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potatoes cost of production a european perspective 2006
PUBLISHED BY THE BRITISH POTATO COUNCIL
10 POTATOES IN NORTH WEST EUROPE
Comparisons with the UK are made
with the key producing countries of
France and the Netherlands.
Also, the effect of production in Belgium
can be to disrupt French and Dutch
markets with a knock-on effect of
increasing imports into the UK.
The farming systems of France and the
Netherlands are outlined and an
overview provided of the general
structure of typical growers in those
countries. The general farm structure in
France, with the widespread use of
family members for example, minimises
the use of employed and even casual
labour. Where true labour costs are not
properly reflected in total production
costs, this leads to an imbalance in the
direct comparison with cost structures
in the UK, for example.
In the Netherlands, the structure of
agriculture reflects the high density of
habitation. The size of farms is relatively
small and few farms have to date shown
any inclination to amalgamate or pool
resources within the potato sector.
However, this together with land values
and rental costs generally, may change
as growers are encouraged to sell their
farms close to urban centres of
population and relocate farther away.
Some consolidation and the creation
of larger units may well result.
Storage facilities and costs, crop
rotation policies, irrigation and the
sharing of mechanised equipment are
among the other issues outlined in
this chapter.
COST OF PRODUCTION 2006
A EUROPEAN PERSPECTIVE
CONTENTS AND EXECUTIVE SUMMARY
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04 AGRICULTURE – THE EUROPEAN PERSPECTIVE
It is important to look at potato
production both in the context of the
size, scale and importance of
agriculture generally in the European
Union and also during a time of
significant change due to reforms of the
Common Agricultural Policy and of the
EU's Sugar Policy.
The effect that CAP has had and will
continue to have on farm incomes has
varied country to country: the UK has
seen a relative decline in farm incomes
while Poland's accession to the EU has
seen a dramatic rise in that country's
agricultural income.
The concept of the family farm
has been encouraged throughout
mainland Europe; tax incentives and
regulations relating to land ownership
have perpetuated that philosophy.
With less employed labour in the family
farms of France and the Netherlands
than in the UK, the comparative cost
structures are markedly different.
CONTENTS AND EXECUTIVE SUMMARY
02 Introduction
03 Foreword
04 Agriculture -
the European Perspective
10 Potatoes in North West Europe
18 Cost of Production
24 The Marketplace
28 Future Prospects
30 Conclusions
Context and Method
Statistics
28 FUTURE PROSPECTS
Market pressures, continued retailer
pressure and a weakening position for
suppliers will lead to continued pressure
on price across all European markets.
The need to understand true costs of
production and to be able to share that
openly and honestly with customers will
be paramount to future success.
The report predicts that there will be
producer consolidation, not least
because industry demographics and the
need for improved efficiencies will drive
this trend. Changes in consumer eating
habits and the trend to healthier
lifestyles generally, should provide
opportunities for fresh market
production while the development of the
fresh chilled sector in Europe should be
followed closely.
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24 THE MARKETPLACE
The marketplace for potatoes in North
West Europe is dominated by the
processing industry and the proximity
of producers in France and the
Netherlands (and, indeed, Belgium) to
processing plants in each other's
countries and to Germany provides a
very fluid market.
A major difference between the UK and
mainland Europe is the specification
of the crop: more simple and
straightforward in Europe, more
complex in the UK. Simplicity of
specification in the Netherlands, for
example, is an important feature of
Dutch competitiveness with lower
on-farm costs; working to higher UK
specifications would inevitably lead to
complexity and subsequent cost
increases and may prompt structural
changes within the industry.
The fresh potato market by comparison
and contrast is under pressure. Dutch
growers would find limited opportunity
to compete on quality in the UK market,
for example.
Another important difference
between the UK and the continent is
that processors in France and the
Netherlands generally contract
about 50% of their needs, leaving a
relatively large 'free-buy' sector, which
inevitably leads to a weaker market
and often impacts on the UK market.
18 COST OF PRODUCTION
Establishing accurately the cost of potato
production in the major European
countries is complex and many factors
unique to each country make meaningful
comparisons with UK production costs
difficult. However, meaningful
comparisons using representative costs
have been possible and these are
presented in this chapter. They show that
the average price of potatoes in the
northern region of France over the past
five years has been £54 a tonne; the
Dutch average has been between £48
and £54 a tonne; while the British Potato
Council's figure for the average price
over the same period is £98 a tonne.
INTRODUCTION
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COST OF PRODUCTION STUDY -FRANCE AND NETHERLANDS
CHART 1Total UK Imported Potatoes (Raw Equivalents) Converted to Ha of Production (Average Yield 45 tonnes per Ha)
Imports of Potatoes
into the UK have
grown from 523,000t
in 1980 to 1,729,000t
in 2004, the equivalent
of 11,620 hectares to
38,420 hectares of
production using an
average Yield figure of
45 tonnes per hectare.
The UK has effectively
lost approx 40,000 Ha
of Potato production
to North Western
Europe over the past
25 years.
“European growers dump their surplus crop on the UK
markets at prices below the Cost of Production.”
“European growers will all go broke!”
“How are these Countries subsidising potato
production?”
“They achieve lower cost because of co-operation/
collaboration.”
The British Potato Council has identified “Improving
GB Competitiveness” as one of two critical drivers for
the Potato Industry, as part of this strategy we
developed the following objective.
“Undertake a programme to understand the GB Supply
situation and its changing dynamics including global
competition.”
The Processing sector is the most dynamic of all the
sectors with competitive varieties and specifications
readily available across North West Europe. In an
environment of increasing globalisation it is essential
that the UK Potato Industry is kept up to date with
developments in the markets of our near neighbours.
THE QUESTION OF IMPORTING POTATOES
INTO THE UK MARKET IS AN EMOTIVE
SUBJECT. IT RAISES QUESTIONS ABOUT
SUSTAINABILITY OF GROWING – IN BOTH UK
AND CONTINENTAL TERMS.
Netherlands and France are largest suppliers of
Potatoes for processing into the UK; the focus for this
study is to understand the dynamics of the two largest
supplying countries in North West Europe. The BPC
has conducted studies previously with a strong
emphasis on the Netherlands; this study will
complement what we have learnt in the Netherlands
with a comprehensive overview of the French market.
I trust you find this report will stimulate further
debate about how we drive a more competitive supply
base within the UK, but most importantly highlight
the opportunity to learn from our neighbours.
PHIL BRADSHAW
Supply Chain Manager – Fresh & Processed Sectors
88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4
0 0
10000
20000
30000
40000
5000
400
800
1200
1600
2000
15000
25000
35000
45000
Hectares Tonnes (1000’s)
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The early years of the new
millennium have brought
increasing globalisation of
markets; unremitting structural
changes in the agricultural
industries; a growing debate
about the role of farming within
the wider framework of
environmental considerations;
changing supply chain dynamics;
and, not least, a more discerning and demanding
consumer. The resulting economic pressures have never
been greater - and can only become even more intense.
The need for owners and managers to know in micro
detail all cost aspects of their businesses and, even
more, to understand how these fit into the wider matrix of
macro market competitiveness, are crucial to current
survival and future prosperity.
It is not to be parochial to say that these issues apply to
the potato industry as much as to, say, the international
oil and gas industries.
The food industry and, in particular, the agricultural
sector will face a number of challenges in the years to
come as the range of issues and pace of change continue
to accelerate. We are in the midst of reform on a scale
never previously experienced. Common Agricultural
Policy and Sugar reforms will present significant
challenges in the UK and across an expanding European
Union; the UK in particular has experienced substantial
reductions in farm incomes; immediate challenges will
come as the focus of agricultural interest moves from
production issues to environmental concerns and even to
matters of social responsibility.
As part of this wider debate and to provide a platform of
knowledge and understanding from which sensible and
robust decisions can be made, this report examines the
comparative costs of production in the potato markets
of France and the Netherlands - two major producing
countries in Europe and key competitors to the
UK industry.
