Potato Farming, Chippers collapse and the lack of frozen alternative facility drive free-buy market down
Potatoes Farming A Contrasting Landscape and Highly Competitive Landscape
The potato crop is a high input high output agricultural production. Even if we feel that it is one of the most common agricultural products we consume, the yields are very high for this extremely productive crop (originally imported from South America). Yields are going way over 40T/ha (41,7 T/ha)(as a matter of comparison grain growing is at most around 12T/ha and Maize an extremely productive C4 photosynthesis type plant (of tropical origin) won’t go over 10-12 T/ha). Potatoes can’t be grown year on year on the same field, but we can consider it as a real cash crop. Main crop potatoes can’t be cropped more than every 5 years, this has many implications. The standard potatoes is a fragile commodity and its vary widly year on year due to surplus or shortages, it is a climate dependent crop but the public consumption doesn’t vary a lot and doesn’t depends on its price, it’s a staple product.
The potato producing industry has specialized heavily in parallel with the milk production from the 1990’s. This in order to fulfil the will of the transformation industry well before the demise of the Potato Marketing Board. Farms choose to produce high-specced potatoes to access a “secured” contract with the processing industry. For many it meant going up the ladder and converting their mixed holding into a specialized farm by investing in machinery to adapt to the new constraints. Eventually some potato producers or coop got their own cold stores to control when they market their potatoes to get higher prices. Some even invested in packing chains to directly deliver to chippers. All these evolutions come at a hefty price.
How to farm potatoes, a short farming scientist approach (LT)
There has been a dreadful selection on the once ubiquitous British Potatoes Production is now handled by a handful of specialized farm that were able to invest into this costly machinery and engage capital at this difficult time to rent-in land get rid of their own farms limitation and build up their production. Those who had access to niceties like a possibility to irrigate or a diversity of appropriate soil types were even more favoured. Potato grower will grow a range of varieties with planting and harvesting being slightly spread to maximise the use of these costly equipment.
The Potato Processing Demand evolution is showing clearly what happened on the market and its quick collapse (AHDB)
Due to the Covid19 crisis the food hospitality sector closed down driving down demand for potatoes; either chippers but early potatoes as well (pub’s Sunday roast…). These potatoes are delivered to them in a very different package and volume than what consumers need in retail. On the flipside an increase in demand has been witnessed in retail for potatoes, bulk buying of staple products and frozen processed potatoes products. It is not enough to tilt the scale and the Chippers closure left around 150 000 T of potatoes in stores estimated by the AHDB.
In the common market potatoes are a protected good, few imports are allowed. The potato market simply collapsed in France, Belgium and Netherlands. Facing the UK accross and holding hundreds of tons of potatoes it is unlikely that these 3 countries won’t support their producers. The Netherlands have already pledged to pay 50€ per ton of stranded potatoes to divert it to other use including; ethanol. Belgium will follow suit. France has 250 000 T potatoes leftover for export.
Mc Cain the leading giant for fries production usually processes 70% of its production for the food hospitality sector. From one day to another production lines closed in all except one of its refrigerated products. In the UK the retail shift hasn’t benefited entirely UK growers because all potatoes refrigerated products are imported.
The situation is very different depending on where farmers stand as of today:
- Bound by contract with a coop or the transformation industry, they will be honoured, but the less your mix of potatoes product depends on the food industry the less impact will be felt. Delays in payment might be experienced.
- For those on the free-buy market the situation is more complicated they face dwindling price. But if the demand is sustained, the prices will increase over what is paid via the coop.
- A large portion of farmer have a contract but still tend to produce 20% surplus for the free-buy market.
Potato demand has collapsed on the standard white potatoes, some have been redirected to supermarket, but it has not been enough to support prices. It is expected that between April and June there will be a drop of 68% (AHDB) on demand for standard white potatoes. Price will be paid for contract but for the free buy market it will be more difficult. Farmers can still expect to lose a bit on prices or have their potatoes to spend more time in storage (and it’s already a lot). Selling directly the left-over potatoes can’t amount, to more than 5% of usual monthly sales. We considered two modelled potatoes farm one focused on a contract with a coop without cold storage and the other with cold storage and working mostly on free-buy while still being partly under contract. It sells a large quantity of potatoes directly to chippers.
