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Projecting potato profitability

9 October 2013

Understanding your level of risk is crucial to planning future potato rotations. This November, leading authorities in the European supply chain will take part in new interactive panel sessions at BP2013 that will analyse the ‘risk versus reward’ of GB potato farming.

 
Growers who understand their costs are in a better position to manage the risks and the opportunities that face their business. This is the theme of two panel sessions at BP2013, where the industry will debate the latest influences on the cost of potato production. 
 
Robust planning makes sound business sense, however the difficult 2012/13 growing and harvesting season clearly demonstrated the vulnerability of the whole Industry, when adverse climatic conditions impacted marketable yield.
 
“Tough seasons highlight the ongoing importance of managing risk and the necessity to achieve sustainable levels of return,” explains AHDB Potatoes director Rob Clayton. “The GB industry continues to consolidate, with almost one in ten of Britain’s potato producers stopping growing potatoes, following last year’s challenges.” 
 
“Over the years we have seen smaller producers leaving the industry, feeling that they are not getting sufficient returns on their potato enterprise for the risks they have to take.”
 
The 2013 total planted area estimated at 122,200 hectares is very similar to plantings levels in 2012.  However, AHDB Potatoes estimates a drop of around 150 growers since 2012, with now just over 2,000 professional producers making up the GB potato industry.
 
“An ongoing trend, in line with recent decades, saw the 3 per cent of the GB area that those leaving the industry grew, being snapped up by larger-scale growers,” added Rob.
 
BP2013 panel 1: GB Potato Production – Risk vs Reward
 
During BP2013, on the 27 and 28 November, Bidwells agricultural business consultant Neil Cameron, will chair a panel of GB potato industry experts to explore the ‘risk vs. reward’ ratio required by GB growers to encourage the capital investment necessary for a progressive industry. 
 
The expert panel will evaluate the latest GB production cost assessments that will be launched at the event, as well as discussing projections for the 2013 and 2014 seasons.
 
“Knowing your costs is key,” explains Phil Bradshaw, who runs the AHDB Potatoes Business Improvement Programme. “Higher yields can often mask inefficiencies in the production system and changes in farm input costs have been substantial. It impossible for growers to run a profitable business if they don’t know their exact costs per tonne of potatoes marketed.” 
 
In order to optimise the profitability of an enterprise, it is critical that production should maintain a balance of land quality and operational scale.
 
“Your level of risk needs to be clear at the planning stage of your crops, especially when marginal land quality is being considered,” added Phil. “Therefore BP2013 panels sessions, are at a perfect time of year to come and engage in discussion, challenge your own farm practice, and make considerations prior to the 2014/15 season.” 
 
BP2013 panel 2: What drives North-West European potato market dynamics?
 
The GB market is increasingly influenced by EU potato producer activities and supply chain structure. 
 
Currency fluctuations and a wide variation in annual market prices, due to external factors such as weather conditions and pest and disease pressures, leave the GB market sensitive to imported European product, dependent on price, quality and variety.
 
Unlike the market in GB, the dominant sector is processed potato production, which represents the lion’s share of the total market in Belgium and the Netherlands. 
 
According to the North-West European Potato Growers (NEPG), Belgium recently took the position of largest exporter of finished products in weight from the Netherlands. However, the Netherlands is still number one based upon export value.
 
The predominance of the processing sector, leads to a contracting framework which sets pricing structures across national boundaries, and leads to a fluid trade in ‘surplus to contract’ potatoes throughout North-West Europe.
 
The German market, whilst focused on the processing sector, has a more diverse range of products. 
 
GB and France have similarities to their structures. Both have a diverse customer base and significant fresh market volumes, heavily influenced by multiple retailer trends and also a strong early market.
 
Visitors to BP2013 will have the opportunity to explore and debate the latest European situation and influences in a further panel session entitled: ‘What drives North-west European potato market dynamics?’
 
The interactive session will chaired by Anderson director Jay Wootton. The panel will take place on the first day of BP2013, on the 27 November and representatives from North-West Europe will outline production costs structures and key market changes by country over the last 15 years. The main differences and drivers will be unveiled to the audience.
 
In the hot seats Victor Phaff, from the Netherlands, the chair of the North-West European Potato Growers (NEPG), along with other NEPG representatives: Arnaud Delacour, chair of the Copa Cogeca Potatoes Committee and director of the Union Nationale des Producteurs de Pommes de Terre (UNPT) will represent France; Daniel Ryckmans of La Filiere Wallonne de la Pomme de Terre (FIWAP) will represent Belgium; and Michael Heintges from REKA will represent Germany.
 
The evolution of the European market over the last 15 years is really interesting says AHDB senior potato analyst Sara Maslowski. “Last year Germany took France’s place as the largest EU exporter of fresh potato products, while Belgium and the Netherlands continue to compete for the position as the largest exporter of processed potato products.”
 
“In production and capacity terms, Belgium is the fastest growing European potato producing country having invested significantly in building its capability in recent years. This has resulted in more aggressive marketing of its processed potato products not only to GB and the rest of Europe but increasingly to worldwide markets.”
 
North-West European 2013 harvest
 
Initial pre-harvest indications from the NEPG state that although there is an increase in area of the 5 leading potato producing countries this season, this is not expected to compensate for yield shortfalls in some countries due to the challenging growing conditions.
 
The provisional September production estimation of 23m tonnes is 5% less than the 5 year average production. 
 
“The estimated area has increased 4% compared with last year. This is mainly driven by Belgium and The Netherlands. However, the planting and growing conditions experienced in 2013 have not been ideal in many countries,” explained Sara.
 
“The start of the growing season was often too wet and cold and this was followed by a dry, hot summer. Germany expects to harvest around 13% less than their 5 year average while the Netherlands is expected to produce around 10% less.”
 
“For Germany it could become the lowest harvest in history, which is an interesting dynamic compared to 2012, when they had the best growing and harvest conditions across the region.” 
 
The yields vary widely across the NEPG countries influenced by considerable differences in rainfall in August and the use of irrigation. 
 
“The next NEPG meeting at BP2013, will update the 2013 Northern European area, production and yield figures with actual harvest data,” says Sara. “These will be made available to levy-payers in early December.”
 
BP2013 Ticket registration
 
To register for your free BP2013 tickets and avoid queues on day go to: www.potato.org.uk/bp2013
 
 
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