It seeks to point out the complex drivers in play: from
population density to land availability; from the traditions
of family farming to the effect of labour costs. It explores
the key factors that are likely to have most impact on
our industry:
Increased Competition - The aggressively competitive
nature of both the retail and foodservice sectors is likely
to force further rationalisation across the industry,
While packers and processors will be at the sharp end
of this process, it is clear that the entire supply chain
will be under pressure. Growers will need to seek every
FOREWORD
cost advantage to withstand the extremely competitive short
to medium term and while this report will be of value in this
regard, we would also urge growers to utilise the BPC
Benchmarking model as the ideal tool to help.
Consumers - Consumption trends across Europe,
particularly in French Fries, are likely to generate further
pressure on processors and their supply chain. An
increasingly “health conscious” consumer will demand
greater levels of innovation.
How we as an industry respond to that challenge of
innovation will be crucial.
Environment - The debate on how important it is for this
country to sustain a viable agricultural sector capable of
providing an acceptable level of self-sufficiency in food
production as opposed 'merely' to being custodians of the
countryside will, no doubt, continue. It will be complicated
by factors such as CAP and Sugar reforms while the move
to non-food based crops will simply accelerate an already
fast-changing environment.
Consolidation & Collaboration - There will undoubtedly be
significant and far-reaching structural changes in European
agriculture in the coming years, not least in the more
developed North Western European countries. Many UK
enterprises have already embraced the structural changes
necessary to meet the challenges of CAP and Sugar
reforms and are, therefore, generally better placed to
compete in the mid to longer term during which a greater
appreciation of production costs is likely to dictate a
firmer market.
It is likely that restructuring at a European level will see
grower profiles migrate towards larger, commercially viable
enterprises in contrast to the current family orientated
profile. Collaboration between growers and their supply
chains will become the focal point for this development and,
again, the UK industry can take some comfort from its
advanced position in this regard.
This report demonstrates how the role of potatoes within
arable enterprises is significantly different in France and the
Netherlands compared with the UK, and highlights why
commercial expectations may take on a lower priority in
those competitor countries.
Many uncertainties remain. What is clear, however, is that the
current position is not sustainable. A report such as this
cannot provide the solution; what it can do is present valuable
information upon which robust plans can be based and on
which rational decisions can be taken.
HELEN PRIESTLEY
Chief Executive Officer
1 AGRICULTURE – THEEUROPEAN PERSPECTIVEIT IS VITAL TO UNDERSTAND THE IMPORTANCE OF
AGRICULTURE WITHIN EUROPE AND THE SIZE AND SCALE
OF THE FARMING INDUSTRY IN THE ENLARGED EUROPEAN
UNION OF 25 MEMBER STATES (EU 25) AND TO LOOK AT
POTATO PRODUCTION IN THAT CONTEXT.
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The EU 25 has around 148.4
million hectares given to
agriculture. Of this, 91 million
hectares (or 62%) is arable land
and 4.3 million hectares (5%) is in
root crops (Eurostat 2003).
With 13% of the EU 25 population,
the UK provides agricultural
employment for less than 1% of its
people. France, on the other hand,
provides agricultural employment
for almost 2% of its population with
the Netherlands somewhere in
between at 1.26%, The EU 25
average stands at 5.2%.
Such figures for the countries
involved in this report provide
an interesting comparison
and contrast:
EU 25 France Netherlands UK
Country area (sq km) 3892.7 544.0 33.9 243.6
Population (millions) 461 59.7 16.3 58.8
Population density (/sqkm) 117.5 108 482 243
GDP per head (‘000USDollars) 29.5 31.1 31.4
Agricultural employment 14.7m 1.07m 168k 555k
Agricultural area (MHa.) 148.4 29.6 2.3 18.5
Potatoes (KHa) (excl. Starch) 130.2 110.0 125.9
<50ha 50-100ha >100ha
France 64 21 15
Netherlands 87 10 2
UK 60 19 22
Germany 79 14 7
Source: Eurostat
It is important to note that the
average size of holdings varies
significantly throughout Europe.
Statistics on the number of
holdings are generally difficult to
interpret as they include many
small units which may not be
commercially active. However, the
following table gives an impression
of the structure overall.
CHART 2 Background data
CHART 3 Agric. Holding %
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06A key objective of the European
Union’s Common Agricultural
Policy (CAP) was to provide greater
stability for agriculture, which has
been achieved in many parts of
Europe. In the Treaty Of Rome
(1957) Article 69, the main
objectives were set out to be:
• To increase agricultural
productivity
• To ensure a fair standard of
living for the agricultural
community
• To stabilize markets
• To ensure supplies are
available to consumers at
reasonable prices
The effect which CAP has had on
agricultural incomes has varied
across Member States. The latest
figures to 2005 are shown in
Chart 4.
The impact which Poland’s
accession to the EU has had on
farm incomes in that country is
well illustrated in this chart.
–– EU25 –– France –– Netherlands –– United Kingdom –– Germany –– Poland
CHART 4 Agricultural Income in the EU
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
100
200
50
150
250
Index
The biggest change in the level of agricultural income in established North Western
European markets has occurred in the UK. The instability of UK Farm Income, compared to that
of mainland Europe has contributed to greater structural change in UK.
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
0
40
80
120
20
60
100
140
160
19
40
-49
19
60
-69
Index
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CHART 5 *UK Total Income from Farming – (Index : Average 1940-1969 = 100)
The greater stability in agricultural
incomes in mainland Europe
compared with the UK has its roots
in the different approaches to
agricultural policy. Chart 5 above,
shows the relative decline in UK
farming income since the middle
of the last century.
The impact of currency on farm
subsidy in the UK is illustrated by
the graph above, with the mid
1990's increase in profitability
coinciding with exit from the ERM,
and a weak sterling, which
strengthened in the late 1990's.
Europe generally promoted a
‘Family Farm’ structure, which has
been encouraged by a range of
incentives (particularly taxation),
and regulations (particularly to
do with land ownership).
The typical UK farm business in
the arable sector has grown
dramatically in the last 30 years
unlike most of the rest of mainland
Europe. Only in the most recent
years has the trend and potential to
create larger units become evident
in France and the Netherlands,
for instance.
As a general rule the pace of
change has been greater in the
UK with faster evolution of larger
units, with a number of farms
under common management,
French and Dutch businesses
are less pressured by labour
inflation issues.
* The return to farmers and spouses for their labour,
management, own land and own capital,
after providing for depreciation.
Later in this report it will be interesting to note how the extremes of population density
between France and the Netherlands creates an important dynamic in both the scale and
attitude of farmers. The structure of smaller family-run farms with little or no employed labour,
and largely independently mechanised, gives a very different decision making process.
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Common Agricultural Policy Reform
The 2003 decision to reform the
CAP and remove the principle of
subsidy coupled to production,
allowed Member States a measure
of flexibility to introduce the
changes in differing ways over a
timescale from 2005-2007.
The French have opted to delay
decoupling fully until 2007.
It is true to say that this delay has
led to a less focused response from
French farmers to the reforms. In
the Netherlands, with smaller farm
units and a predominance of more
intensive cropping – together with
the fact that subsidies have been at
a low level of around €5,000 per
business, typically – the Dutch see
CAP Reform is having little impact
on commercial decision making.
The Sugar Reform is of far greater
significance to both countries
where it is expected that reform
will lead to cropping changes.
It is unlikely, given the current
economic background, that there
will be many new entrants to
Potato growing. Rather, some
existing growers will expand –
and there may be some good
land made available.
In contrast, the larger businesses
in the UK, with significant
employed labour, continue to
restructure.
The family farm has been
sustained in continental Europe
while the pressures of CAP
Reform have been more apparent
in UK agriculture.
Regions Start Model Subsidy Coupled
Belgium 2 2005 Historic Some l’stock/Seed partial
Germany 13 2005 Dynamic Hybrid Hops/Tobacco
to Flat Rate
Netherlands 1 2006 Historic
France 1 2006 Historic Cereals 25%/Some livestock
United Kingdom 6 2005 Mix Historic/Hybrid None, except Scotland
Bovine Art.69
Source: DEFRA
CHART 6 Implementation of the 2003 CAP Reforms
UK farmers were faced with
immediate change, whilst both the
French and Dutch Governments
opted for delayed implementation.