Part 2 Evidence
We consider that the price variation is concerning the whole of 2020 with prices down 5% under contract and 10% under free-buy due to the loss of chippers and difficulty to find other markets. Both have to store surplus potatoes during the 3 months where chippers stopped, it meant that they increased the cost of storage and stored potatoes (lost weight 1% weight per month at 95% humidity and refrigerated).
Potato farming after the harvest, cold storage allows farmer to control their market conditions (LT)
It’s the farmer which pays for storage in the case of the coop. The free buyer might sell a part of its crop and ship it straight after harvest. If potatoes can’t be sold to consumers or transformation it will be sold for cattle feeding (for 10-20£/t in general). But given how lively is the beef market right now it might be difficult to get these potatoes out and it would only target finishers that need a lot of energy for their cattle. Something not overly represented in the UK. The fact that there is no facility to froze potatoes is clearly a problem for storage of surpluses.
Some surpluses have been redirected towards supermarket as a low priced option after packing but it creates competition. Thus retail average potatoes price might have been down a little because of competition between delicatessen or quality product and staple potatoes driving prices and demand down for some category of product despite a general uplift on retail potato demand. A drive for staple products by consumer. The impact of the white potatoes market collapse will impact coop by reducing financial leeway and maybe delaying payments to farmer by months.
Due to the farming calendar, it's too late to alter the amount of potatoes produced for 2020 (LT)
But potato farming being a high cost operation the time when you invest are key, you need cashflow at this time and the amount that has to be drawn might not be compatible with a stretched farm. Reduction in the acreage could follow for next year to reduce the liability of farmer to surpluses and reduce the strain on the cashflow – it would result in more imports.
Impact on the economic structure of the farm
Building from the work produced on Pembrokeshire I designed two different farm archetypes with different markets targeted.
Both farm have a 650a acreage. Every year they rent in 300a of land outside of their owned holding for a crop. To keep an acceptable rotation they crop 350a of potatoes. Both of them spread the planting of their main crop potatoes over spring and the harvest over the end of summer/beginning of autumn to make the most of their planting and harvesting kit. These are the two dimensioning peak times for the farming systems. The two farms have access to the same potential yield, to irrigation...
Temporary potato storage - Wikimedia
Coop Focused Farm
Linked by a contract to the coop this farm has no refrigerated storage for its crop. It sends the crop when harvested in crates to the Coop and is paying for storage there. The production is balanced between four different types of potatoes, most of them are be sold on retail. Most of them are ever popular among the public or with an added value due to specifications in terms of size. The coop still depends on food hospitality for a part of its production.
Free-Buy, Chippers focused Farm
The second farm is on the free-buy market and though it sends half of its production to the Coop or retailer, it keeps half its crop in its refrigerated storage. It is focused on white potatoes production mainly for supermarket, transformation and chippers. They have processing, sorting machines on the farm to sell directly potatoes on chippers. They employ more people due to this regular output.
As a matter of emergency both farms tried to sell some potatoes directly to regular consumers at a price of 1000£/T (which might seem reasonable). Given feedback from french farmers that did the same they achieved to get rid of 5% of their 150 T surplus here with 200 T monthly potential surplus we will take the same assumption.
Comparison of economic performance of the two archetypes in the crisis
Looking at the consequences of the crisis it meant that farmers lost a lot of revenue, particularly for the non-protected free-buy farm. They depend a lot more on subsidies for their agricultural revenue than in the situation before. The free-buy farm is helped by its structure and additional chipper direct output (with higher cost for the packing machinery, the employee’s salary that work all year round). In a year where the supply is short they would get a premium for their potatoes.
The volume sold directly are too little to matter compared to the sheer loss due to the other markets.
The fact that the free-buy potato price is more volatile is also reflected in the comparison of the Raw Product per acre on the farm. It variate’s more and a higher added value can be attained. There is a divide in capital depreciation (DK) between the 2 farming systems due to the free-buy farm having more storage room and sorting/packing equipment. The Intermediate Consumption (IC) reflects the input necessary to achieve a production. Here during the crisis it slightly increases because of the storage cost to keep potatoes in.
