UK potato sowings this year are on course for their lowest in modern history, undermined by low prices, which are being pressed by a market oversupply and supermarket price wars, one of the country’s top packers said.
“Early indications point to a reduction in the planted area for potatoes in 2015,” Produce Investments, the owner of the Greenvale business, said.
In fact, “we think the UK will lose on balance something like 5-10%” in potato area, Angus Armstrong, the group’s chief executive.
“We are advising our growers to reduce production by 10%.”
The industry was looking at the “lowest area seen in the history of the UK”.
With Defra, the UK farm ministry, estimates UK potato area last year at 141,000 hectares, a reduction of 5% implies an area of some 134,000 hectares, beneath the 2005 figure of 137,000 hectares which is the lowest on data going back to 1984.
‘Too much crop’
The forecast comes in the face of potato prices which were, on the open market, standing at £82.27 a tonne as of the end of last week, down 42% year on year, according to the Potato Council bureau.
Two years ago, free-buy potatoes were selling at £318.14 a tonne, after the dismal harvest in 2012, the UK’s second wettest year on record.
The UK is “producing too much crop… making it difficult [for growers] to make sensible margins,” Mr Armstrong said.
Indeed, even with lower acreage, production is remaining relatively high, thanks to improvements in seed and agronomic techniques.
The Potato Council pegs last year’s British harvest, the vast majority of UK output, up 16,000 tonnes at 5.74m tonnes, despite lower plantings.
‘Retail price wars’
Meanwhile, potato packers and processors, while enjoying lower potato costs, are finding their own sales prices under “significant pressure” from the UK’s “much-documented retail price wars”, Mr Armstrong said.
Potatoes “particularly” had suffered from deflationary pressure in food markets as the UK’s historic supermarkets fight back against increasingly-popular discount chains.
Produce Investments unveiled a 60% drop to £1.54m in earnings for the July-to-December half, on revenues down 9.9% at £80.76m.
However, the group, saying it was “confident” it would meet market expectations for its full year results, raised its interim dividend by 5.0% to 2.39p nonetheless,
Prospects for the current half year have been improved by rising sales by its daffodil operations to Marks & Spencer, which has signed a fresh three-year supply contract.
On potatoes, a timely planting season in Cornwall – unlike last year – means that the group should have supplies of home-grown crop in early May, saving on expensive imports from the likes of Egypt and Israel.
Furthermore, the group has begun talks with its supermarket customers over passing on to them volatility in potato prices, a model seen in many other sectors, such as chocolate manufacture.
While this could mean Produce investments making some compromise on margins, the greater stability such deals would give to earnings would “be something investors would appreciate, we believe,” Mr Armstrong told Agrimoney.com.
Broker Shore Capital termed Produce investments’ results “reasonable” given the “perfect storm” in the potato sector, as a market oversupply met supermarket price wars.
“We are hopeful better times lie ahead,” said Shore Capital analyst Phil Carroll.
Produce investments shares stood unchanged at 128.5p in morning deals in London.
(Source – http://www.blackseagrain.net/novosti/low-prices-to-drive-uk-potato-sowings-to-all-time-low)