Drought requires European potato processors to make important strategic decisions1 year ago
Annual Insight research on the global market for frozen potato products shows that demand is at its highest point ever and is expected to continue increasing, especially outside Europe. Even though part of the demand outside Europe is produced locally, The Netherlands and Belgium remain important supply sources; these are the two largest exporting countries of frozen potato products globally (Source: trademap.org). Latest figures of the Nederlandse Aardappelorganisatie (NAO) show that Dutch potato processing to ‘pre-baked potato products’ in May 2018 increased to 162.1 tonnes, which is an increase of 4% compared to May 2017. Also, the 2017 volume of processed potatoes in Belgium increased with 3.6%. In addition, the potato processing industry in Belgium has set a country record: in 2017, the aggregate industry invested almost 350 million euros, implying that the production capacity of several players increased significantly (source: Belgapom). These capacity expansions require the Belgian players to generate additional volume sales to cover for extra (fixed) operational costs. However, with current potato crops doomed to fail, the supply of these extra volumes is highly uncertain.
Despite the current issues concerning the dramatic potato harvest, the FiWap reports that the potato price for the processors is unlikely to increase severely since 60-70% of the potatoes are supplied to the terms of contracts, meaning fixed prices are used. In the worst case, contracts quantities cannot be met, meaning that there will be a potato shortage. This in turn could lead to rising consumer prices. Taken the above into account, processors face several questions: home market or export? Retail, food service or quick-service restaurants (QSR)? Which channel will get the short(-er) fries? The European potato processors will be tested heavily in their adaptability, negotiation skills and strategic positioning.
Although it is difficult to determine the financial consequences for both potato processors and potato growers, there will undoubtedly be negative effects. It will be interesting to see how the processors in remainder 2018 and in 2019 deal with lower yields and quality on the one hand and increasing demand for potato products on the other. What will be the impact on the global prices? Will processors with production facilities outside Europe have an advantage over processors that only produce in Europe? These are topics that Annual Insight will investigate in the coming period.
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