The closure of foodservice outlets throughout the world has seen the demand for processing potatoes collapse, with millions of tons worth of product sitting in cold storages and an oversupply of processed potato products halting production at many processing plants.

Potato Business reached out to some of the most important professional organizations of the potato industry, to gain a deeper understanding of the unexpected challenges that the industry players must face this year.

Victor Phaff, The North Western European Potato Growers (NEPG) secretary says that the problems started once the processing industry became unable to take in the contracted potatoes that started to fill up the storages.
“Contracts are a combination of fixed quantities plus an oversupply of extra tons. You close the contract for a sum that varies depending on the time of the year, that you supply these potatoes – let’s say 40 tons per hectare against 11 cents. And then the processor can also take the extra tonnage, if you have a good harvest. And in most of the cases they do, because it’s easy to do when the stores and restaurants are open and the potatoes are being sold. And these extra potatoes are paid against the actual market price.”

When farmers have a bad harvest, they are still pressured by the contract to supply what was agreed, even if that means they have to purchase part of it from the free market.

“The situation is the other way around at the moment, and we have signals that the processors will take in the 30 or 40 tons contracted, but they will not take the extra tonnage. They also ask growers to store the potatoes a little bit longer, because they will probably extend the season and take the potatoes in August,” Phaff explains.

But storing the potatoes through the summer is not something most farmers are prepared for at the moment. And the extra energy costs, as well as the EU imposed ban on the go-to sprout suppressant (CIPC) for the industry, will certainly put extra pressure on the farmers.

“In the Netherlands, in Belgium, in France, in Germany, the factories are subsidized by the governments, to help them through the pandemic. So, they get grants and are supported through this hardship. But, at the moment, the growers are not supported by anyone,” Phaff points out.

Donavon Johnson, president of The Northern Plains Potato Growers Association (NPPGA) says they are hopeful that all of the 2019 inventory remaining in storage on growers’ farms will be used by the processors, to finish out their processing needs. 

“Under the CARES bill [in the U.S.], there is USD9.5bn of funding, provided to help offset losses to the livestock and specialty crop industry. We are working with the USDA to arrive at an equitable distribution for those experiencing losses,” he underlines.

Retail is Booming

Although the potato processing scene is suffering from dwindling demand in foodservice, the same is not true for the retail channel.

“There has been very high demand for our limited supplies of fresh crop red and yellow potatoes at retail since the pandemic broke,” says Ted Kreis, marketing & communications director at the NPPGA. “That supply is almost exhausted, a month or two ahead of schedule. Frozen processors in our region are now using the remaining supplies of local russets at their plants, rather than shipping them in from the Northwest, like they had been doing earlier, to supplement our small crop caused by fall flooding and subsequent freeze,” he adds.

But for farmers to use the retail channel to sell their surplus potatoes is almost an impossible feat. If one looks at the numbers alone, the demand for fresh potatoes is extremely small, compared to the processing market. The Netherlands, for example, harvests around 4 million tons of potatoes, and the entire crop goes to the processing industry. To cover its domestic fresh market demand, the country imports potatoes from Italy, Spain and Morocco. A mere 50,000 tons in total.

“The demand from retail is growing, absolutely. The packers who are supplying the supermarkets are working around the clock to fulfill orders. But that’s just a very small outlet and one can only do that when they have fresh table varieties. If one has the Innovator, the Fontana, one can eat them, but they’re not the right potatoes [to be sold in retail],” Victor Phaff explains.

Alternatives

There are very few other alternatives that farmers can turn to, in order to find a way to empty their storages. The starch factories are being presented as one, but in this case too, the potato variety is of consequence, since the starch content in them is significantly lower than in potatoes grown specifically for this purpose.

“At the moment, our starch factory in the Netherlands and in Germany or France are closed, because they’re usually only open after the harvest. So, these enormous factories have to be re-opened. But they are in almost all the cases private companies, so the government cannot force them to open. We can ask [for this], but then they have extra costs. So, they will also ask for certain conditions in return,” says Phaff. The only two other options for the stored potatoes are to use them as animal feed, which would mean selling them at a very low price, and ethanol production.

CIPC

The latter is of particular interest for the potato industry, because ethanol is the basis for ethylene, a gas that is offered as an alternative to the recently banned CIPC sprout suppressant.

“We are not allowed to use the CIPC anymore. We can buy it until, the August 1 and we can use it in April. But if one uses it in their storage, one cannot use this storage next year, because there will still be CIPC residues left. And that is an impossible situation,” Phaff reveals. He adds that there is an active lobby effort with the EU regulatory bodies, to allow the use of CIPC for one more year, in order to relieve some of the pressure farmers face at the moment, but the NEPG doesn’t think this course of action will be successful.

Loïc Le Meur from Union Nationale des Producteurs de Pommes de Terre (UNPT), thinks these regulations have been put there to bring security to the entire industry, and industry players should not try to weaken them. “Even in these times of acute crisis, it seems wiser to respect the texts and schedules previously defined, so as not to create confusion among consumers, by risking damaging the image of the potato industry and causing a decrease of consumption in the coming years. For producers, the crisis will make the transition period more difficult, in connection with the ban on the CIPC this summer, and the preparation of storage premises.”

Forecast

Looking towards the future, the experts agree that the processing industry will likely use the old potatoes well into September. They have no other choice, because they have to honor their contracts with the farmers. Normally, by the middle of July, early processing potatoes, already planted and contracted, are harvested in Germany and in Belgium. But because factories will continue to use the old harvest, it’s hard to say what will happen to the crop that’s being planted right now.

“The planting at the moment is in full swing. We know that we have to plant less, but we have already ordered our seed potatoes and we cannot give them back,” says Victor Phaff.

NPPGA’s Ted Kreis thinks processors will do their analysis and, in turn, adjust their contracted acres accordingly. “There will be substantial cuts. There is fear that some of these growers will not cut enough and expect to move some russets to the fresh market. This could easily over-supply that market and quickly depress it.”

Reports suggest that some manufacturers have already canceled early plantings and encouraged their producers to lower their planting acreage. Starting the new campaign without a contract is also an extremely risky strategy in this context.

“It is difficult to make a forecast on the end of this crisis, as the parameters involved and the geographic areas concerned are numerous. This will undoubtedly depend on the aid measures implemented at the level of public authorities. This crisis highlights the difficulty for agricultural products to find the right balance in the supply of different markets and the control of risks likely to disturb it. The industry will undoubtedly have to readjust some of these objectives in the future, to allow the sectors concerned to be more resilient,” says Loïc Le Meur.

Though it’s still early to tell how the COVID-19 crisis will affect the industry and our consumption habits, fear of the virus and its re-emergence in the population will remain significant and will likely modify future behavior, with consideration to health measures, which may affect consumption outside the home.

“The industry will probably lose about 10% off everything. Prices will drop by 10%, export will drop by 10% and the planted area will drop by 10%. There will be less investments, so the equipment prices will probably drop as well. The bottom line is: everyone will have a bad year,” Phaff concluded.