Food manufacturers will have to start paying more for potatoes in the US to maintain future supplies, according to industry experts.
Potato prices will have to increase due to high production costs or US potato growers will go out of business, Alvin J Bussan Department of Horticulture, at the University of Wisconsin-Madison, said.
Figures from the US National Agricultural Statistics Service (NASS) released at the end of last month showed that potato prices have already seen large increases. In June 2008 they were $10.37 per 100 pounds, compared to a month earlier, in May when prices were $9.16 and in June the previous year they were $7.75.
Bussan told FoodNavigator-USA.com that recent price increases were in part due to overestimation of the volume of stored potatoes and shortages in the available crop beginning in May and June. Also flooding destroyed a number of acres of new crop potatoes, by 50 to 70 percent in Missouri and other areas.
Meanwhile the total US acres of potatoes planted has been reduced by ten percent from 2007. This is mainly due to a weak potato market for about seven years as the high value of crops such as wheat, corn and soybean offer higher returns per dollar invested compared to potatoes.
Bussan said: “Production costs for potatoes are 1.5 times higher this year than in 2007 and costs of production are projected to be two times as high for growing potatoes in 2009 than 2007.
“Increased costs are due to higher land, fuel, equipment, fertilizer, and other input costs. Without price increases potato growers would grow potatoes at a loss.”
“Potato price will have to increase due to the high production costs or US potato growers will go out of business.”
He added that it was difficult to gauge what the total supply for 2008 will be until after the final harvest but added there were indications that demand will continue to be much higher for the near future.
Consumers are also likely to see price rises and food manufactures pass on the added costs of production and processing.
Bussan said: “The cost of raw product in a package of fries, chips, or other processed potato product is relatively small. However, there are so many other costs that go into processing potatoes that have also increased that it is likely the price will have to increase.”
The US is the fifth largest producer of potatoes in the world, producing an estimated $3.2bn worth per year. The per capita potato consumption in the US is a total of 126 pounds. This breaks down into 53 pounds of frozen potatoes, 44 pounds of fresh, 16 pounds in the form of chips and 13 pounds dehydrated.
Lee Frankel, CEO of the United Potato Growers of America said wholesale prices were expected to drop in a few weeks but the new price levels would still need to be higher than the traditional price levels in order to offer attractive returns for growers to maintain future production.
He told FoodNavigator-USA.com: “Food manufacturers need to increase their payments to growers in order to attract enough production to continue with their current sales volume, given the returns available to growers from other products."