European drought: Potato starch supplier Emsland warns of “dramatic” cost increase to raw materials

05 Sep 2018 --- The European potato harvest will be at a historically low level this year and present a massive challenge for growers, processors and their customers. Due to the crop failures in potato fields, some of which were total failures, the availability of potato products will be significantly reduced. According to the Raw Materials Procurement Department of the Emsland Group, potato fields of the contract farmers of the group are in dire conditions.

The German Association of fruit, vegetables and potato processing industry (BOGK) expects that the potato harvest in Germany and Europe also made light of the situation in July.

Farming and potato processing industry experts explain that at this current time the crop is expected to be reduced by a minimum of 25 percent; large potatoes, which are necessary to produce French fries will only be available in small numbers or in the worst case not at all in many areas. 

Since May 2018, Europe has been experiencing a dry spell and above-average seasonal temperatures, including numerous heat waves.

Europe is experiencing what farmers are calling the “worst drought in recent history” – which could create food shortages and financial troubles for Europeans. The Lithuanian government declared a state of emergency for the drought and Latvia acknowledged it as a natural disaster of national scale. Norway, Ireland, and Denmark have imposed water restrictions.

The commodity exchanges for potatoes have been reacting massively to this drought for quite some time. At the same time, some growers of seed potatoes are already raising their prices for 2019, as they are also likely to suffer from reduced yields and quality problems, meaning that the drought could also affect next year’s plantings.

In light of the challenges confronting European companies as a whole, the Emsland Group has developed a raw materials assurance model with the representatives of the producers. This model supports growers by offsetting a portion of the damage by offering a drought subsidy and simultaneously providing incentives to deliver as much raw material as possible. Furthermore, a raw material guarantee subsidy is set to secure the cultivation of crops for the year 2019. 

Suppliers will be supported in their liquidity through the advancement of the payment dates for delivered commodities so that financial bottlenecks in the harvesting of the potatoes can be reduced, especially when placing orders in the spring. These measures are only included in the package for those operations that will continue to grow their potatoes in 2019 at the same level that they did in 2018. 

Patrick Geers, Marketing Associate for Emsland, tells FoodIngredientsFirst: “Potatoes as a natural product can always experience ups and downs in the harvest. Therefore, it is not possible to give any indication for the future of next year's crops. As far as we know, there will be sufficient seed potatoes for next coming crop. However, we can already foresee that at the beginning of new season, stocks will be empty. So we can expect another tight year regarding availability and the recovery of the stocks.”

“Without having the exact crop result now, we don’t expect major differences from the prognosis. First harvest results confirm the dramatic outlook,” he explains.  

“This year, the cost increase will be dramatic and for the next season we expect further prices on higher levels, maybe not as extreme as this year but significantly over last year’s level.” Details on whether the raw material costs will have to be passed on to customers and by how much have not yet been disclosed by the major potato starch supplier.

In terms of spreading their bets, Emsland also supplies pea starch, for example, which will potentially offset some of the impact of this year's campaign. “We convert pea crops as an alternative crop and have done for almost 15 years. We will increase the pea conversion in this year, due to the shorter potato campaign. In some applications, pea starch particularly offers fast gelling properties. In certain other application substitution of potato-based products are also possible,” Geers states. 

He also notes that his advice to companies facing the same challenges would be: “Contract farming, contract farming, contract farming. Otherwise the result this year would be even worse.”

This should signal that the supply of raw materials is secured as far as possible, for the years 2018 and 2019. This way customer requirements can be optimally met depending on the situation.

All in all, the company decided, in this exceptional year, to take essential measures to expand the company's long-term supply of raw materials. In the short term, however, such actions will not be able to prevent the drought from significantly limiting delivery capacity and increasing prices in all areas. “We genuinely hope that all customers will be able to understand this strategy and our prioritizing of the sustainable supply of raw materials,” says the company.  

Avebe is an international cooperation, owned by farmers in the Netherlands and Germany. 

A spokesperson from the company, tells FoodIngredientsFirst: “In general, like in other parts of Europe, a lot of our member farmers had to deal with serious drought and high temperatures during the season. Therefore, we expect to process substantial fewer potatoes this year. First fields harvested for this production campaign that just started, confirm indeed lower potato yields.”

Earlier this week, the European Commission came up with actions aimed at increasing the availability of fodder resources for livestock which is one of the main challenges faced by farmers dealing with the impact of drought. This package complements the measures announced last month and comes as farmers all over Europe are affected by drought this summer. You can read the full article here. 

Potato is just one crop that is being heavily impacted by the recent hot weather. The drought in many regions of Europe is also causing significant damage to wheat, maize and barley crops. You can read more on this here. 

By Elizabeth Green