Potatoes market outlook
Last year, GB produced an estimated 5.4Mt of potatoes. With the lifting window not plagued with the weather challenges of 2019, a reduced area was abandoned and yields returned in line with the five-year average.
However, what does define the challenges for the potato crop this season is demand. The coronavirus pandemic that has swept across the world has resulted in a seismic impact for the industry – particularly for the sectors predominantly servicing the catering and hospitality industries.
The country, currently in its third period of significant lockdown restrictions, has once again seen the majority of the foodservice sector closed. With no view yet as to when these restrictions might be lifted, what does this mean for the rest of the season for the potato industry?
GB grower held potato stocks, as at the end of November 2020, were estimated at 3.27Mt. Unsurprisingly, this is 12.5% more than 2019 and just under 5% above the five-year average.
However, the stock figures showed a surprising split by sector, with stock levels up year-on-year for packing and bags, but 12% lower for processing material when compared with the same period.
What is key to note, is that these stocks were at the end of November, when the demand picture was different to what we face now, and for the near future. With lockdown shutting foodservice since the beginning of January, and the tiering system resulting in high restriction levels for many during December, we may expect to see these sector drawdown rates switch in the end-Jan stocks.
With on-farm processing material drawing down at a faster rate by the end-November, but limited outlets for moving the finished products over the past 3 months, it might be fair to estimate that processors are well shored up for requirements. The longer lockdowns persist, the less processor demand may be for “top-up” material.
Conversely, with restrictions resulting in “eat at home” occasions most common, the demand for packing material destined for the retail sector may well remain present, with consumers food-outlet choices remaining limited.
So what might that mean for planted area for the coming season? With the planting window still ahead of us and a lot of potential weather that may aid or detract from planting, the area for 2021 remains uncertain. However, what we do know are the following.
Firstly, we had increased production this season versus the previous year, which has so far this season been “drawn down” at rates lower than the five-year average. Secondly, the coronavirus pandemic has decimated foodservice demand, particularly affecting the processing sector. Thirdly, as a result, free-buy prices have been under pressure and fourthly, there remain the ongoing storage challenges with the removal of CIPC.
All of this put together suggests that we may see a contraction in area, with a large carry into 2021/22 a distinct possibility. In previous seasons where we have seen depressed free-buy prices, we have seen the area contract the following year. For example, the average ware price in 2017/18 was £45.80 less than the previous season. The planted area in 2018 was reduced that year by 4,680ha
We can hope that we will start to see a pick-up in demand in the foodservice sector as the year progresses. With the rollout of the vaccination programme and the eventual easing of restrictions, some return to normality may be on the horizon. However, how soon this will be remains uncertain, as does consumer confidence, both economically and in health terms.
A free trade deal was finally signed with the EU on 24 December 2020, which negated many concerns over potential tariffs and non-tariff barriers for GB-EU potato trade. However, this was not wholly true for seed potatoes, which have not been granted third country equivalence by the EU. This effectively shuts the door for GB seed potato exports onto the continent.
What is key to note is that the Canary Islands are not a party to this barrier. While they are tied to the EU, they have their own trading regulations. This means that GB will be able to trade with the Canaries, as it had been doing so before 1 January 2021.
So what might be the impact of this?
This is most pressing for the 2021/22 marketing year and beyond. Scotland has reportedly already exported 95% of its EU destined seed potatoes for the season that would be affected by this phytosanitary barrier. HMR&C recorded more November exports to the EU than had been seen in the previous five seasons and December could likely follow the same trend.
Where we could see this impact is in planted area intended for seed, particularly if no agreement around third country equivalence be reached before the planting window (mid-April). The uncertainty this would raise surrounding the destination for the end-product may well result in a cautious grower reducing their area.
While markets outside the EU continue to be sourced and grow, they would not immediately be able to plug a gap left by the loss of the EU market, particularly Irish, Spanish and Cypriote homes.
Potato consumption trends
Prior to COVID-19, total potato performance was seeing volume declines in retail and eating-out. Potatoes struggled as traditional meals lost share in favour of dishes from world cuisines. Cooking time was a barrier to in-home consumption, with fresh potato dishes, where the retail declines are coming from, taking nearly twice as long to cook and prepare, according to data from Kantar Usage.
During 2020, potatoes in retail grew significantly with volume growth of +13%, much faster than total food and drink at +11% (Kantar, 52 we 27th Dec 2020). All categories apart from chilled saw good levels of growth with the fastest growth seen for crisps (+14.9%). Fresh potatoes also saw volume growth of +14.5% with 1.5 million tonnes being sold in retail over the year (Kantar, 52 w/e 27th Dec 20). During lockdown, potatoes have benefitted from their versatility and price point.
However, the processing sector in particular suffered from the loss of foodservice volumes that the growth in takeaway could not compensate for.
After a very strong 2020 in retail we expect slightly less buoyancy in 2021 as people start to return to some normality later in the year. However, as the economic downturn increasingly impacts consumers, we would still expect levels to be higher than 2019 due to potatoes affordability and being a firm cupboard staple.
Foodservice should return to growth later in the year and we predict this could be up a third versus 2020, however this is still at significantly reduced levels compared to 2019. More positively we expect to see the strong growth of delivery and takeaway to continue and expect to see strong growth versus 2019, further building on an already strong 2020.
As a result of these anticipated trends, total potato volumes for the full year 2021 are expected to be down -4% year-on-year but when comparing back to 2019, being a more typical year, volumes are up slightly at +1%.
- Recessionary behaviour benefits fresh potatoes, being perceived as a filling and economic meal option. Inspire versatile in-home dish ideas in this area
- Frozen potato products, also lacking a price premium, can be supported to encourage consumers who are looking for good value
- It is likely to be chilled prepared options (e.g. pre-prepared mash, Dauphinoise or gratins) that will struggle, due to perceived lower value for money
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