Commodities & Futures: Hot potato for Government

THE modest potato is at the centre of a heated political debate in Britain.

As one of the crops regulated by a government-backed marketing scheme, spuds are in the process of being deregulated. Ministers are determined to dismantle the nearly 40-year-old Potato Marketing Scheme (along with milk and wool marketing schemes).

Last week the House of Lords put a few obstacles in the path of legislation to pave the way, voting against the Government's advice. But they may only serve to delay the inevitable.

Britain's 17,000 potato farmers say the current system best serves their interests and consumers. A Potato Marketing Board regulates the acreage devoted to potatoes, puts a limit on how much each farmer can grow, and collects levies from them.

When prices fall below a certain level, the board buys up surplus potatoes in a process called intervention, until the price rebounds. The board believes the system is the best way to ensure stable supplies of good quality potatoes reach the market.

But efforts to retain it have met resistance both from European Commission proposals to harmonise the different national schemes, and from charges that it is encouraging rising imports of frozen chips.

Are the innocent tubers really worth all this fuss? Growers and consumers think they are. Consumers in Great Britain eat an average of 100kg of potatoes a year, among the top four in EC rankings. More than 100 varieties are grown here.

Supermarkets have latched on to the spud as a versatile food with marketing potential. The increasing popularity of microwaves in the kitchen has helped whet appetites for baked potatoes.

Potatoes leaving Britain's farms are valued at pounds 400m- pounds 500m a year. But at the retail end of the market, the industry is worth about pounds 2.5bn.

Two-thirds of the potatoes eaten in this country are bought raw. But the money is in the one- third purchased in processed form, which includes frozen chips, crisps, croquettes and other packaged snack foods. Fish and chips use about half a million tons of British spuds a year.

Mirroring the restructuring in other sectors of agriculture, the number of potato producers and farmed area have declined sharply in the past 30 years. Now the Government hopes to make them more responsive to free market forces, but farmers fear the move will hurt their livelihood.

At the root of the debate are processed potato imports, a large percentage of them Dutch chilled chips going to British institutions.

The UK processors say processed imports, about 545,000 tons a year and rising, are caused by the potato marketing scheme making the home-produced products too expensive. Their intensive lobbying has fuelled ministers' desire to throw out the scheme. The PMB argues that Dutch efficiency and inadequate investment in the British market are to blame.

Meanwhile, the latest difficulty to befall the growers is a bumper crop. After three years of dry weather, a record crop this season of 7.48 million tons is forecast.

Prices have plummeted to about pounds 58 per ton, the equivalent of 2.6p a pound, prompting what will be the biggest intervention operation in 20 years. The PMB will be in the market again this week, buying more surplus spuds, after intervention in October failed to do the trick. John Taylor of the PMB may have to mop up nearly 1 million tons.

While the marketing scheme can stabilise the market, it cannot fully control it or protect it from competitive influences. It seems a near certainty that it is headed for the masher.

(Photograph omitted)