed by the increase in sold crop value,” says Potato Council technical executive Phil Bradshaw, who leads the PCL Business Improvement Programme.
“Changes in costs have been substantial, and it will be difficult for growers to run a profitable business if they don’t know their exact costs per tonne of potatoes sold, including machinery, labour, energy, and what the impact of yield is on this equation.”
It is quite common for growers to sell part of their ware production on fixed price contracts that can offer lower margins but an element of stability. Spot market sales are often poor for four or five years, but occasionally offer a highly profitable margin. However, he explains, the risk of relying on the occasional good year is not advisable for a specialised business, but selling on a contract and not making a sustainable margin is not acceptable either.
In these adverse conditions there is little contingency to absorb the cost shock both in grower purchaser businesses without changing approaches at retail. We must increase cooperation in the supply chain and find stability for growers, processors and packers, with a focus on long term relationships that flex when required.
The picture in Northern Europe is comparable to Britain. Not only is hectarage down in countries comprising the North European Potato Growers (NEPG), but yields are also expected to be lower in each country, which may well result in less free-buy being available, particularly as export demand is strong. Moreover, Holland has reported great variation in quality, with many tubers showing lower sizes and/or high dry matter. France and Belgium have suffered similar planting challenges to Britain, with cold wet weather in spring;a wet July and dry, hard conditions now, with later crops suffering a 10-13t/ha penalty. However, tuber numbers are high, showing good overall quality, although there are reports of greens, misshapen or cracked tubers and high dry matter. Belgium is currently very dry and suffering with harvesting difficulties, with many crops still to burn off in the hope of yield gains. Germany, however, has not suffered as badly as many of the other countries, obtaining high tuber numbers per plant, which, although smaller, are generally of good quality.
Rob Clayton, PCL Director: “This could be a watershed season and result in many growers facing the reality that there is too much at risk to continue to grow potatoes without a sustainable marketplace compared with the relatively less demanding option of alternative cereal crops.”
Source: Potato Council, initially published on September 25, 2012
The dry start to the season in England and Wales followed by persistent and prolonged rainfall made it very difficult for growers to achieve their yield potential while Scotland experienced another waterlogged season.
The result was that although a quarter of the crop had been planted by the end of March, the heavy April rainfall interrupted planting, with only 61 per cent of planting having taken place by the end of May, compared with 95 per cent the year before. In June, many early planted crops had not yet emerged. Some fields were replanted and some Scottish growers continued planting into July.
“Although some of the weather conditions were localised, every region experienced challenges, these varied by topography and soil type. The cold, wet weather resulted in the Early Crop being late;whilst prices for the 2011 crop remained strong.” said Jim Davies, AHDB market analyst.
“The situation continued with just 4,810 ha being cleared before the end of July, whereas last year we were at 8,324 at the same time. With the summer months (June, July and August) recording the highest rainfall for a hundred years, in addition to being the dullest since 1987 and with temperatures 0.4oC below average. The climatic conditions also led to a late cereal harvest interrupting potato operations.
“As of week commencing September 24, just 27 per cent had been harvested, so there is 73 per cent still to go. Although the storage campaign is now underway some growers are still holding back crops to maximise yield. Many crops however ran out of steam and senesced naturally. In general, the season continues to run three weeks behind.
Current weather patterns are impacting on tubers in a number of ways;they are smaller, some are green, and many crops have had high blight pressure to contend with. By the end of August this year, records show more than twice the number of Smith Periods than last year, with 10,069 Smith Periods compared with just 4,441 in 2011. Confirmed blight outbreaks have more than doubled in number, from 161 last year to 359.
Mr Davies noted that prices are normally high at the start of the season, falling as more supplies come on-line, but gradually rising throughout storage. However, this year prices are currently high at £185/t, nearly 75% up from this time last year – but it is important to note that the marketable yield will have fallen, so profit margins could be squeezed.
£200/t is the new £150 per tonne, declares Jay Wootton of farm business consultants Andersons. “As profit is driven by margin, it is crucial for growers to be able to identify their exact costs and divide them across the sold yield. Costs of production are higher this year, typically moving from £140/t to £190/t. This means that prices, which look high at £200/t, actually only offer the same margin as £150/t when costs were just £140/t.”
Mr Wootton also points out that whilst there are some very good crops out there this year, most have been subject to difficult growing conditions that could impact on quality once stored. The real issue is that if growers are unable to make sufficient profits this year, next year they may suffer from cash flow problems and lack of credit facilities, he warns.
“When yields are higher, it is often possible to mask inefficiencies in the production system. However, this year in particular, it has been vital to undertake a thorough risk assessment to ensure any increase in input costs is outweighed by the increase in sold crop value,” says Potato Council technical executive Phil Bradshaw, who leads the PCL Business Improvement Programme.
“Changes in costs have been substantial, and it will be difficult for growers to run a profitable business if they don’t know their exact costs per tonne of potatoes sold, including machinery, labour, energy, and what the impact of yield is on this equation.”
It is quite common for growers to sell part of their ware production on fixed price contracts that can offer lower margins but an element of stability. Spot market sales are often poor for four or five years, but occasionally offer a highly profitable margin. However, he explains, the risk of relying on the occasional good year is not advisable for a specialised business, but selling on a contract and not making a sustainable margin is not acceptable either.
In these adverse conditions there is little contingency to absorb the cost shock both in grower purchaser businesses without changing approaches at retail. We must increase cooperation in the supply chain and find stability for growers, processors and packers, with a focus on long term relationships that flex when required.
The picture in Northern Europe is comparable to Britain. Not only is hectarage down in countries comprising the North European Potato Growers (NEPG), but yields are also expected to be lower in each country, which may well result in less free-buy being available, particularly as export demand is strong. Moreover, Holland has reported great variation in quality, with many tubers showing lower sizes and/or high dry matter. France and Belgium have suffered similar planting challenges to Britain, with cold wet weather in spring;a wet July and dry, hard conditions now, with later crops suffering a 10-13t/ha penalty. However, tuber numbers are high, showing good overall quality, although there are reports of greens, misshapen or cracked tubers and high dry matter. Belgium is currently very dry and suffering with harvesting difficulties, with many crops still to burn off in the hope of yield gains. Germany, however, has not suffered as badly as many of the other countries, obtaining high tuber numbers per plant, which, although smaller, are generally of good quality.
Rob Clayton, PCL Director: “This could be a watershed season and result in many growers facing the reality that there is too much at risk to continue to grow potatoes without a sustainable marketplace compared with the relatively less demanding option of alternative cereal crops.”
Source: Potato Council, initially published on September 25, 2012
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