The Emsland Group, a potato processor with seven production plants throughout Germany, produces Potato Starch, Protein and fiber, Potato Flakes, Potato Granules and a number of potato specialties.
The company explains the supply challenges they are faced with as a result of the extreme drought in Germany and other parts of Europe.
The Raw Materials Procurement Department of the Emsland Group pointed out early on this season that the potato fields of the contract farmers of the Group were in dire conditions.
The federal association BOGK also made light of the situation in July.
The Group’s factories are now beginning to process the potatoes, and the initial fears about this year’s potato harvest are unfortunately being confirmed.
The drought affected area in Europe: Combined Drought Indicator for the 2nd 10-day period of August 2018.
(Courtesy: European Drought Observatory)
Due to the crop failures in potato fields, some of which were total failures, the availability of potato products will be significantly reduced.
The commodity exchanges for potatoes have been reacting massively to this drought for quite some time.
At the same time, some growers of seed potatoes are already raising their prices for 2019, as they are also likely to suffer from reduced yields and quality problems, meaning that the drought could also affect next year’s plantings.
Current status of the topsoil (25cm) in Germany
Courtesy: Drought Monitor Germany, Helmholtz Zentrum für Umweltforschung (UFZ)
Emsland Group raw materials assurance model
In light of the challenges confronting European companies as a whole, the Emsland Group has developed a raw materials assurance model with the representatives of the potato farmers.
This model supports growers by offsetting a portion of the damage by offering a drought subsidy and simultaneously providing incentives to deliver as much raw material as possible.
Furthermore, a raw material guarantee subsidy is set to secure the cultivation of crops for the year 2019.
Suppliers will be supported in their liquidity through the advancement of the payment dates for delivered commodities so that financial bottlenecks in the harvesting of the potatoes can be reduced, especially when placing orders in the spring.
These measures are only included in the package for those operations that will continue to grow their potatoes in 2019 at the same level that they did in 2018.
The Emsland Group wants this to signal that the supply of raw materials is secured as far as possible for the years 2018 and 2019. This way customer requirements can be optimally met given the current situation.
All in all, the Group decided, in this absolutely exceptional year, to take important measures to expand the company's long-term supply of raw materials.
Shortages and higher prices
In the short term, however, such measures will not be able to prevent the drought from significantly limiting delivery capacity and increasing prices in all areas.
Emsland expresses the hope that its customers will be able to understand this strategy and the necessary prioritizing of the sustainable supply of raw materials.