Poor potato harvest could lead to price increase

Canadians take their potatoes seriously. Most dishes using potatoes are loved by Canadians, especially in the wintertime when colder weather encourages us to seek out more hearty meals. But reports suggest North America is experiencing potato shortages and processors, especially those out West are, scrambling to get potatoes into their plants. Soon we may be paying more for one of our favourite staples.

A cold and very wet fall has negatively impacted crop yields among potato farmers. Almost 20% of potatoes were left out in fields due to poor quality. The United States Department of Agriculture is projecting a 6.1% decline in total crops from a year ago, making it one of the lowest crop yields since 2010. In Manitoba, more than 18% of potato crops remained unharvested, and 6.5% of potato crops in Alberta were damaged by an early frost. In the food industry, size matters when buying potatoes but this year the harvested potatoes were smaller than usual. Basically, supplies are much lower than usual as we start the winter season in North America.

Time will tell if this impacts potato prices, which have already gone up this year. Potatoes at retail are 20.7% more expensive than 12 months ago. According to Statistics Canada, a 10-pound bag of potatoes in Canada retails for an average of $9.77, while a year ago it was $8.11. Frozen fried potatoes have gone up 17.1% as well, retailing now at $3.02 for 1 kilo. These increases, the most important increases ever recorded, are difficult to explain. Potato production over the last five years in North America has been quite steady. Retail prices barely moved in 2010 when the potato harvest was much worse than this year's harvest, suggesting the market was unwilling to budge on pricing.

If prices go up, it won’t be because our farmers are making more money. Farmers won’t likely get more for their crops as they typically lock themselves into contracts before the growing season even starts. Some farmers, though not all, affected by weather will have crop insurance. Processors may need to pay more since they might be required to purchase inputs from other sources, which are normally more expensive. But processors have infinite ways to hedge against abnormal weather patterns and will get the products they need to manufacture the fries and chips we buy.

Increases may very well happen in food distribution and retail where demand is quite strong. In 2018, frozen potato sales at retail increased by 7.1% in Canada, and 2019 could be an even better year. Potatoes requiring some preparation time at home have also seen significant sales increases, exceeding 7% in recent years. That may explain why retailers are charging much more for the product. Since 2018, potato retail prices have quietly increased at a dramatic rate, but consumers have not yet been spooked by this--at least not yet. But consumers could start walking away from the product if they think it’s too expensive. As such, we may see more processors reduce the number of frozen fries you get in a bag, but for the same price. It’s called shrinkflation.

The rules are different in foodservice, and we shouldn’t expect any price changes. Charging more for a side staple like potatoes is always more challenging for restauranteurs and fast food operators. Similar to retail, you may see operators charging patrons the same price for smaller portions. This is quite easy to do with fries, chips and smaller baked potatoes. Vigilant consumers will likely notice, but most of us won’t think twice before digging in.

Canada is only the 18th largest potato producer in the world, but we do take our potatoes seriously. The country won’t run out of potatoes any time soon and they will remain quite affordable for most of us for a very long time. So, keep calm and eat your fries.

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