Expect fewer chips for your money as chippies tighten their belts
Characterised by high volatility depending on its levels of production, the British chipping market is the section of the potato industry which is least contracted.
However, demand may shift significantly this season adding further weight to what is already shaping up to be a good crop.
Chip shops are under pressure. Domestically, the lack of contracts in the chipping sector meant that the end users were fully exposed to the extent of high prices last season. In an attempt to cope with this, many chippies cut portion sizes to reduce overhead costs and increase margins.
Despite a dip in potato prices moving into the new season there seems to be little incentive for chip shops to revert to previous practices. Prices for other raw materials, including white fish and vegetable oil, remain high or are likely to increase later in the season.
As such, many are likely to reduce costs wherever possible and portion control is one of the best ways to boost margins. There has already been a longer-term shift towards smaller portion sizes and this may simply be accelerating this process.
What would a no-deal Brexit mean? Looking overseas, a halting in potato exports due to a no-deal Brexit could add further weight to the balance sheet.
The UK exports around 55Kt of fresh potatoes to the Republic of Ireland each season and the majority of these are chipping potatoes grown in the east of England. These good quality frying potatoes make their way over the Irish Sea and end up in chippies from Dublin to Donegal.
However, in a no-deal Brexit situation the UK will be unable to export fresh potatoes to EU countries. Exports to Ireland would grind to a halt pushing these supplies into the domestic market.
For exports to the EU to resume, Brussels would have to determine that UK phytosanitary controls and regulations fit within the EU framework. While this seems simple enough, given the UK’s high standards, the actual timeframe cannot be estimated.
Realistically, this issue could take some time to reach a conclusion. Each month that these issues remain unresolved an increasing volume of chipping potatoes will need to find a home in a domestic market in which demand looks muted at best.
Looking longer-term, the potential for an 11.5 per cent tariff on fresh potatoes could make UK supplies uncompetitive into Ireland.
Combined with a continued reduction in chip shop portion size, until production is scaled back we could see seasons of average production being met with subdued prices in the chipping sector.
Aidan Wright, AHDB Potatoes
