Closer ties to cut potato sector volatility

By FWi staff

POTATO growers need to build closer partnerships with processors and retailers to reduce market uncertainty and sustain competitiveness.

Although the sector is already a model which others would do well to follow, there is still scope for improvement, says Sean Rickard, director of the executive MBA at Cranfield School of Management, in the latest Challenges and Prospects series of reports sponsored by Lloyds TSB released this week.

“The main lesson the potato sector has to offer the supported agricultural sectors is the importance of shortening supply chains and forming closer business relationships with fellow growers, customers and suppliers.

“By building more integrated business relationships, potato growers are better able to understand and respond to the needs of their customers, and the changing demands of consumers. In turn, their customers are prepared to work more closely with growers to help them adjust to, and anticipate, future demands.”

However, there is room for improvement, he says. The fact that growers increased the planted area by 9% this season following last years high prices shows the sector is still far from being demand-led.

“Potato growers are fortunate that their collective madness in expanding the area for the 1999/00 crop coincided with a second successive year of low yields.

“Had the yield gone back to its trend value 1999/00 would have been considered a disaster.”

Even so, Mr Rickard estimates that returns have fallen to about 3000/ha (1214/acre) which after deducting costs leaves the average grower facing a loss of 700/ha (283/acre).

Closer partnerships will help reduce such volatility. More importantly, they will help to maintain the drive to add value.

The potato market is mature, so the emphasis must be on differentiation.

But in the rapidly changing market for raw and processed potatoes, neither processors nor growers can meet the challenges on their own.

“Successful marketing now increasingly depends on the extent to which the supply chain co-operates to create synergy from its co-operating parts.”

Genuine partnerships within the food chain will depend on open-ended contracts that depend on commitment and trust, rather than hard, contract-based transactions, says Mr Rickard.

The predominance of grower groups in the potato sector, coupled with recent moves by supermarkets to reduce their supplier base, means the potato sector should find it much easier to develop these partnerships, says Mr Rickard.

Eventually, this would lead to a “leap of faith” to trust and commitment, including sole supply status, disclosure and sharing of confidential information and access to technology.