The various arrangements are
summarised below:
There is likely to be reaction to the recent CAP Reforms, but delayed
implementation has slowed Dutch and French appreciation of the impacts;
Sugar Reform will have a considerable impact.
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Exchange Rates
It is worth examining whether the
volatile nature of the Sterling – Euro
exchange rate is a significant factor
in influencing the level of processing
potato imports into the UK.
The trading range for Sterling over
the period 1999 to 2004 shows
significant volatility:
€1.42 to €1.67 or 18%
Based on an 85 euro per tonne
buying price, the cost in Sterling
ranges from £51.00 to £57.00
The highest import years represent
trading at the mid to lower levels
of the exchange rate band.
–– Euros per £
CHART 7 Exchange Rate - Sterling v Euro
99 00 00 01 01 02 02 03 03 04 04 05 051.25
1.3
1.35
1.4
1.45
1.5
1.55
1.6
1.65
1.7
Euro’s
–– Tonnes –– Euros per £
CHART 8Total UK Imported Potatoes (Raw Equivalents) v Exchange Rate(Sterling v Euro)
1999 2000 2001 2002 2003 20041.3
1.35
1.4
1.45
1.5
1.55
1.6
1.65
1.7
0
400000
800000
1200000
200000
600000
1000000
1400000
1600000
1800000
2000000
Tonnes Euro’s
The £/Euro exchange rate is not a particularly significant factor
influencing raw material buying decisions.
2 POTATOES IN NORTHWEST EUROPETHE WELL DEVELOPED AGRICULTURE OF THE ‘OLD’ EU 15
COUNTRIES, HAS SEEN THE DEVELOPMENT OF KEY AREAS
OF PRODUCTION, AND THE CREATION OF MAJOR
PROCESSING CAPACITY IN A RELATIVELY CONCENTRATED
AREA OF NORTH WEST EUROPE. THESE KEY PRODUCTION
AREAS ARE SHOWN OPPOSITE.
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CHART 9 Potato Production in Key North Western European countries (Excluding Starch)
France
7,259.8
159.8
45
Netherlands
7,487.7
163.9
46
UK
6,100.0
147.0
42
Belgium
3,229.6
66.7
48
Tonnes (1000’s)
Hectares (1000’s)
Average Yield (Tonnes/Ha)
Source: Eurostat
Over-production in France, Belgium and the Netherlands leads to price
disruption in the North Western European markets and subsequent
increases in imports into the UK.
Figures for Belgium are included because of that country’s influence on
market supply. The Belgian growers are generally smaller, have little or
no storage, and are exposed to the harvest market. In years of higher
yield there is the potential for significant tonnage to be exported to the UK
at prices which are uneconomic, but there seems little change in
response to this at present.
France
Potato production in this huge country, is predominantly
focused in the North East, which has a long tradition of
commercial potato growing.
The country is made up of 22 Regions and 100 Departments
(similar to counties), of which six regions are responsible for
the majority of production, with ‘traditional’ growing areas
such as Picardy and the Nord Pas de Calais, joined by ‘new’
areas such as Champagne, and La Beauce (Centre) – where
potato production has only undergone commercial
development since the mid 1990s. See chart 11.
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CHART 10 Key Facts : France
Hectares
(All Farms) %
Brittany 3200 3.06
Centre 7700 7.35
Champagne 11100 10.61
Nord Pas de Calais 37900 36.2
Haute Normandie 6400 6.11
Picardy 27300 26.07
Other 11100 10.6
Total (Excl Starch) 104700 100.00
Source: CNIPT
2004 2005
Area (‘000Ha)
Ware 104 104
Seed 15 15
Production (‘000 Tonnes)
Ware 4987 4586
Seed 450 437
Yield per Hectare (Tonnes)
Ware 48.0 44.3
Seed 27.7 26.6
Source: Agreste
CHART 11Potato Production in France (2005)(Excluding Starch)
THE FRENCH AND DUTCH PRODUCER
IN ORDER TO CONSIDER THE BACKGROUND
TO EACH OF THE COUNTRIES, THIS SECTION
WILL PROVIDE SOME INDIVIDUAL COUNTRY
INFORMATION, WITH A GENERAL
STRUCTURE FOR THE TYPICAL GROWER.
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13Farming System
The soils of Northern France are
generally chalky or overlying chalk, and
the production of much of the Northern
area is either from these, or heavier
soils – particularly in the Nord Pas de
Calais. Much of this area has a long
history of production, with the
associated rotational constraints and
potential PCN problems – again worse
in the extreme North East.
Proximity to the Belgian border brings
with it additional competition from a
more densely populated country, with
a generally small farm structure.
A further consequence is to push up
both land values and rents, which are
at the higher end of those found in the
rest of France.
The farm structure in most of the
Northern region appears to centre on a
100-150 hectare unit, with typically 15-
30 hectares of potatoes. The farm
would employ family members, and
possibly one or two staff according to
the intensity of the operation. Although
larger, 2-300 hectare businesses exist,
they are a minority.
The general farm structure employs
family members to help at key times of
year to minimise the use of casual
labour. This leads to a different cost
balance, when remuneration may not
be fully reflected.
Potatoes are typically grown in a 1:4 –
1:6 rotation, often representing more
than 20% of farm area. Another 10-15%
given over to Sugar Beet is typical in the
Northern region. The development of
cereal production has been significant,
with major co-operative infrastructure
to support production.
The onset of Ethanol production is
evident, with the beginnings of
Industrial Wheat growing for new
factory operations seen as a major
opportunity for future security –
particularly if sugar factory closures
continue to take place.
The annual rental of land to grow
potatoes is relatively common in
Northern France, although rare, for
example, in La Beauce (South West of
Paris), where the crop has only been
grown more recently.
CHART 12 Potato Production in France (Excluding Starch)
Source: CNIPT (Paris)
Nord/Pas de Calais
1650
36
Picardy
1175
26Haute
Normandie
260
6
Champagne
Ardenne
429
9
Centre
270
6.4
PARIS
Tonnes (1000’s)
Hectares (1000’s)
The impact of starch potato production has minimal impact on the
overall consumption potato production due to the specific nature of the
varieties grown. There is however a small to moderate risk of traditional
starch potato growers moving their enterprises into consumption potatoes.
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14Land Value and Rental
The size of France, and disparity
between regions, gives rise to more
diverse values for both ownership and
rental of land. In addition, there are a
number of legal considerations such as
the sale of tenanted land, the expansion
of holdings, and the priority given to
new entrants to the industry.
The value of vacant possession land
appears, in the North East
(Picardy/Nord Pas de Calais) to be
around €12-15,000 per hectare (£3,300-
4,160 per acre), with land in the Haute
Normandie and Beauce regions being
around €6,000 per hectare (£1,663
per acre).
The proximity of the more densely
populated areas on the Belgian border,
and a well developed processing base,
has a significant influence.
The rental of land, is divided between
longer term formal arrangements, with
various rights and obligations, and
annual crop rentals. The former, known
as ‘fermage’, tends to be in the range
€120-170 per hectare (£33-47 per acre),
with annual potato rents at between
€800-1000 per hectare (£222-280 per
acre). Again there is significant
variation, with less annual renting in
La Beauce, for example. The
predominance of processing potato
production (except La Beauce) also
has an effect on these values.
The expansion of farms has been
hampered both by inheritance laws and
restrictive controls on expansion, which
have meant that it has not been
straightforward to take on new land.
The controls are reducing in influence
now, as farmers begin to restructure –
although the process is, by UK
standards, still in its infancy.
It is noticeable that the general view of
those farmers visited as part of the
research for this report was land values
were tending to rise in contrast with the
pressures on farming income.
The opportunities for developing
production in the two new and fresh
market oriented areas of La Beauce
and Champagne are evident.
Despite a relatively common family
structure, there are some specialist
potato growers with more than 100ha,
but a very small number.
The farms are generally independent in
terms of marketing, mechanisation and
management, with less co-operation in
the potato sector than may typically be
assumed. This independence, however,
has been strained by the continued
pressure on the industry and there are
more joint ventures, particularly over
planting and establishment cultivations,
than in any other part of the enterprise.
