The low(-er) potato yields of the current harvest significantly affect the position of the European potato processors. Annual Insight believes that this has two major impacts: lower profitability and a weaker export position, enabling North American processors to gain worldwide market share.


Without a doubt, we are witnessing a very interesting potato year. The dry weather around Europe severely impacted potato harvest: the first test crops show a 20% decline in potato yield; the average result of all samples comes to 36.4 tonnes per hectare, compared to 46.4 tonnes per hectare in 2017 (source: BoerenBusiness). Therefore, growers are likely unable to meet their contracted volumes and the potato processing industry is going to be affected by increasing procurement costs. This will stir the consumer prices of fairly all potato products: as of early September, McCain already increased its retail prices by as much as 20% (source: retail-insight-network.com), and it is likely that other European based processors will follow. Moreover, crisps manufacturer Lays recently reported that it will increase its prices and that crisps will be smaller. Also, the company announced that its consumers should expect less promotional offers.

It becomes clear that the potato processors are in the grip of the current harvesting problems expressed in both the cost and the supply side. On the supply side, processors have contracts with (large) customers, like McDonald’s and Carrefour, in which quantity, price, and quality is agreed on. The question is to what extent contracted customers are willing to accept necessary price increases. On the cost side, potato processors are required to maintain high utilization rates in their plants to cover their fixed costs. Besides, lower quality potatoes lead to a lower amount of French fries per kilo of potato input. The timing of a bad harvest is certainly unfortunate given the substantial additional production capacity that most players added in 2016 and 2017, which came with substantial expansions of the workforce.

Looking at the Dutch and Belgian French fry producers, these capacity expansions were the primary reason for their sales growth in 2016 and 2017. Results show that Dutch and Belgian processors achieved 15.1% growth in 2016 and 7.7% growth in 2017. Profitability-wise the % EBIT-margin came under slight pressure, despite some reasonable potato years (see graphs below). Nevertheless, the profitability of the Dutch and Belgian players remains more than healthy.

Graph 1: Net sales of Dutch and Belgian potato processors

Graph 2: (%) EBIT of Dutch and Belgian potato processors

Overall, Annual Insight sees two major challenges for potato processors concerning 2018 profitability. First, potato processors have to deal with a lower utilization rate in their factories driven by limited potato availability. Therefore, potato processors will face trouble in covering their fixed costs, which will negatively affect profitability. Secondly, as the harvested potatoes are smaller than usual, it will become difficult for processors to guarantee general quality standards and potato recovery rates will go down, negatively influencing costs of goods sold.

Given the above, potato processors face some critical strategic choices. Which customers or channels can they serve in case of potato shortage?

There is no question that the companies are forced to re-evaluate their product and pricing strategy. Annual Insight believes that European potato processors will choose to cover their retail, food service and QSR contracts in Western-Europe in the first place while they will decline exports to other regions in the coming period. This might create a chance for the North American processors to close the gap that arises in regions where the European processors are strong (Southeast Asia, South America), as important crop regions in North America (Washington, Idaho, Alberta) showed significantly higher potato yields (source: BoerenBusiness). Undoubtedly, 2018 will pose significant challenges for European potato processors, and it will be very interesting to see what the influence of the potato shortage on their growth and profitability will be.

Love Drop - Don't Look Back

Colombian authorities recently announced to set import tariffs on Dutch and Belgian French fry imports

Potato processing: a profitable industry is facing a challenging year

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