Satisfy your End Market

Profile

Rob Burrow British Potato Council Biography - 31st January 2003

Rob Burrow has worked for over 30 years in the British potato industry, adapting to the many changes over that period. For the past 10 years he has been Market Information Manager, for the British Potato Council (BPC).

Rob has experience in collecting and analysing data, and reporting potato crop and market issues to the GB industry and media. He has built good working relationships at all levels within the GB potato industry, including growers, merchants, processors and consumers. Rob regularly contributes to the agricultural and national press as BPC spokesperson on related topics. His principle contributions are preparing, designing and writing BPC's Ceefax and Potato and Price Weekly reports as well as monitoring European markets and affairs, to communicate and keep the industry and it's service sector regularly updated and informed.

Previously Rob was part of the Potato Marketing Board's field team, maintaining a vital link between potato growers and industry. This followed a period of work on dairy and potato farms in the south of England.

Rob has a National Diploma in Agriculture and Farm Management and is a member of the Royal Agricultural College, Cirencester as well as a member of the Institute of Management. His interests are family, sport, gardening and art.

Introduction

I intend to reflect on

The profile of the grower base in GB
The structure of the market
The facts about who really determines growers end market - `the consumer'
Consumer influences on markets for the future

Firstly just a quick look at the overall industry to put the market in perspective and secondly who the BPC is.

GB is the third largest consumer of potatoes in Europe at around 105kg per head, Ireland is top at around 160kg per head. The industry employ around 30,000 people who produce, handle and market 6 million tonnes a year. Irrigation is possible on 54% of the crop and around 70% of the total crop is stored, although it is estimated that 60% of the crop is stored for longer than 2 months. The farm gate value of the GB crop fluctuates but is around £700 million. The retail value is estimated £3.5 billion

The BPC is funded by statutory levy on growers and purchasers with a staff of 60. It has a £6 million turnover which is utilised in Research and Development, Market Information and technology transfer, marketing and publicity, and export and seed.

Grower Profile

Let's look first at where it all starts, the structure of the grower base.

The number of farms growing potatoes in GB has shown a dramatic decline in the last 20 years from 25,000 in 1984 to around 5,500 today, an 80% reduction. If we put a straight trend line through that progression we would probably end up with 1 grower by 2010. Over a shorter period since 1997 there has still been a 43% fall in grower numbers, a similar trend to that seen in

Ireland. The average size of grower has risen from 7 hectares 20 years ago to 29 ha currently. This compares with an average of 16 ha in Ireland, where a similar upward trend has existed, particularly in the last 5 years.

Changes in grower size have had major effects on the industry. In 1984 growers in the band under 10 ha accounted for over 30% of total area. Today that size group plants just 7% of the total. In contrast the largest growers of over 100 ha grew 10% of total area in 1984, today they produce 32%.

The size group 25 to 100 ha has seen the least change. In GB the 50 largest growers account for 13% of total area, in Ireland that figure is 45% and accounts for most growers over 50 ha. In GB growers over 50ha account for 52% of total planted area.

At the same time as the increase in unit size, total planted area has seen a downward trend from 280,000 ha in 1960 to just under 140,000 ha today, a 50% fall. In recent years plantings have been steady, although in Ireland there has been a reduction in potato area of 12% since 1997.

At the same time specialisation and increased expertise in the industry has driven yield trends upward over the last 40 years. There are fluctuations due to weather conditions which are beyond our control, but from 22.6 t/ha in 1960 total potato yield achieved 48.2 t/ha (49.2 maincrop only) in the 2002 crop. This was the second highest ever recorded which has brought pressure on markets this season. This was particularly felt in the fresh sector where at the same time consumption figures are showing a downward trend. Year on year changes in national yield have a potentially larger effect on markets than changes in area. Yields can vary by 10% or more between seasons, it is unlikely that similar swings would occur in total plantings.

What do these trends mean therefore in overall terms?

Falling area and increased yield equals a steady production of around 6 million tonnes in GB. But look at 1975 and 1976, growers have such fond memories of those seasons. Some still grow potatoes in the belief that such high priced years will return. As we will see this is unlikely to happen.

It is how that 6 mt is grown and marketed which has also seen great change in recent years. Around 5% is from early varieties, 30% from second earlies and 65% from maincrop varieties.

The most significant difference over the last 10 years is the reduction of first early crops in GB. The area has halved in the last ten years to around 7,500 ha last year. This has been brought about by direct influence from supermarket purchasing policies in meeting consumer demand for year round supplies of "new" potatoes. Again I will look at that in more detail in a moment. The effect has forced GB early growers into making careful business decisions. Some have disappeared from the industry whilst others have moved into more niche markets, including salads, early baker production or obtained early processing contracts, mainly Lady Rosetta for crisps.