The independent mechanisation of units
leaves many with five or more tractors,
a combine and full set of potato
equipment for planting and harvesting
(except where planting is done jointly),
but again typically, there is little on-
farm grading equipment.
The encouragement of investment in
businesses by tax allowance is one of
the few ‘subsidy’ issues found in the
study, which could influence the cost
of production.
A hopper, with basic pre-grading, is
used by almost all processing growers,
with a number of fresh market
producers supplying packers with big
bags graded.
Storage in the processing sector is
largely on farm, with ambient bulk
storage. Some longer storing producers
are beginning to invest in box storage.
Refrigeration is represented in probably
not more than 5% of stores. There is a
wide range of storage used and in many
cases the units are small. While this
may raise a question of efficiency, it is
arguably not such a problem to a family
business in winter.
Investment in grain storage has
been almost universally based on
co-operative central stores off farm.
This, together with co-operative
ownership of sugar refining capacity,
leaves the typical French farmer with
a stake in the wider agribusiness.
The establishment of such ‘farmer
controlled businesses’ over the last
30-40 years is a critical difference to
the UK structure and practice.
Irrigation is surprisingly lacking in
much of the processing crop, with an
estimate of perhaps only 40-50% of
land irrigated in Picardy. Fresh market
producers, however, have greater areas
with irrigation and have also generally
invested in a good proportion of
refrigerated box storage.
The climate is favourable, with a longer
and more reliable growing season, and
earlier drier, harvest expectation.
Some areas of France have significant potential for increased production. A major driver
of change is demographics: with many farmers over 55 years of age and succession not easy,
there is a real opportunity to combine current small holdings into larger, more commercially
orientated units with greater production capacities.
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The Netherlands
Potato production in the Netherlands is concentrated
in four centres:
- the Polders (Flevoland), which has medium alluvial soil
- the South West – Zeeland/Zuid Holland mainly clay soils
- the South East – Limburg/Noord Brabant mainly sand
- the North East – predominantly Starch on sandy soils
Seed grown largely in coastal regions of North Holland,
and the Polders.
All the regions have a long history of potato
production, but paradoxically there is little or no PCN
constraint evident, or significant control requirement -
given that many resistant varieties are grown.
The country has made a particular investment in the
processing industry and is well supplied with both
domestic and nearby Belgian and German facilities.
The packing industry is a relatively minor part of the
business compared to French Fry production, which
dominates the market.
CHART 13 Ware Potato Production in The Netherlands (2004) (Excluding Starch)
Source: NEPG
Friesland
62.8
1.2
Groningen
74.3
1.5
Overijssel
77.1
1.5
Flevoland
711.0
12.4
Noord
Holland
185.9
3.7
Zuid Holland
484.0
9.9
Zeeland
755.7
15.4
Noord
Brabant
818.4
15.1
Tonnes (1000’s)
Hectares (1000’s)
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Farming System
The structure of Dutch agriculture
reflects the intensity of habitation, and
the proximity of markets for a wide
range of products, together with a
renowned export trade for both ware
and seed potatoes.
Land values are influenced by
population density and the desire of
farmers who have sold to reinvest in
another unit.
The farm structure is limited, with
average farm size around 22 hectares.
In the South and around Amsterdam 50
hectares is typical, the Polder farms are
usually 60 or 80 hectares, with few units
having yet been amalgamated. The
farming businesses in Flevoland are
relatively uniform, as a result of being
man made. On the lighter land in the
North East, starch potatoes have mainly
been grown and units tend to be larger.
The rotation for Potatoes is generally
1:4. The four course rotation on many
units involves: Cereal, Sugar Beet,
Potatoes, and another relatively
intensive crop eg. Onions, Bulbs, etc.
Less than 20% of arable cropping is in
cereal cropping in the Netherlands.
There are a number of farmers seeking
to rent land and some retiring farmers
are beginning to take advantage of this.
In addition, the ‘historic’ entitlement
to subsidy has also attracted new
entrants – what the Dutch call
‘bungalow farmers’.
Specialist growers of over 100ha
represent less than 2% of producers.
There is a presumption that the family
will manage and staff the business,
with help from younger or older
members at key times. The availability
of East European casual labour makes
the seasonal tasks more cost effective
and manageable.
Farms tend to be independent, with
their own marketing, machinery, and
management. The level of co-operation
is surprisingly limited, although due to
the similarity in farm size some
farmers are joining forces with their
neighbours to create a more viable unit.
Irrigation, with the risks of Brown Rot,
is less prevalent than might be
anticipated. Of course, the water table
is high throughout, making irrigation
less of a requirement for yield
and quality.
Investment in buildings has largely
been on specialist crop stores such as
potato stores. There is little on farm
grain storage.
As most growers are focused on the
processing market, storage tends to be
bulk, ambient, with a simple inspection
on outloading over a hopper grader.
The impact of climate is significant,
the winter cold begins to influence
quality at an earlier stage than in either
the UK or France. The spring can be a
little later, but is compensated by a
more continental climate in summer,
with reliably high temperatures and
sunlight levels.
CHART 14 Key Facts : The Netherlands (Excluding Starch)
2003 2004 2005
Area (‘000Ha) 115.7 109.7 112.5
Ware 76.9 70.4 72.6
Seed 38.7 39.3 39.9
Production (‘000 Tonnes)
Ware 3.947 3.240
Seed 1.335 1.407
Total (Excl Starch) 5.282 4.647 5.200
Source: LEI
Land Value and Rental
The value of agricultural land in the
Netherlands varies according to region,
and has a high scarcity premium.
In Flevoland, Polder farms can reach
€40-45,000 per hectare (£11-12,500 per
acre), with land in South Holland on the
sand, making around €30,000 per
hectare (£8,300 per acre). The value of
land, particularly on the Polders, has
been driven by the number of farms
sold for development and demand from
farmers to move to a new farm. There
are relatively few buyers from outside
agriculture.
The rental value of land is complicated
by the legal system and in particular
the fact that the newly reclaimed
Polders were substantially State-owned.
This gives rise to a rental value not
strictly market linked, known as Erf
Pacht. This refers to a long lease, (with
rights to sell the lease), of more than 40
years. This system applies to perhaps
15-20% of Flevoland. The rent on this
system would typically be - €500 per
hectare (£140 per acre).
The rent for farm land, depending on
region, would generally be around
€1,000 per hectare (£280 per acre), with
the annual rental for potatoes typically
between €1,100-2,000 per hectare
(£305-550 per acre).
Land scarcity in the Netherlands places
high values and more emphasis on
property asset growth, than trading
profitability.
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CHART 15Ware Potato Production in the Netherlands (2004) (Excluding Starch)
Hectares
(All Farms) %
Zeeland 15357 21.2
Noord Brabant 15120 20.9
Flevoland 12418 17.2
Zuid Holland 9880 13.7
Limburg 7395 10.2
Noord Holland 3691 5.1
Gelderland 2779 3.8
Groningen 1489 2.1
Overijssel 1463 2.0
Drenthe 1400 1.9
Friesland 1211 1.7
Utrecht 116 0.2
Total The Netherlands 72317
Source: LEI
Population density and continued urban sprawl will push up land values and Dutch farmers
around major conurbations will be tempted to realise a valuable asset and perhaps relocate.
This in turn will impact on land and rental values in these new areas and ultimately increase
cost of production.
3 COST OFPRODUCTIONASSESSING THE COST OF PRODUCTION IS COMPLEX.
THE MANY VARIABLES - INCLUDING SOIL TYPES,
CLIMATE, MANAGEMENT, MARKET AND SALE PATTERNS,
TO NAME A FEW – MEAN ANY ESTIMATES WILL BE
INDICATIVE IN A BROAD SENSE RATHER
THAN PRECISELY ACCURATE.
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1 2 3
Processing Fresh Fresh/Proc.
Yield (t/ha) 44 42 50
Price (£/t) 64 106 86
£/ha £/ha £/ha
Output 2816 4452 4300
Seed 400 560 950
Fertiliser 160 125 185
Spray 296 240 350
Variable Costs 856 925 1485
Gross Margin 1960 3527 2815
CHART 16 France – Gross Margin Examples
1 2 3
Processing Fresh Fresh/Proc.
