Returns from competing crops are threatening grower commitment to potatoes.
After a year in which prices went from £60/t to £400/t, grower risk is a bigger issue than ever, warn advisers.
Potential returns from competing and less risky crops was the big change this season, said Bidwells partner Neil Cameron. Added to this, the increase in the costs of growing potatoes had been “quite remarkable” over the past six or seven years.
Some producers would pack in after last year, especially if their kit was not good, said Mr Cameron. Others, some of whom had expanded rapidly over the past few seasons, would probably rent in less ground this year.
“It’s easy to say growers should get paid more money, but there’s a limit to that and a price at which potatoes will get imported. What we need is a return good enough for the grower, but not one at which he is priced out of the market.”
There was a huge disparity in cost of production between growers. Given the financial risk in the crop, banks increasingly liked to see price certainty in grower budgets and contracts helped with this, said Mr Cameron.
About 75% of the potato crop is contracted or committed. Of this, about 50-60% is contracted at a price, while the remainder is committed to a buyer with a price yet to be set.
However, contracts are usually for a single season and priced around planting time.
Terms that provided a minimum and maximum price were some help, said Mr Cameron. “But if you have a price with a £30-40 range, it still tends to either min out or max out.”
Some moves had been made to address grower risk, said Mr Cameron. For example, a contract introduced by McCain about five years ago runs for a two-season term and is linked to cost of production. “While growers still bear the yield risk, there are stable returns,” said Mr Cameron.
Growers, packers, processors and retailers all needed to think where they wanted to be with the crop in five to 10 years’ time, he said.