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October fresh exports to Belgium record high

Publication Date: 
6 January 2017

James Webster, Trainee analyst, James.Webster@ahdb.org.uk

Currency is a key factor in export markets. In October our video update on the potato market dynamics by Arthur Marshall highlighted how the drop in the value of the pound created a short-term incentive to export fresh GB supplies for processing to Belgium. This was particularly relevant given the tight supply situation on the near continent. Trade data just released, highlighted the spike in exports seen in September and October driven by a substantially lower GB free-buy price to Belgium. However, with the price gap narrowing once more, the export spike was likely only short term and trade is expected to have returned to a more typical level. Additionally, GB growers will have taken stock of the need to fulfil agreed contracts during this period.

Exports spike

Now that UK trade data for October has been released, it provides more context to the impact of the unusual price relationship on export quantities and what this means for the UK supply situation. In September and October the UK supplied more than 11Kt of fresh potatoes to Belgium, the highest volume on records going back to 1996. This October was only the second month in the past six years when exports of fresh potatoes to Belgium were ahead of exports to Ireland.

The changing price relationship

The increase in exports to Belgium was driven by the changing price relationship between GB and Belgian free-buy prices of potatoes destined for processing into fries. This followed the rapid depreciation of sterling relative to the euro at that point, as well as the short-term tightness of supplies in Belgium given the slow harvest progress.

The figure below shows the price relationship between the GB (all varieties for fries) free-buy and Belgian (Belgapom, other varieties) prices. In late September and early October, the price of GB free-buy supplies was significantly low relative to Belgian prices, moving to a gap of almost £70/t on w/e 14 October. The significant gap between GB and Belgian prices incentivised the increased export movement shown in figure 1. GB free-buy prices have been lower than prices on the near continent numerous times in the past, however it is unusual for the GB price differential to be at such a large level. 

What next…

Looking at historical trends, the increase in exports to Belgium is only likely to be a short term effect with the price relationship changing once more and the price differential between GB prices and Belgian prices narrowing, currently around £25/t. With GB prices now less competitive on the continent, the incentive to source from GB is reduced so exports are likely to return to more typical levels when the November trade statistics are released.

Conclusion

While this market dynamic provided export opportunities for some British growers, it is important to understand how the spike in exports of fresh potatoes to the EU relates to the overall picture for potato supply. In GB fresh exports so far this season account for only 1.3% of ware production. Nonetheless for the free-buy side of the processing market this short term trade still plays an important role.

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