Yield (t/ha) 55 53 50
Price (£/t) 65 65 46
£/ha £/ha £/ha
Output 3575 3445 2300
Seed 535 375 570
Fertiliser 240 198 185
Spray 453 340 401
Variable Costs 1228 913 1156
Gross Margin 2347 2532 1144
CHART 17 Netherlands – Gross Margin Examples
The most straightforward comparison
can be made at a gross margin level,
where the typical output and use of
seed fertilizer and agrochemicals
can readily be ascertained. The
classification of ‘other direct costs’ can
be difficult, as it may include labour,
levies and a range of other direct costs.
The ability to carry out a detailed
survey, would require a sample of many
farms in different regions, which was
outside the scope of this report.
However, some representative costings
have been prepared, using data
supplied by a number of sources,
who gave their views and data for
private study.
A review of some typical data is
presented below, for each of the
countries:
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Attributing fixed costs is more difficult.
It is useful to compare whole farm
structures to see how the total business
structure compares before embarking
on the enterprise analysis. It must be
noted that the reporting of figures for
fiscal purposes brings a set of
assumptions which may differ between
countries, but will provide a good guide
to overall performance.
In particular the treatment of
depreciation will differ between
countries and, possibly, between
businesses. Generally, the depreciation
rates are lower in both France and the
Netherlands, reflecting the ‘owner
driver’ nature of the majority of
businesses and available time to
implement repairs.
Typical depreciation rates encountered
are:
It is important when considering these
figures to be mindful of the trading
environment and general influences
which impact on profitability. These
comparisons are, by virtue of timescale
related to the 2004 Harvest year, which
brought exceptionally low producer
prices for potatoes, following a better
year in 2003. The combination of higher
yields and some increase in area gave a
lower priced year – at loss making
levels for most growers.
The development of ‘cost of production’
figures has been undertaken from the
available data, using an assessment of
the cost attributable to the potato
enterprise.
This deals with the present system, and
will not highlight areas for change or
improvement, and bearing in mind the
significant inflation in oil based
products during 2004/5, does not
illustrate the likely full cost today.
The example business costs (charts
19 and 20) are intended to illustrate a
relatively typical farm in the country
it represents.
France Netherlands UK
Machinery 5-10 5-15 5
Buildings 20 20-30 15-20
CHART 18 Depreciation (write-off years)
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21The analysis of example businesses
gives an indication of how French
producers, with larger businesses and
less intensive systems generally, have
lower yields, leading to higher cost
per tonne.
The amount of employed labour in the
French example is typical of the greater
input of employed staff to potatoes than
to other crops. Smaller Dutch farms
tend to have equal amounts of
machinery to the French with a more
intensive rotation and higher potato
yields to offset this otherwise less
economic cost base.
Inevitably there will be significant
ranges of performance involved.
The French potato production is
more diverse than the Dutch, where
comparison and ranges of performance
are more easily made because of the
predominance of processing crop.
2004 74.8Ha 2003 76Ha
Sales Subsidy € €/ha £/ha € €/ha £/ha
Other Output 189092 2526 1730 184323 2425 1661
Variable Costs 72032 963 660 65740 865 593
Gross Margin 117060 1565 1072 118583 1560 1069
Fixed Costs 95220 1273 872 95456 1256 860
Margin 21840 292 200 23127 304 208
(Before Rent Finance and Proprietor remuneration)
Source: Aranor
CHART 19 France: whole business example
2004 60Ha 2003 60Ha
Sales Subsidy € €/ha £/ha € €/ha £/ha
Other Output 173520 2892 1981 200520 3342 2289
Variable Costs 49440 824 564 48120 802 549
Gross Margin 124080 2068 1417 152400 2540 1740
Fixed Costs 84780 1413 968 78960 1316 901
Margin 39300 655 449 73440 1224 838
(Before Rent Finance and Proprietor remuneration)
Source: LEI Farm Accountancy Data Network
CHART 20 Netherlands: whole business example
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The absolute cost per tonne is not a
reliable guide to grower attitudes or
responses, for the reasons outlined
below. The allocation of cost will differ
between businesses, and give varying
results,according to the resources
available, management, and market.
In addition, growers will make
judgements about their ability to
reorganise their businesses, and
may tolerate an enterprise being
unprofitable - if the overall business
result is acceptable.
There is therefore a wide range to
consider, and it is interesting that the
results in the Cambridge University
figures between the survey and Top Ten
farms represented £221 per hectare in
Gross Margin terms and £185 per
hectare in profit terms. This is likely
to be true of other countries.
The key difference represented by
management, will determine the
producers of the future, who will be
able to compete with their counterparts
across Northern Europe.
The comparable cost of production figures for the UK may be £80-110 for
processing, and £90-140 for fresh depending on the type of production and storage
period. The cost of storage will have greater impact on the UK numbers than those
of France or the Netherlands.
The whole business comparison highlights the differences, particularly:
Direct Costs, Labour, Machinery, Property, Administration.
Estimated Cost of Production
€/ha €/t £/ha £/t
Variable Costs 1280 30 877 21
Labour 453 10 310 7
Machinery 1312 30 899 21
Admin/Property 1271 30 871 21
Total 4316 100 2957 70
CHART 21 Farms with potatoes : France
€/ha €/t £/ha £/t
Variable Costs 1686 34 1155 23
Labour 141 3 97 2
Machinery 1670 34 1144 23
Admin/Property 984 20 674 14
Total 4481 91 3070 62
CHART 22 Farms with potatoes : The Netherlands
Holland France UK
COP per tonne € 91 100 140
(excl. rent) £ 64 70 98
Yield 50 44 45
% of cost excl. rent
Direct costs 42 30 33
Labour 3 10 20
Machinery 33 30 31
Property 13 18 11
Administration 9 12 5
Total 100 100 100
CHART 23 Farms with potatoes : UK
These figures (charts 21 and 22) are before rent, finance and proprietor remuneration
are taken into account.
Probably due to majority of all hired labour being to potatoes in France.
The variation in cost of production
reflects a higher specification in UK,
with significant cost per tonne
advantage from higher yield in the
Dutch figures.
The Dutch plant protection costs are
higher with a more intensive and
shorter rotation generally - and high
potato population.
The UK labour figures reflect employed
labour, with generally Family labour in
French and Dutch businesses.
Machinery cost is similar although by
UK standards the French and Dutch
farms are overmechanised, with
generally older machinery.
Property and Admin. costs tend to show
benefits from economies of scale in
the UK.
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The producers in the French and
Dutch samples are likely to be
predominantly processing growers,
with some ‘mixed’ production in the
French data. The UK producers will
be more fresh market influenced,
with many processing growers carrying
out a mixture of production.
The results show that there are
significant differences between the
countries, although both France and
the Netherlands come out with a not
dissimilar overall result, influenced by a
higher finance/rent cost. If for no other
reason than the additional capital
employed, this is probably not
unreasonable.
The business results must be taken in
context, as a £10 per tonne fluctuation
has a very different outcome on overall
business profitability and risk profile.
This has a significant bearing on the
reaction to price volatility and the
attitude to the potato enterprise.
The results show that prices are crucial,
with significant fluctuations, it has been
an unprofitable time in the last 5 years,
for example the average price in the
Farms with potatoes France
2004 2003
Ha (Total) 74.8 76.0
Profit £/ha 200 208
W.Capital/ha 3201 3253
Farms without potatoes
Ha (Total) 76.2 76.1
Profit £/ha 156 164
W.Capital/ha 2272 2350
Source: Aranor
CHART 24 Farms with/without potatoes : France
Mainly Cereals (>200Ha)
2004/5 2003/4
Ha (Total) 364 339
Profit (NFI) £/ha 43 174
W.Capital/ha 886 813
Roots and Veg (>200Ha)
Ha (Total) 327 263
Profit (NFI) £/ha 133 177
W.Capital/ha 1015 866
Source: Nottingham University Farm Business Survey
CHART 25 Farms with/without potatoes : UK
Clearly there is no benefit in continuing to employ the additional working
capital in potato growing for the French grower at current levels of return.
