Sonac, an Egyptian exporter based in Alexandria is about to finish its potato season. However, according to Export Manager Dalia Gamal, the current situation of the potato sector isn’t as good as it should be. The prices for potatoes are low, which has led to lower than usual production volumes. And due to these circumstances, the market for potatoes has been rather weak in both this season and the previous one. She also added that most of the volumes in Sonac are based on contracts that were agreed upon beforehand with her customers. The model of contract farming has become best practice for most potato growers in Egypt, instead of offering potatoes on the spot. Contracts for potatoes are set up on a year by year basis. The citrus sector works in a similar way, but makes use of contracts that last for longer terms than a single year. For most Egyptian companies such long term contracts are preferable, as they provide a framework through which a company can decide how much it wants to invest, what kind of facilities like cold storage it is going to need, etc.
“When you offer potatoes on the spot, you’re going to be under market pressure. There really aren’t any disadvantages to contract orders as opposed to spot orders. All markets in the world right now are under economical stress, which makes contract farming a safe bet,” explains Gamal.
The main market for potatoes is Russia. However, the Russian trade ban has caused problems for the European market. Europe right now depends on their domestic plantations and has less need for Egyptian potatoes. The same goes for Russia itself, as it suffers from the economic situation caused by low exchange rates. Overall, the market for potatoes has shrunk. The acreage for growing potatoes in Egypt has diminished as well and there is a lot of pressure to find new long term contracts.