Here the assumption is that all potatoes will end up being sold on way or another. The raw product might be lower BUT the costs won’t decrease. Most of the intermediate consumption have already been paid for… The crop in stores if dumped will still have been planted, cropped, harvested, stored and the rent for the land they were sitting before paid… Likewise this year’s crop if left untouched it will only save relatively little money– the harvest and storage but prevent the farmer to get some possible income from it. It is clearly a bet on the recovery and depending whether the cashflow can handle it.
Farmers face a price / spending squeeze du to this crisis on potato farming. It is a very bad situation that could make them reduce their spending and the strain on the cashflow, namely scaling down the business.
Free-Buy potatoes farm are in a much more difficult situation than coop supported ones, their cost structure is relying on a slightly higher raw product to balance higher expenses. They will be the one at risks and they are the main ones producing for the UK food industry market. This is not news but the scale of the money they loose is a concern, they might have capital enough to whihtstand a crisis but only for a season and it might have consequences for UK potato security. The worst case scenario would be a further slump in price due to cheap EU mainland import, this would be devastating and cripple the demand for way more than 3 months.
Possible course of actions to alleviate the crisis
- Declare surpluses via BPS to get an idea of how much potatoes are left.
- Go towards supermarket repack but means price go down for other product.
- Diversion to foodbanks of unpacked products
- We need to know whether this surplus will be gone when the storage for this year potatoes will be needed, not to spill a part of the crop on the ground
Any reduction in production next year will have a direct impact on the farming community some that rely on this rent income because it represents 500£ for an acre – 20-30 a. And it quickly represents 10000£. More than enough to help out a retirement pension or an ailing beef and sheep farm ( that are not doing so great right now).
Besides we want to dump food while thousands are queuing in foodbanks? To help with this potato crisis we really need an idea of how much surplus we have on our hand to know what to do with it. How to repurpose It and sustain a market for our potato food security to be maintained or improved. Creating a new frozen processed potato plant would be a way to secure the future, though it might lay underused some times. The just in time just enough is showing its limits but a buffer comes to a cost.
The Lamb market, a feverish wait (mild and anxious)
Peculiar weather conditions:
Winter has been difficult for many a farmer with lasting rain over the course of 6 months from September until last March. Bogged fields, soaked animals and the impossibility for some farmer on clayish land to run any operation during this time on the land. Possibly not even cutting hedges. And now the spring has been brilliant with little rain quick starting uplands grass growth earlier than could have predicted. The conditions have been good for most lambing dates, early lambing farmer didn’t have that good survival rate due to the previous bad weather.
Btw: all those with hay meadows in some Agri-environment scheme are in for a very badly burnt crop of silage if we don’t get any rain. And the nice lamb growth might not look so good on lowlands...
And a market waiting for the crop to come
So far due to the relatively low volumes the prices have been buoyed though it is said that the EU export market is down by a 15% (and imports are up...). The main lamb output will soon begin has lamb fattening has been accelerated by the good growing grass. The first weeks will be a big test for the lamb market. We will produce an analysis at this stage. So far there is a backlog of 100 K lambs (AHDB)– though we don’t know what they are (hoggets or new year lambs), this was due to the April slowdown in slaughtering. Either way it’s very worrying. April/May prices always mark the top price paid and it only gets down afterwards.
The AHDB and the levy body want’s to quick start a summer 1.4 million £ advertisement campaign to trigger higher consumption of lamb. Lamb is highly dependent on the seated out of home restauration market and it will be unlikely that it will restart anytime soon.
Finally a number of analysis think that China is gonna make up for lost demand in the EU market. It didn't on the hog market and it's not paying the same price as the EU for UK good quality lamb.
Additionally: it seems to be a shortage of shearer because some were from Australia and New Zealand, this seems manageable by the farmers and the existing shearer though the shearing season might last longer. Wool prices have certainly collapsed due to a lack of demand in the industry but it is not worth much for the industry.
Not much on the lamb market, we have to wait and see how June's harvest goes.