There has tended to be a greater relative profit from cereals and sugar beet
in France, with mainly processing potatoes being, in some cases "subsidised"
by the 'supported' crops. Recently potatoes in the UK have been set against
unprofitable cereals.
Northern French example is around
€78.5, or £54 per tonne.
The BPC average price for the same
period was £98.61 tonne.
In this period, the Dutch processing
price was averaging £48-55 per tonne.
The comparison of results between
farms with or without potatoes is only
really relevant for France, as the farms
in the Netherlands have an entirely
different structure. Using data from the
costed farms series, as above, the
following becomes apparent:
4 THE MARKETPLACETHE MARKETPLACE FOR POTATOES IN NORTH WEST EUROPE IS DOMINATED BY THE
PROCESSING INDUSTRY, AND FRENCH FRY PRODUCTION IN PARTICULAR.
THE BREAKDOWN OF THE MARKET SECTORS IN EACH COUNTRY, GIVES A PERSPECTIVE
OF THE WAY IN WHICH THE CROP IS VIEWED AND THE RESPONSE FROM GROWERS.
FURTHERMORE, THE SPECIFICATION FOR PRODUCT SOLD IS SIGNIFICANTLY DIFFERENT
BETWEEN THE UK AND THE REST OF EUROPEAN PRODUCTION. THE NOTION OF SELLING
THE CROP >35/40MM IS NOT JUST A SIMPLER PROSPECT ON FARM, BUT ALSO LEADS TO
A DIFFERENT APPROACH AT THE FACTORY, WHERE THE MAJORITY OF GRADING AND
SELECTION IS DONE.
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Potato processing is an international operation;
fresh potato market packers operate almost exclusively in
their home markets.
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Processing
The proximity of producers in France,
Belgium and the Netherlands to
factories in each other’s country and to
Germany, provides an extremely fluid
market. Products can move easily
between countries, particularly at
lifting time when the market can be
severely disrupted. A lot of production
in Belgium, for example, is sold by
small producers (circa 10hectares)
with no storage.
The French Fry market is dominated by
four large companies who account for
over 85% of the production capacity.
With the market maturing, a range of
differentiated products is emerging. The
demand will remain for a ‘simple’ raw
material, with all logistics determined
by the buyer.
There is strong demand for processed
potato products, although these are
changing and include ‘fresh peeled’ –
which has become a significant feature
of the European market. The
development of Frites alternatives with
added value will be an important trend
to sustain demand. The development of
‘own label’ will maintain pressure on
margins throughout the supply chain.
The Netherlands has some 35-40% of
processing capacity in the EU. Belgium,
incidentally, has doubled its production
in the past ten years.
The market is oriented towards
Frites, and this may account for the
less apparent differentiation of price
between Frites and Crisping
raw material.
Main Participants France Netherlands UK
Pepsico � � Crisps
McCain � � � Fries
KP � Crisps
Lamb
Weston Meijer � �* Fries
Avico � Fries
Farm Frites � � Fries
Nestle � � Various
Lunor � Peeled
Vico � Crisps
*new entrant to the market following the acquisition of Garden Isle
CHART 25 Major Processors
Continental processors generally contract around 50% of their requirements,
leaving a relatively large free-buy supply. This leads to a weaker market and
inevitably impacts on the UK market.
The simplicity of specification makes
this an important feature in Dutch
competitiveness. The fact that the crop
is committed on contracts with yields
representing around 65% of normal
expectation leaves a considerable
'free-buy' tonnage which generally
weakens the market. A £580 per hectare
rent represents £12.80 per tonne at
45 tonnes per hectare, and £9.68 per
tonne at 60 tonnes per hectare.
Processor specification is simpler to
deliver and has lower on farm costs.
The achievement of UK specifications
would lead to cost increases, and
possibly catalyse structural change.
UK processing factories have less
ability/flexibility due to design and
configuration.
There is typically a much greater volume of free-buy material, resulting from
contract structure, and the impact of proximity to factory facilities (Dutch, French
and Belgian), and less on farm storage in Belgium.
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26Seed
The seed industry in the Netherlands is
well known and exports some 78% of
the tonnage. Annual production is
around 1.6million tonnes from 40,000
hectares mainly in the North, with some
production on the Polders.
The French seed sector is focused
largely on the home market, with 1,027
producers growing approximately
14,000ha and producing 409,357 tonnes
(in 2004). Growing areas are mainly in
Normandy and Brittany. There is a
significant import of seed, and some
producers grow with Dutch seed houses
eg. Agrico and HZPC.
Other
There is a large Flake industry in
Northern Europe and, particularly in the
North East of the Netherlands, the
Starch industry has been very
important. Although outside the scope
of this report, it may have an impact on
the processing area once reorganisation
has taken place.
Main Participants France Netherlands
Schaap �
NEDATO �
Jansen Dongen �
Agrico �
Joh Van Kampen �
Werkman b.v. �
Pom Alliance �
Parmentine �
Potato Master �
CHART 25 Fresh Market Packers
Fresh
The Fresh market, by contrast, is under
pressure, and works to a generally
lower specification than that of the
UK market. The ability to grow a
product which would compete in the
UK market is limited, and probably only
areas such as Champagne and La
Beauce in France could create a
sustainable supply to British retailers.
No doubt there are some areas,
possibly of limited scale, which could
similarly challenge the home market.
In the Netherlands, there are six
Packers who account for over 80%
of the market. With the prospect of
continued retail pressure, it is
anticipated that there will be
further consolidation.
Volume is falling at around 2% per year.
Adding value to counteract declining
volume will be a feature of the market
to come.
The development of the fresh market will
depend on innovation and an ability to achieve
higher value sales in future.
In contrast to the processing sector, most of the continental fresh potato supply
destined for the UK is committed to supply chain programmes and has minimal
impact on open market prices.
The supermarket share of the fresh
market is now 80% - up from 50% in
the 1990’s.
The retail sector in the Netherlands
is influenced by the deep discounting
culture in Germany and competition
is fierce.
In France three packers dominate the
market with relatively new, purpose
built factories established in the ‘new’
growing areas – and advanced multiple
supply chain management.
The development of ‘chilled fresh’
product has been markedly slower than
in the UK, with ‘ready meals’ less of a
feature in the French and Dutch
markets. The sales of fresh peeled
product, however, are significantly
ahead of those in the UK, perhaps
demonstrating the retention of a home
prepared meal tradition.
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The outline figures demonstrate a
significant difference between the
countries, and it is important to note
that the rental cost for this specialist
crop and its yield potential are not
particularly closely linked.
French and UK growers would probably
be looking at 43-46 tonnes per hectare
sold yield, with the Dutch grower likely
to have over 50 tonnes per hectare.
In fact, on a number of the farms
visited this was well over 60 tonnes
per hectare.
The proximity of a large amount of
processing capacity has led to
considerable overproduction in North
West Europe, and this means a weak
market. The correlation between large
crops on mainland Europe and a poor
price year in UK is strong.
The overall cost of production figures
mask the cost of the UK meeting a
higher specification, and in reality this
will reduce the relative result as capital
employed will tend to be greater. This
also means that processing factories
have been built to a certain operating
model, which makes them less able to
change to a wider specification if that
was felt to be desirable. The UK is tied to
a higher value product by virtue of this,
and may find greater pressure from ‘own
brand’ and retail market tightening.
The Dutch farmer can go on with the
present prospect, but only because of
an inherent wish to continue, and the
knowledge of a potentially high value
exit in sale of land. This is not
surprisingly a distorted economic
decision making process, but is also
encountered in both France and the UK.
The French farmer has a greater
potential either to expand or change
system. In the Netherlands, for
example, it is critical to keep the
rotation relatively intensive in order
to maintain a living for family members.
The French farmer, on the other hand,
will probably be given the opportunity
to farm other land more readily than
his Dutch counterpart and could choose
to do so on a more ‘combinable
crop’ rotation.
Key Factors influencing
production – non financial
In all three countries there is a
propensity to continue producing in
the hope that as times continue to get
tougher, the remaining producers will
have a better prospect of success.
This is a dangerous approach, as it
leads many to continue well beyond the
point of rational business sense but is
a strategy with the ultimate exit plan
of selling the farm on retirement.
