Potato sector starts the sixth consecutive year with positive profitability

Potatoes have been traded at high price levels in this 2023/24 crop that occurs in the rainfall period. The boost comes from lower supply – the main producing regions faced weather adversities especially due to the effects of El Niño.

In January this year, the average value of ágata potato reached BRL 145.71 per 25-kg bag, the highest, in nominal terms, of Cepea series, started in 2001; in real terms, it was the third highest average, below that registered in June/2016 (BRL 146.09) and in April/2001 (BRL 151.14) – values were deflated by the IGP-DI. In March/24, prices decreased compared to the first weeks of the year, but continue at high levels.

In the South of Brazil, excessive rainfall and high temperatures have reduced the productivity in around 20% or more. In the Cerrado Mineiro region, high temperatures hampered the yield in the field.

Considering the price series since 2001, it is possible to indicate that, different from what happened in the past, the current increases are accompanied by a scenario of solid earnings in the mid-term – results have been positive for five years in a row.

Until 2016, periods of one or two years of high prices followed by low values were common, since, once capitalized, growers invested more in the crop, especially in increasing the area. This scenario resulted in a surplus of supply and a drop in prices, with a consequent decrease in area for the following season. Therefore, year after year, there were cycles of capitalization and decapitalization. Years of crisis weakened growers who were already facing financial problems and who often left the sector, while the boom years allowed those who had higher finances to expand their investments.

The year of 2016 was a watershed. Until that period, the potato sector had been coming from a moment of high profitability. In 2017 and 2018, the crop faced one of the worst crises in history (if not the worst), with values below production costs. This excluded those who were still struggling financially. The survivors got back on their feet, adopting a more conservative profile in investments. Thus, growers, instead of increasing the planting area, started to invest in technology and diversify their activity, focused on industrial production as well as expanding the planting of grains and other commodities.

The increase in commodity prices, especially for soybean, has balanced the cash flow of many growers. Along with that, today, due to advances of the frozen pre-fried potato industry, the farmer is able to have a progress in the activity without a very high increase in price risks. The trading model for this segment is based on pre-fixed values and the guaranteed purchase of production.

The industry has even played a key role in ensuring that the table market has been able to remain on average with positive profitability since 2019. Many times, the grower’s decision to increase the planting area for the table market was restrained by the alternative of investing in cultivation for the industry, in a model of prices closed through contracts, with less risk for the profitability. The industry favored this type of trade supported in the pre-fried segment, which has been growing in recent years at a great pace, due to a solid increase in demand.

Short periods with more pressure on table potato values, as observed in September 2023, were also fundamental for caution regarding increased investments in this segment to be triggered. As a result, for 2024, the expectation of a positive year for the fresh segment continues. The current cultivated area is balanced with the demand. Price seasonality, with high peaks as registered at the beginning of this year, or low peaks, as in September/23, are related to other variables, such as the planting calendar, technology, management and, above all, the weather.