Tesco unveils long-term cost-covering potato contracts

Growers have hailed the principle behind Tesco’s new long-term potato contracts, which aim to cover their cost of production.

From September, some potato growers supplying through the supermarket’s packers – Branston and Greenvale – will be offered direct contracts.

These contracts will guarantee in advance the volume of crop Tesco will buy for three years.

The growers, part of the Tesco Sustainable Farming Group – Potatoes, will be paid a price linked to their input costs, such as fertiliser and fuel, which will guarantee a profitable margin.

Tesco has not revealed how those costs will be calculated, but farmers involved have told the NFU they are satisfied with the deal.

See also: Read more news and features about potatoes

Both the length of the contract and the price promise should help growers as they face volatile swings in the potato market.

The other major step is the direct relationship between the supermarket and growers, with previous dealings all run through the packer in the middle.

NFU horticulture and potatoes adviser Lee Abbey said the contracts were in the spirit of the NFU’s Fruit and Veg Pledge, which asks retailers to treat suppliers fairly, such as offering price certainty and paying on time and in full.

More supermarkets could now follow, even if cost-of-production contracts were not the solution for all, he said.

“The principle of what [Tesco] are developing is very much in line with the NFU’s call for better supply chain relationships,” Mr Abbey said. “We would like to see more of it.”

Tesco would not reveal the number of growers involved or the proportion of its potato demands that would be met by the contracts.

It only said the contracts would be worth £12m over three years and the potatoes would be used across all Tesco lines.

Tesco fresh food commercial director Matt Simister said there was no single, simple solution to resolve the uncertainty faced by potato growers.

“These new contracts will help to bring more confidence back into the whole potato supply chain and build a truly sustainable British potato industry,” he said.

Tesco may be the first retailer to introduce special, cost-tracking spud contracts, but it is not the first major buyer.

McCain, the UK’s biggest potato purchaser, introduced a contract that was index linked to production costs in 2008 and now works with more than 300 growers.

Tesco has run a dedicated group of dairy farmers since 2008, which now has 600 members.

It offered two-year contracts for more than 200 sheep farmers in 2014 and this spring announced a trial run of a cost-of-production pricing model.