As the next generation become less
attracted to returning home to farm,
the population of decision makers
continues to age and a number will
bow out on retirement, or see their
farm taken on by a neighbour.
This process is well advanced in the UK
but only in its infancy in the other two
countries. The process of change will
gather pace and larger units will mean
greater efficiency in cost of production
in both France and the Netherlands.
In time, this will also probably mean
more employed labour, which will
bring to bear a considerable change
in cost structure.
The French experience is that there has
been a significant reduction in the
number of farmers in the past ten years
and the expectation is that the number
could halve in the next ten years.
The population pressure in the
Netherlands will continue to remove
agricultural land and provide a supply
of potential purchasers for farms.
This will underpin otherwise generally
cash negative farm trading with a
growing balance sheet. Although at
lower values, and with probably more
focus on residential property, this is
true of France (in the potato growing
areas of the North East) and the UK.
Attachment to potato growing is
universal among producers – with few
taking a strictly business approach to
the enterprise. Dutch and French
growers have less at stake than their
UK counterparts, and have to consider
issues such as labour cost and
availability to a much lesser extent.
Decisions about the future will continue
to rest on the belief in better times
ahead – the optimism that is the
cornerstone of agriculture.
COMPARABILITY/COMPETITIVENESS
£/ha
France 220-280
Netherlands 305-580
UK 556-865
CHART 26 Typical Annual Rental
5 FUTURE PROSPECTS
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MARKET PRESSURE, CONTINUED RETAIL PRESSURE, AND A WEAK SUPPLIER
POSITION WILL GIVE RISE TO CONTINUED PRICE PRESSURE. THE NEED TO
UNDERSTAND AND TO BE MORE TRANSPARENT ABOUT THE TRUE COST OF
PRODUCTION IS PARAMOUNT. THIS WILL BE THE ONLY WAY IN WHICH
GROWERS CAN DEVELOP A GOOD UNDERSTANDING OF THEIR OWN SITUATION
AND BE IN A POSITION TO SHARE THAT WITH CUSTOMERS IN PRICE
NEGOTIATIONS. IT ALSO PROVIDES THE NECESSARY FRAMEWORK FOR GOOD
DECISION MAKING.
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The likelihood of continuing pressure
from food trends and the maturity of the
Western European French Fry market,
will put pressure on growers and
processors alike. The need to innovate
and provide new and added value
products will be increasingly important.
Producer consolidation
The demographic profile of the industry
is likely to lead to continued
consolidation of units, and a rapid
gathering of pace in France in
particular. The potential to create really
commercial farming units in Northern
France is enormous, and will provide
the future opportunity for those willing
to pursue this way forward.
It is likely to provide some opportunities
for improved operating efficiency, but
will be a process which takes some
time to evolve. The development of a
‘manager’ class in the farm business
schools will be paramount.
The number of decision makers will
continue to decline, making the
management of supply to a smaller
number of customers more viable.
Potentially, it could strengthen the
position of larger volume suppliers.
This process is likely to be accelerated
by the impact of Sugar Reform, a more
significant driver of change than the
recent CAP Reform.
Examination of markets
The changes in eating habits and
consumer demand for fresh produce will
provide opportunities to develop fresh
market production, particularly in the
new areas of France which have the
potential to export significantly more to
the UK and possibly elsewhere.
The development of the ‘fresh chilled’
market in mainland Europe will be an
important trend to follow.
As the industry examines opportunity, it
will be interesting to see the areas
which try to adapt to new market
demands. The constraints of soil and
rotation will have an impact in those
areas where potato production has
been carried out for a long time. The
impact on saleable yield, and disease
control will tend to increase cost of
production, and limit flexibility in
specialist growing.
Crop production options
For most growers in the Netherlands,
rotation has been distinctly unprofitable
for both potatoes and onions. But the
harvest of 2005 has restored some faith
in price potential and given some cheer
against the background of Sugar
Reform, which has the potential to
damage a system which has been built
over the last 40 years.
Any reorganisation of businesses is
unlikely to include significantly more
combinable crops unless amalgamation
of units is undertaken at a rapidly
increased rate. The search for other
‘high value’ cropping alternatives will
be an important response.
The French farmer is seeing the growth
of opportunity to develop his cereal
production into alternative non food
uses, and will probably also seek to
expand to enable this to be successful.
The reform of the Sugar Regime may
well accelerate change more than any
other factor.
Labour/Energy
The areas of continuous inflation
experienced by the UK producer
have been labour costs and, more
recently, energy.
The impact of labour inflation is much
less for French and Dutch producers,
who employ a high proportion of family
labour. This factor will be made more
significant in UK terms due to the
higher specifications being achieved ex
farm, and the associated labour cost.
The rise in energy cost, with its impact
on all oil based products, has had a
major impact on cost of production, and
could well add over £9 per tonne to the
figures set out for 2004.
European expansion/market
development
The principal effect of EU enlargement
could well be the establishment of a
new market, which at least initially
does not have the capacity to serve its
own growing demand. The potential for
increased production and the
development of processing facilities
with greater efficiencies will follow.
As with all aspects of this development
it takes time, and often longer than is
anticipated. However, the migration of
some production cannot be ruled out,
with economies of scale and a growing
market within easy reach.
With the continued development of
Eastern European agriculture, the most
dynamic efficiencies in agri- and supply
chain businesses may well happen in
those areas over the next 10 -15 years.
Infrastructure for such projects as
irrigation, may be a consequence of the
changes envisaged, with the potential
for further investment to increase
productivity in some parts of France.
The threat of climate change, and
associated environmental pressures
will impact on costs for all countries.
The approach of Member State
Governments to taxation for example of
road transport and fuel - will probably
lead to further distortion of
competitiveness.70
80
5
15
25
10
20
30
90
100
110
120
130
140
150
160
170
35
40
pence/litre £/tonne
Source: Andersons
–– Gas Oil – p/l –– Nitrogen Spot – £/t
CHART 27 Cost Increases
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As a general guide, it is clear to see the way in which the
French and Dutch producers can –
• Produce to a lower cost, when processing - and
particularly French Fry production is considered
• Sustain a lower cost, when factors such as family labour,
and the ability to withstand longer periods of pressure, as
the cash outgoings of the business are lower
• Export in years of surplus at low returns – with such a
high pressure of production with limited percentages
actually committed on contract.
It can also be seen that:
• The current farm business model for potato production
in the countries studied, will be disrupted more by Sugar
Reform than the Fischler Reform (or Mid Term Review)
of the CAP.
• There is likely to be a more sustained pressure on
producers as a result, with even more difficulty in
restructuring away from potatoes.
“European growers dump their surplus crop on the
UK markets at prices below the Cost of Production.”
• In years of surplus, the UK market will be disrupted
by continental production
“European growers will all go broke!”
• Dutch and French growers are unlikely to change their
attitude in the short term to price and production.
However, as businesses enlarge and paid labour becomes
a greater part of total costs, this attitude can be expected
to change over time.
“How are these Countries subsidising potato production?”
• There is no real evidence that individual country subsidy
has a major impact on cost of production. The biggest
factor is farm business structure and the fact that typical,
family farms in France and the Netherlands have little or
no employed labour.
“They achieve lower cost because of co-operation/
collaboration.”
• There is significantly less co-operation and collaboration
than is commonly imagined, although local machinery
sharing is growing with time.The collaboration in cereals
and sugar beet is not matched in the potato sector,
which, particularly in processing, is in the hands of
multi-national companies.
CONCLUSIONS
• The marketplace will continue to be extremely
competitive, with relentless pressure from
multiple retailers and foodservice.
• This should lead to accelerated change in both France
and the Netherlands, with the creation of larger
businesses which have to consider new challenges,
such as more employed labour and the need to account
to others for results.
• The likelihood that these businesses will in future be
renting larger areas of land and therefore will incur a
greater proportion of paid labour costs – will provide
another challenge to the control of cost.
• Land availability will be crucial, and its cost plays a
significant part in the overall calculation.
• EU enlargement will lead to the development of
production and processing facilities, which will create
competition with Western European businesses.
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What are the likely developments for non-food agriculture?
