Shoppers are facing higher potato prices as suppliers warn of rocketing production costs following this year’s poor weather and a looming financial crisis across the sector if they do not receive better returns.
Potato production costs stood at £124/t in November 2011, but in September this year they were estimated to have risen to £200/t - an increase of 61.3% [Potato Council/Andersons/Bidwell production cost model].
The cost of production had risen dramatically because of higher input costs - such as fuel and fertiliser - coupled with this year’s erratic weather, which had led to stunted growth and higher incidences of blight, the Potato Council said.
Commodity risers and fallers 6 October 2012
Reports of sluggish demand from China and unusually large inventories building up in Malaysia caused palm oil prices to tumble to a three-year low earlier this week.
At £575.5/t, the Rotterdam price for palm oil is now 15.9% lower than last year, having fallen by a further 11.1% in the past month. Meanwhile, palm kernel oil is down 27.2% year-on-year and down nearly 10% on the past month.
At the opposite end of the market, plastics continue to feature heavily in our list of risers - UK prices for HDPE and LDPE film have risen by about 12% month-on-month, driven up by tighter supplies following a string of plant outages. HDPE is now 3.5% costlier than this time last year, with LDPE film up 16.5% year-on-year.
Higher costs are already translating into higher wholesale prices, which have shot up by 73.1% year-on-year [Mintec, see table, right]. Retail potato packers have been hit particularly hard because they have been forced to buy in more expensive potatoes off the open ‘free buy’ market to meet their contracted volumes following severe shortfalls in yield. The ‘free buy’ market price stood at £261.7/t of potatoes in the week ending 28 September compared with £88.9/t in the equivalent week in 2011 [Potato Council].
The financial pain felt by many potato farmers this season had to be mitigated by price rises at retail, said Potato Council chairman Allan Stevenson. “A small increase to the shopper could make a big difference to the industry.”
Reports earlier this week suggested the UK could be on track to deliver the lowest potato harvest since 1977.
But the weather, was “just a sideshow”, said Stevenson, to the longer-term issue of unsustainably low margins. “We need a rebalancing of the supply chain margin. To sustain the industry, potatoes need to be realistically priced to reflect the capital invested and ensure longevity of quality British supply.”