The changing face of potato contracts...

[Spud]

In what has become an ever higher risk, for slimmer reward industry, with ever less people involved in it (be that growers or customers), its becoming increasingly difficult to see the way forward in the potato game.

It has been mooted in certain areas that a 'Take All' contract may be one possibility for a sustainable future.

Has anyone (here or abroad) got any experience of how these such agreements work in practice?

From a growers perspective, what are the benefits of such systems? Drawbacks?

I know that they are commonplace in North West Europe, but to my simple thinking, to extract enough benefit to cover the inevitable price decrease, they need to be on large areas of dry land, with a good road network, with crop moved ex field.

Clearly, in seasons such as this one (and its not that unusual) and in places of bodied land, variable soil types and stone, it wouldn't be quite such plain sailing.

We are at a point of needing to make some significant investments, and its important that we get these right.

Every year, customers demand more, costs increase, and the profit margin £ and %age reduces.

This cannot continue.

Big volume, low margin, high risk business models only end one way, by my observation. (not just talking spuds here)

I'd kind of like not to become another statistic!!!

 

[kiwi pom]

Take all??

 

[Badshot]

Take all??

Produce of acres, so 50 acres worth, not 400 t.

 

[Smith31]

I understand the op's concerns.

However, is the situation any different from most other business models? Profits get tighter as the consumer demands cheaper food.

Eventually the market will find its own balance and price, which supply and demand will dictate.

A simple answer would be, if you're going to lose money, don't grow it. Don't be a busy fool.

 

[KennyO]

@Spud most of McCain seed contracts are area based with yield bonuses/ penalties.

 

[TheTallGuy]

If the margins are so tight, how come there's a queue of spud men offering stupid money to rent my land for spuds?

 

[Spud]

Sorry, I maybe wasn't clear. By take all, I meant whole crop - ie factories take everything except rot green soil and rocks, for less money than a full spec contract. Kind of pile high sell cheap.
I'm struggling to see where the cost savings are, bar no size grading.
Re financials, surely the grower should make more than the landowner?

 

[Iben]

If the margins are so tight, how come there's a queue of spud men offering stupid money to rent my land for spuds?

Probably because they are locked into huge costs with a crop that has a declining margin. So have to keep expanding to maintain income.

If you are in an area where yield and quality are consistent year after year, then that is so much easier than having a field fail every now and again. With such slim margins, it's hard to make up the loss.

The risk is having comfort in current contracts, committing to long term reinvestment, then find contract terms tighten in two years time.

Certainly they are always going to keep pushing lower prices and hope people supply, using the threat of import.

Look across to america and there are growers supplying over 100 000t a year and not making much.

 

[chipchap]

Producing anything for a customer that has much more clout in the marketplace than you is a recipe for a poor future.
Getting into bed with McCains or the supermarkets is a dangerous game. I took the decision a few years ago to only serve smaller family businesses working on a scale similar to our own. We generally get treated with the same respect that we treat our customers with.

 

[Spud]

I understand the op's concerns.

However, is the situation any different from most other business models? Profits get tighter as the consumer demands cheaper food. Very true

Eventually the market will find its own balance and price, which supply and demand will dictate. Will it? Any idea when?

A simple answer would be, if you're going to lose money, don't grow it. Don't be a busy fool.

No one plants anything to lose money. The weather largely decides the end result, high yield = low price, generally. The frustrating bit as a contracted grower (of whatever commodity) is having extra fussy customers when the open market is cheap, and wanting every last morsel when its dear. (Me? A Cynic? Never.)

If the margins are so tight, how come there's a queue of spud men offering stupid money to rent my land for spuds?

Local competition? Clearly you have something thats is attractive to others, choose your suitor carefully.