• There is significant debate in Europe about bio fuel, and much
greater Government support and action in Northern Europe, with
France and Germany developing production capacity rapidly.
The efficiency of bio fuel is being challenged in UK and
progress is slow.
The 'diversion' of land to non food use will probably not have a
great impact on potato production.
What do you see as the critical competitive factors for the UK?
• There are three main factors that UK producers should register
as key to future competitiveness.
Commercial Reality - The changes in subsidy provision will lead
to a transition towards more market driven agriculture in the
coming period.
It is likely that business size will continue to grow, and farmer
numbers decline.
With less decision makers the market will be further concentrated.
Labour - Family commitment in the form of labour is the
cornerstone of most of these potato-growing enterprises which
keeps labour costs relatively and unrealistically low. This is
unlikely to be sustainable. Retirement of traditional family
members, reluctance of younger family members to stay in
agriculture and the increase in farm unit size will combine to
force change.
Land Availability and Affordability - France has a crucial
advantage, but does not currently have the structures to take
advantage of the opportunity. Particularly in The Netherlands, but
also to a lesser extent in the UK, population density with the
subsequent urban sprawl will place pressure on some enterprises
to relocate further away from their traditional markets - or even
cease commercial farming completely. The realisation of the value
of family asset (land) appears to be a key driver in the current
mindset of some Dutch growers.
Why are there significant cost variations in Seed and Labour?
• The extensive use of family labour, especially in the
smallholdings of France and the Netherlands, and which tends
not to reflect commercial reality, is the main reason behind
labour cost variations.
The variation in seed cost is related to a number of factors
including: supply chain seed supply, specification and seed rate.
What is the significance of the price variation/market
conditions summary?
• It is important that UK producers understand the market forces in
play before drawing conclusions about the European supply
position. Contracts at lower levels with conservative yield targets
can create in most years a large Free Buy surplus which, in turn,
drives the spot price for both the domestic and export markets.
In this environment market forces create a weak price totally
unrelated to the cost of production.
What are the prospects for the UK grower in the short to
medium term?
• A gradual change can be anticipated as the effects of CAP and
Sugar reforms impact on the scale and commercial pressures for
farm enterprises. There will also be pressure on processors to
change their current practices to secure long term supply stability
without the risks of price volatility in years of short supply.
And what about the longer term?
• These reform processes will inevitably result in radical changes to
current farm practices and lead to farm enterprises moving to
larger scale businesses with higher levels of employed labour and
a need driven by shareholders for economic returns.
What is the likelihood for increased imports into the UK
from France?
• The likelihood of increased imports from France remains a
significant risk, particularly in the processed sector. In years of
over supply, market pressures will dictate that surplus product will
eventually find a market, albeit at uneconomic prices. The fresh
sector draws product from France in a somewhat more disciplined
fashion, contracts are planned and product is produced to meet a
discerning UK specification. The opportunity for marketing
anything other than UK specification is, therefore, limited.
The British Potato Council welcomes
the opportunity to work with supply
groups to develop activity plans and
discuss further the opportunities
identified in this report.
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The BPC website has a comprehensive overview on the
NW European market. See Market information section.
Why not sign up for our regular European update
‘Euro-Potato’ email [email protected]
Report Price £279 to non BPC Levy Payers
Report Free to BPC Levy Payers
Additional electronic copies available to
BPC Levy Payers via the BPC website.
THIS REPORT EXAMINES THE COMPARATIVE
COSTS OF PRODUCTION IN THE POTATO
MARKETS OF FRANCE AND THE
NETHERLANDS – TWO MAJOR PRODUCING
COUNTRIES IN EUROPE AND KEY
COMPETITORS TO THE UK INDUSTRY.
The study was undertaken by the British Potato Council to
address the UK industry’s need for greater awareness of the
strengths and weaknesses of overseas producers and of our
own standing in an increasingly competitive global
marketplace.
The BPC remains committed to increasing the level of
awareness and understanding of such issues, of the factors
affecting the business environment across Europe and the
UK industry’s continued and improving competitiveness.
This study was undertaken between Summer 2005 and Spring
2006 and involved overseas visits and numerous interviews
with growers, processors and packers and with economists
and commentators with expert knowledge of the potato
markets across Europe.
At present there is no universally recognised figure that can
be said to represent an average cost of production in
overseas markets and access to detailed data is limited. It is
unrealistic, therefore, to attempt to identify a precise figure
for the cost of production in any country. Rather it is more
useful to establish a general range of costs which can be
applied to different farm structures, sizes and productivity
and this report sets out to achieve that.
CONTEXT AND METHOD
We have, therefore, targeted key production centres to arrive
at meaningful cost analyses. While there may well be
appropriately resourced producers operating successful
businesses in some regional areas, our aim has been to
establish a robust understanding of the industry generally.
We believe this will best enable UK producers, processors
and packers to benefit from knowledge transfer and
establish the foundations for better decision making in
our own market.
Where we have used official statistics and published data,
these refer to the Harvest of 2004, the most recent annual
figures available.
All currency conversions assume a rate of £1 = €1.46;
€1 = 68.5 pence.
All currency conversions assume a rate of £1 = US$1.79
US$1 = UK 55.9 pence.
All charts except Regional break-downs are Excluding Starch.
ACKNOWLEDGEMENTS
We wish to extend our gratitude to those organisations that
have contributed to this report.
Jay Wootton - Andersons Farm Consultants
V Phaff - Phaff Export Marketing
Data Sources in France & The Netherlands
English Farming & Food Partnerships (EFFP)
Imports Exports Trade Balance
The Netherlands £114,473 £278,203 £163,730
France £70,305 £239,659 £169,354
Belgium £106,142 £84,258 -£21,884
UK £103,909 £58,434 -£45,475
CHART 30 Imports & Exports of Potatoes. Value in £000 - 2004
120,000
100,000
80,000
60,000
40,000
20,000
01988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
£ Million
CHART 28 UK Food Market
£52 bn
£14 bn £14 bn
£112 bn
£20 bn
–– Foodservice –– Retail –– Level UK Agricultural production
Source: FAO
Source: EFFP
0
-2,000
-4,000
-6,000
-8,000
-10,000
-12,000
-14,000
-16,000
-18,000
-20,0001988 89 90 91 92 93 94 95 96 97 98 0099 01 02 03 04 05 06 07 08 09 2010
£ Million
CHART 29 Level of UK Self Sufficiency in Food & Drink
Source: EFFP
Imports Exports Trade Balance
The Netherlands July - June 1237.0 4075.5 2838.5
France August - July 169.4 1191.7 1022.3
Belgium August - July 954.5 1216.7 262.2
UK June - May 1574.0 392.0 -1182.0
CHART 31 Imports & Exports of Potatoes. Tonnes 000 - 2004 - 2005
Source: Eurostat / NEPG / BPC
Production Area Yield Tons Hectares Tons per Ha
The Netherlands 4,500.0 104.9 42.9
France 5,300.0 130.3 40.7
Belgium 2,701.6 64.3 42.0
UK 5,835.3 139.6 41.8
CHART 32 Potato Production - 2005 (Excluding Starch)
Source: Eurostat / NEPG / BPC
Production Area Yield Tons Hectares Tons per Ha
The Netherlands 6,704.6 155.2 43.2
France 6,680.2 157.9 42.3
Belgium 2,701.6 64.3 42.0
UK 5,835.3 139.6 41.8
CHART 33 Potato Production - 2005 (Including Starch)
Source: Eurostat / NEPG / BPC
• The potato market is following the
same trend as the rest of Agriculture
• The UK is now following a trend
towards the lowest level of
Agricultural Production for 20 years
• The UK has seen an extremely high
growth for Food markets in both
Retail & Food Service. Total market
has more than doubled since 1988
• The UK has seen a rapid decline in
Self Sufficiency in Food & Drink for
the past 20 years. Decline from a
deficit of £6 billion in 1988 to
£14 billion in 2005, and projected
to be £20 billion by 2010.
Published by The British Potato Council
4300 Nash Court, John Smith Drive
Oxford Business Park South
Oxford, OX4 2RT
Telephone 01865 714455
Email [email protected]
Website www.potato.org.uk
© Copyright reserved by British Potato Council 2006
