Least Cost Production

Our deliveries of potatoes to our customers� factories have traditionally been covered by purchase contracts with growers. As long as there are enough UK growers with whom we can contract we would see no reason to change this means of supplying our customer requirements.



However all businesses need to take a long term as well as a short term view of their prospects. As recently as the 1980�s there were 20,000 potato producers in the UK. This has now fallen to not many more than 2000. For most of the last 20 years the decline in growers was not matched by a decline in area � the big got bigger and the small got out. Now we are seeing a reduction in area. We have to ask : what will the position be in 5 years or 10 years? Will we be able to fulfill 250,000 tonnes of potato contracts with growers? What about our expansion plans?



We also have to meet customer requirements, to seek efficiencies and drive prices down, whilst our growers tell us that they need to be paid more to be profitable. A difficult circle to square!



We have therefore begun to look at alternative supply routes where we take responsibility for some of the major potato production costs to achieve economies of scale; we organize and pay for inputs such as seed, fertilizer and crop protection sprays and we are responsible for the growing, crop management and storage.



In this way we reduce the risk to the grower and create opportunities to take out costs.



There are disadvantages for us though because we take on more risk and we need to fund the cost of crop production � at least �1000 for every acre.



We have set up a pilot this year where we have around 350 acres in production on these lines � in Cornwall (being harvested as I write), in Hereford, Yorkshire and Lincolnshire.



The pilot is being undertaken in conjunction with McCain and we hope to use this method to build our business with them in the coming years.



We call this Least Cost Production � we obviously need a more catchy title if we do extend the pilot so watch out for updates and another naming competition.