Probably because they are locked into huge costs with a crop that has a declining margin. Locked in? How? So have to keep expanding to maintain income. Sounds like financial suicide to me

If you are in an area where yield and quality are consistent year after year, then that is so much easier than having a field fail every now and again. Very true. Very rare, but true. With such slim margins, it's hard to make up the loss. This year, my lightest land has produced the best crops, last year they were the worst. All down to rainfall. Thats farming.

The risk is having comfort in current contracts, committing to long term reinvestment, then find contract terms tighten in two years time. Agreed, definitely.

Certainly they are always going to keep pushing lower prices and hope people supply, using the threat of import.

Look across to america and there are growers supplying over 100 000t a year and not making much.

Bonkers, huge risk at that level.

 

[Fossil]

Sorry, I maybe wasn't clear. By take all, I meant whole crop - ie factories take everything except rot green soil and rocks, for less money than a full spec contract. Kind of pile high sell cheap.
I'm struggling to see where the cost savings are, bar no size grading.
Re financials, surely the grower should make more than the landowner?

Traditionally it was considered a 50:50 split. Landowner provides capital asset, grower working capital and labour.

 

[chipchap]

Traditionally it was considered a 50:50 split. Landowner provides capital asset, grower working capital and labour.

But when the rent is a fixed amount the grower is taking all the risk!

 

[Spud]

Traditionally it was considered a 50:50 split. Landowner provides capital asset, grower working capital and labour.

Would the landowner traditionally carry half of any loss, as well as half of any profit? Seems a bit unfair for the landowner to get 50% of the profit for less than 20% of the investment, and a tiny proportion of the risk.

 

[Fossil]

Would the landowner traditionally carry half of any loss, as well as half of any profit? Seems a bit unfair for the landowner to get 50% of the profit for less than 20% of the investment, and a tiny proportion of the risk

How do you work out less than 20%?

 

[hindmaist]

What's irrigated potato land making in Cambridgeshire?

 

[Spud]

Growing costs of £2-2500/ac, rent £250-350/ac = the rent is less than 20% of the total growing costs

 

[kiwi pom]

Sorry, I maybe wasn't clear. By take all, I meant whole crop - ie factories take everything except rot green soil and rocks, for less money than a full spec contract. Kind of pile high sell cheap.
I'm struggling to see where the cost savings are, bar no size grading.
Re financials, surely the grower should make more than the landowner?

Thought that's what you meant, kind of what happens here with the processors.
Not sure exactly how they do it now regards quality control at the factory but each load was sampled whilst unloading and you were paid based on the % of soil, greens, smalls etc with results from a bruise test following a couple of days later.
It only really saves if you've a good sample and can load directly from the harvester into the road transport, which is mostly impossible in the UK.
Most farms have the pickers or "clodologists" on the harvester to try and keep the rubbish out.
There's quite a few big growers that wouldn't own any kind of grading equipment or any trailers.

 

[Fossil]

Growing costs of £2-2500/ac, rent £250-350/ac = the rent is less than 20% of the total growing costs

The landowner is putting up £10k to £12k acre in capital, not the rental value....

 

[kiwi pom]

Producing anything for a customer that has much more clout in the marketplace than you is a recipe for a poor future.
Getting into bed with McCains or the supermarkets is a dangerous game. I took the decision a few years ago to only serve smaller family businesses working on a scale similar to our own. We generally get treated with the same respect that we treat our customers with.

Depends where you are and the relationship you have with the buyer though.
I'd say in the UK the buyer has more power over you because they could find a way to get out of a contract and still get spuds to keep their factories going because there's always people willing to take a chance and grow thousands of tons of non contract spuds in the hope someone will buy them.
There will always be a place in the UK for smaller growers selling bags to chip shops etc but I take the view that its the large "gamblers" growing non contract spuds that are screwing the market for those that want a good relationship with their buyer.
Of course the other problem in the UK is it would be relatively easy to fetch spuds across from Europe too again reducing the growers power.

 

[kiwi pom]

If the margins are so tight, how come there's a queue of spud men offering stupid money to rent my land for spuds?

Ego ???