Maincrop production has also seen change over the last 20 years, although M Piper has dominated over that whole period. Its importance in meeting demands from the fresh packing sector, the processing market and for exports, particularly to Ireland, has been unchallenged.

The most significant changes growers have made to meet the demands from their end market include:-

the reduction of Red varieties, mainly Desiree which has seen a 23% fall since 1984
the emergence of Estima to meet the increasingly tighter quality specifications for pre packing, up by 42%
and the in roads into the top 10 varieties of a number of specialist processing varieties, including Lady Rosetta, Saturna and Hermes

Figure 1: Planned marketing of GB crop 2002, as a percentage of total potato planting.

Purchaser Profile

Turning to market outlets - where are the options and how are they structured?

Supermarkets have played a major role in the change in trading options for growers in GB, and it is likely that the same situation is developing in Ireland.

In the past 20 years multiple retailers have increased purchasing share in the fresh sector. From accounting for 23% of total fresh sales in 1984 they now account for over 80% today. Increasing market share has become difficult and has led to competition between retailers, often to the detriment of those down the supply chain. The present war for dominance through the acquisition of Safeway is likely to see that situation escalate.

This is clearly illustrated over the same 20 year period by a fall in the number of potato purchasers who still deal direct with GB farms, it is not just a decline in the grower base. Their number has fallen from over 2,100 in 1984 to just 500 at present. I am also sure that other sectors of the industry are the same, number of agricultural chemical distributors, fertiliser companies and so on.

With fewer free market options available to growers, more have responded by guaranteeing or protecting a targeted market for a proportion of their crop. More growers are looking to enter into contract arrangements with processors and more frequently with fresh purchasers.(Figure 1)

Around 43% of production is sold through firm contracts, although a proportion of the 52% sold as spot purchases to the fresh (Ware) sector are also sold under firm arrangements to committed buyers through grower groups. However, there are still a large number growing potatoes speculatively, exposing businesses to high risk, particularly as greater price influence from Europe prevails in today's markets. Looking again at grower bands in this respect it is clear that those in large size groups, above 50 ha, commit the greatest percentage of their crop using contracts, whilst growers planting less than 10ha trade over 85% of their crop on the spot or free market.

The future success of your business depends on how you as individuals work with the industry.

Either with the chain from breeder togrower at opposite ends of a very long one way supply chain.

With breeders and growers leading the way in meeting consumer needs through two way communications up and down the supply chain.

European Connection

It is essential for growers to increase knowledge and awareness of the big picture.

Germany is the largest producer of potatoes in Europe, followed some way behind by Holland, France and GB. The GB potato market is heavily influenced by mainland Europe and is increasingly becoming more global. Maincrop price performance, particularly in Northern European countries has a direct effect on potential returns available to GB growers. This was illustrated in the 2000/01 season when GB imported over half a million tonnes of ware potatoes. This clearly kept a cap on prices for GB growers.

There are many issues which currently exist on mainland Europe:-•

Over-production in recent years - concerns of increased plantings in 2003
Average prices are regularly falling below average production costs
The cost of potato production is at the same time rising, particularly the proportion for seed at around 30% of total variable costs

Both these are leading to concerns being expressed from producer organisations.

In Holland growers are co-operating in a price information system to increase leverage when dealing with processors
In France growers are being urged to examine costs and not sign low priced contracts

Consumer Profile

Having examined grower and trader profiles in the market, lets look at who really has the greatest influence on your business and your end market ?

The Shopper - Consumer research raises some serious challenges for growers and it is this group which will shape the future for food and within that potatoes.

Picture of a mother and child shopping - they sum up the message I have been illustrating. Growers need to be guided by both a knowledge of what a mother wants now and by predicting what her children will expect in 15-20 years time. This understanding will keep growers ahead of the game in production terms.

Let's look at what is happening to consumption and then what affects it, (Figure 2).

It is a common misconception that people consider pasta, rice and ethnic food is taking the place of the potato. Although consumption of these alternative carbohydrates is increasing, potatoes and potato products are still the market leader by a significant amount.

Figure 2

How can we be sure of maintaining that position? Local, regional and national factors are important for potatoes. The importance of Rooster and Kerrs Pink, at over 50% of the crop in Ireland for example. Many factors however are more global and we must be aware of them. Due to the increasing number of mouths that need feeding and also because global food issues are likely to have significant knock on effects for all in the industry. The worlds largest McDonald restaurant was opened in 1992 in Bejing and there are now 400+ McDonalds in China. On a bright note in GB there is the emergence of attractive new overseas markets for seed and ware. Less heartening is the possible destabilising effects of a war with Iraq.

From a per capita view point, despite fluctuations, consumption remains fairly steady with the twelve month rolling average currently 105Kg per head. By sector, total consumption (home crop + imports) is declining slightly for fresh potatoes whilst it is increasing year on year for processed. N.B Includes increasing processed imports.

