• Monday, May 27, 2019
  • Last Update : 12:23 am

When you have too many potatoes

  • Published at 06:34 pm March 9th, 2019
web_Potato.jpg
We have a lot of it

Look to exporting products, like french fries, potato flour, and potato flakes

Bangladesh grows more potatoes than Bangladesh consumes, and thus, there’s an interest in exporting potatoes from Bangladesh. That seems simple enough. Except, there’s one major problem with this. There’s really not all that much of an international potato market. Or at least, there’s not all that much of one for simple potatoes for direct consumption.

That leads to us having to ponder: What should be done about this? One obvious answer being that Bangladesh should produce fewer potatoes. But there’s more than one reason why we might not want to do that. 

The first, and most obvious, being that we do consume a lot domestically and crops aren’t 100% stable from year to year. It’s the surplus in an average year that might be exported, that surplus being the margin for error in bad ones. Many agricultural crops can vary their output from year to year by 20%, and that’s roughly what that exportable surplus might be, 2 million tons on a total crop of 10 million.

However, we run into this rather difficult problem that there’s really not all that much of an international potato market. If we tot up the value and tonnages, we can see that there is that trade. But it’s not really of the basic and humble potato for eating. A large portion of the value is in seed potato -- what the farmer plants, not what he harvests. The other major portion is of potato products, not potatoes themselves. There’s good reason the humble potato doesn’t get traded long distances too.

They’re not exactly valuable -- the UK price for the basic item was, wholesale, some 250 pounds per ton this week. Yes, Tk25,000 is a nice sum to have, but that’s the price delivered to England. The transport cost is a substantial fraction of that. For a potato is largely water after all, and water’s an expensive thing to be shipping around the world. 

Thus, what tends to happen is that international trade is much more concentrated on very specific varieties in certain seasons, rather than the standard bulk item being shipped to basic consumer markets. This is not entirely and wholly true, but it’s accurate enough for our purposes here.

Trying to be a bulk exporter of basic potatoes isn’t going to work as the basic potato just isn’t something often traded in bulk internationally. There are exceptions, obviously, but they’re not enough to be basing an industry upon.

Which leaves us with our economic problem -- what do we do now? We don’t want to reduce local production because of that safety margin. There’s also something specific to potatoes in that they grow best in deep and stone free soil -- something the alluvial plains of Bangladesh provide very well. We should be, and are, good at growing them. It’s just difficult to sell them.

The answer is to move upmarket into that area where there is that substantial international trade, which is in potato products, not potatoes. There is that seed market, but that’s entirely dominated by highly efficient experts, and not really where we’d like to go compete.

Don’t forget that moving upmarket is what we should be doing anyway. Adding more value here is exactly what makes us richer. For the obvious reason that if we’re adding more value, then we’re being paid more, and thus we can consume more -- we’re richer.

So, what is it that adds value? Processing the raw material, obviously enough. So, that’s what should be done. Instead of trying to boost the export of basic and raw potatoes into an international market that doesn’t really exist, start to process into products which are internationally traded.

Quite what those are isn’t for us to decide – there’s obviously a point at which we leave things to experts. But frozen potato chips -- french fries -- are something for which there is that market. Perhaps the energy requirements for that are too high for Bangladesh -- that could be. Or the chain of refrigeration isn’t sufficiently robust, that could also be. 

But there’s potato flour, potato flakes, other things made from that raw potato. Worth noting that one of the things that makes these internationally traded is that they’re virtually free of that expensive-to-transport water.

My point here though, isn’t to insist upon the details of how to plan the potato market. It is rather, to try to look at the underlying economics to see how they might guide us. There just isn’t that much international trade in the humble potato. Because it’s just not worth that much as against transport costs. There is good trade in potato products. Thus, if we want to export our potato surplus, perhaps we should be looking at products, not potatoes? 

It could be that we don’t have the knowledge domestically to design and run such a processing industry. But that’s easily enough solved -- invite in one or more of the companies that do know how to do this. Why not import knowledge and skills in order to be able to export the product? We are hoping to engage in trade after all, and that can and should be a two-way street. 

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.