Cost inflation is having a significant impact on potato production and the British Potato Council (BPC) is urging growers to ensure they have a comprehensive knowledge of their production costs. Farm Business Consultants Andersons have shown that a combination of energy, fertiliser, labour and other costs, such as, rent have pushed up costs for potato growers between 2004 and 2006 by over 25 per cent on a cost per tonne basis. This makes it more important than ever to understand the true cost for producing a tonne of potatoes. Jay Wootton of Andersons says: “In 2007 the average cost of production rose by a further 10-12 per cent. Therefore it is crucial to pinpoint the specific costs attributed to your potato enterprise, in order to appreciate the risk versus reward.
“There is a huge variation in on farm costs. The 2007 rise is likely to be much higher, however many farms negotiated forward prices for energy and fertiliser. The reality is likely to be nearer 15 per cent, with extreme cases at 20 per cent per tonne, depending on price exposure and the forward deal obtained,” explains Mr Wootton. Anderson’s figures have demonstrated a rise in on farm labour costs of over 12 per cent in the last three years. The recent upsurge in land values, linked to demand from overseas buyers and the elevation of commodity prices, has also seen a land rent rise begin to take effect.
“These significant rises mean it is vital to be realistic about how much it costs your specific farm to produce a tonne of potatoes with an accurate idea of your farm’s average yield, and how cost per tonne is affected by yield fluctuations,” says Mr Wootton.
Difficult growing conditions over the last two seasons have hit yield. These, combined with climate change uncertainty, present a further risk to working capital,” says Mr Wootton. “So growers need to allocate costs carefully to their potato enterprise. A true picture of costs is crucial before signing any forward deal, to ensure the minimum return at least exceeds your production cost.”
Phil Bradshaw, supply chain manager for the BPC says, “The BPC benchmark model is the ideal tool to allow growers to calculate the cost of production for historical seasons. It can be easily utilised to project costs for the forthcoming season.”
The best way for growers or supply groups to find out more about the BPC benchmarking model is to pick up the phone to Phil Bradshaw on 07776 492274.
“A better understanding provides the knowledge to plan and ensure your business has a sustainable future. It will ensure you make the correct marketing decisions for your crop to make the most of your farm situation. The commitment from Walkers and McCain Foods to buy 100 per cent British crops, shows positive support for the industry. Using the model and evaluating your cost profile will enable you to make the right decision at contract signing,” says Mr Bradshaw.