Purchases by type in the fresh sector are dominated by pre-pack maincrop at just over 50% of total volume. Bakers, both loose and in packs make up 15% of the total.

In the processed sector we can see the rapid increase in sales in the product lines with only a small growth in frozen chips and a slight fall in the consumption of crisps.

Future Influences

We have looked at trends in many parts of the industry, but before we move too far forward it is perhaps worth remembering how far things can change generally in a relatively short time, even 10 years ago was well before Foot and Mouth and BSE for example.

At first glance potato shopping might not have appeared to change much. Maris Piper was the number one variety and still is today.

BUT Take another look.

10 years ago how many of you had mobile phones? Mobile phones were smart playthings, now every 6th person on the planet has one. How many of you used the internet for shopping 10 years ago? It is worth remembering that grocery sales in 2000 reached £400 million and is expected to be nearer £6 billion by 2005, an annual growth of 77%.

What does the future hold regarding consumer demand and what are the implications for growers. If we fail to meet consumer needs in the short term we will certainly fail in the future, as people will have changed the habit of buying and eating potatoes.

Demographics

Understanding consumer demographics will give us valuable help in satisfying the end market. What do we know about how many consumers there are and will be, their ages and their needs?

Older population
Smaller households
More working women
Ethnic background

Examination of the facts reveals that consumers are getting older, the post war baby boom is having an effect. By 2020 every second European adult will be over 50 years old and there are currently 14 million people aged between 44 and 64 years old in the UK. This will rise to over 17 million by 2021 - a 23% increase. These traditional consumers cannot be ignored in our innovation for product lines.

Households are also getting smaller. Currently 86% of households contain 1 or 2 people in the UK. That includes 29% which are single occupants, this will rise to 35% by 2020.

More women are working today in full time employment, part of the single person household increase but it also means more men are now shopping and cooking - we need to look at products which are attractive to them.

Finally the Ethnic population is increasing in UK. This presents opportunities and challenges in itself. Perhaps your mind immediately goes to Indian takeaways rivalling fish and chips, but this need not be as big an issue as it appears given that Indian cookery uses a great many potatoes. But who is currently supplying that market, and does it have special needs ?

One example is a primary school in Shropshire which we visited recently. The school canteen is actually divided into two and has special Hal-Al catering facilities.

Consumer culture

Consumer culture is another huge topic related to end use.

Time pressure Time pressure on consumers for instance is a big driver, you all know about that. In Britain we work the longest hours in Europe and even at leisure most of us are busy. Cooking therefore is a victim and takes low priority. People demand convenience and speed when eating, even better if you can throw in a little tradition, remember that aging population. So what is the fastest growing frozen potato line - Ready made roast potatoes. In the fresh sector also we are seeing rising sales for convenience lines, mainly salads and bakers. The clear message for growers is to look closely at varieties with some processing characteristics.

Gender

A change in gender role within couples is also taking place rapidly, more women are pursuing long-term careers and more males are preparing food, we must consider their needs.

Out of home eating People are increasingly eating out of home for various reasons. Speed, convenience again, interest, social or just because they can afford to. In Britain potato consumption is split 50 - 50 between in home and out of home, this ratio was 37 - 63 in 1993. This means cooking skills are diminishing and a demand for potatoes to meet consistent specifications for preparation of ready meal products is required from growers.

Health

Health is a massive issue for consideration when supplying all markets. BPC consumer research shows that 88% of consumers say they would like to know more about how healthy potatoes are. A clear communications message for us there, whether related to healthy bakers or chips as part of a balanced diet.

Food safety

Food safety is also important for producers of potatoes, particularly regarding GMO's where consumer concerns show:-

47% of Britons list GM as the top food safety issue
Over 60% are concerned about risk
Only 11% feel adequately informed
37% want more research

Other consumer trends which I not have time to into at length but will just mention include.

Economics - Consumers are spending less and less on food in home but more on eating out
Government Policy - Health related issues, such as fruit for schools and recommendations for limiting chip days at school
Technology - Use in providing convenient, quick meals, which is a major driver as we enter the growing `eating on the move' culture
Natural environment - Take climate and consider its effects close to home. What effect for example does that have on production in Ireland ?

Summary

What then does all this mean in supplying your end market.

Consumer	Grower
Convenience	Varieties of processing quality and cooking Quality in peeled potatoes and related to Cooking methods
Differentiation	Looks alone are not enough, choose also Varieties for taste and texture related to Market
Consistency	Produce for cooking attributes and size Specifications
Pack size	Innovation to meet convenience and speed of preparation
Safety	Provenance and traceability
Health	Promote health benefits of potatoes and educate consumers on production techniques

I'll leave you with the thought of the woman with her children. We need these children to eat potatoes in the future and I believe if we are willing to acknowledge consumer trends in our production decisions and face their challenges then they will.