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GB area increase may be on the cards

Publication Date: 
20 May 2016

Arthur Marshall, Analyst,, 02476 478956

Average GB ex-farm prices are currently at their second-highest level ever recorded for this time of year and with planting ongoing it is likely that the recent high price levels will have had an influence on planting decisions. This time last year, there was a widespread response to low prices in reduced planted areas. In hindsight, we can see that this has contributed to very high prices despite record yields. Arguably, the high prices provide a genuine market incentive to plant more next season but of course it is impossible to know exactly how much and what will be needed.


How price drives planting decisions

A range of factors drive planting decisions such as price, grower confidence and contract arrangements. Nonetheless, there has historically been a relatively strong relationship between changes in average price and the following years planted area, as shown below.

This shows that the price change from one season to the next (e.g. the rise in price from 2009/10 to 2010/11) tends to influence the change in planted area in the following season (e.g. the area planted in 2011). The response is not always even but the direction is usually the same (70% of the time in this period) – i.e. a higher priced season tends to result in higher area the next and a lower priced season tends to lead to a lower area.

Where price levels have been driven predominately by yield changes, the reaction in area can be one of the main sources of the significant price volatility from year to year in potato prices. Coming into this season, for example, prices had been at very low levels in many parts of the market, driven by the near-record yields in 2014. This contributed to the 8% area reduction, which we can now see has led to tight supplies and upward pressure on prices. However, when the direction of prices has been driven by an area effect (rather than by yields), such as it looks like this season, adjusting plantings in response can help balance the market.


Historical trends suggest small area increase

Average ware prices in the season to date have been £36.80/t above the last season’s average. Looking at the 5 previous seasons with a similar price change (highlighted below), 4 resulted in a higher area the following year. The largest area change was an increase of 3%.

This graph shows the same data as previously but also highlights the range of area reactions that might be associated with the price levels we have seen this season. Anecdotally, there have been reports of growers planting potatoes instead of other spring crops (e.g. barley) due to both poor drilling conditions and high potato price levels.

However, it also shows that in 30% of these years, the relationship was in the opposite direction (i.e. higher prices but lower area or vice versa). Most times this has happened, area has reduced despite increased prices, which is unsurprising given the long term trend of falling GB potato area.

Of course, the price trends this season have varied in different sectors and regions. If there is an area increase this year in response to prices, it may well be most likely in those sectors and regions where prices have risen by the most.


Area scenarios – production could still fall if yields return to average

This suggests that, based on the largest historical reaction, we could expect an area increase of up to 3% in reaction to this season’s prices. If realised, this would equal roughly +4,000ha, giving a GB area of up to c.115,000ha – still the second smallest on record.

It is of course too early to make any informed judgement on yields – but we can model what this would mean for production if we achieved high, low or average yields. The latest 5-year average GB yield is 45.2t/ha.

Assuming the average yield figure, the high-area scenario (115,000ha, based on a potential 3% area increase) translates to production of 5.2Mt. An unchanged area and average yields would give 5.0Mt. Even in the high-area scenario, average yields would mean production 0.2Mt lower than in 2015 and the fourth-lowest on record.


Concluding comments

This season’s high price levels are likely to lead to a higher area for next season if we follow the historical trend. However, it is too early to know exactly how much planting decisions will react to current price levels. On the one hand, average prices are at their second-highest level on record for the time of year. On the other hand, the highest prices have only come after planting decisions will have mostly been made.

The range of experience in comparable previous years suggests that the GB 2016 potato area could range 110,000-115,000ha (from 111,390ha in 2015). Even the high end of this range would remain the second smallest area on record and an average yield would result in lower production than this season. This implies potential for further tightness in the markets. If markets do remain tight, we would not normally see significant reductions in prices. This would be good news for those who have chosen to plant more potatoes for harvest 2016.

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