The harsh weather and supply chain demand have forced Calbee to trip up prices by 2022 and have a headache thinking about how to provide its most important raw materials.
"It's our burning issue," said makoto Ehara, CEO of Calbee, in an interview with CNN.
This issue is very important for the company as Calbee embarked on an ambitious plan: expanding the market abroad with a budget of up to 1 billion USD, to help the company penetrate deeper into the world's two leading economies.
Potatoes are the main business item of the Calbee snack manufacturing company. This Tokyo-based company uses hundreds of thousands of tons of vegetables each year to process potato snacks in many different flavors, from the irresistible flavor of pizza to the complex aroma of soy sauce.
This item brings in hundreds of millions of USD in annual revenue for the company and the company has achieved a profit of 22.2 billion yen (156 million USD) in the last fiscal year.
In the Asia-Pacific, Calbee also has a long-time partner, Pepsi. According to data from Euromonitor International, Pepsi accounts for about 24% of the regional potato market, while Calbee accounts for about 12%.
Both have been affected in the past 2 years due to disrupted supply of goods, leading to a record increase in food prices in 2022, affecting most other food items from tomatoes, rice to peach.
Experts call this the worst food crisis in modern history and continue to warn of disruptions ahead, even as high prices have largely fallen sharply.
Supply - a nightmare in the market
Calbee has faced a major potato shortage crisis from the summer of 2021 to the fall of 2022.
Meanwhile, the world is also facing historically high food prices, as manufacturers struggle with supply chain problems related to the pandemic, historic droughts in Brazil and the increasing use of vegetable oils, sugar and grains globally.
The conflict in Ukraine that broke out in February 2022 has created a major barrier for the world's important exporters of vegetable oils and grains.
The crisis contributed to a record increase in food prices last year, with the price index of the Food and Agriculture Organization (FAO) reaching its highest level since 2005.
Calbee typically supplies up to 90% of potatoes in the Japanese market, with 80% of the supply coming from Hokkaido, an island in the north of the country.
But the region was devastated by droughts in 2021 and the company's domestic potato supply decreased by 8% and 14% respectively in 2021 and 2022.
Calbee has tried to make up for the shortage by importing more from the US, but things are not that easy.
In late 2021, flooding in the US Northwest Pacific prevented ships from operating normally, making it more difficult for Calbee to access supplies.
This has led to the company having to temporarily suspend promotions and launch new products, while accepting higher shopping and transportation costs. These challenges caused business profits to decrease by 7% in the fiscal year (ending in March 2022).
Efforts to find solutions
To increase potato supply, Calbee is working with farmers across Japan to increase domestic supply from 320,000 tons to 400,000 tons/year by the end of the decade.
"The weather is an extremely important factor for us," said Calbee CEO Hamlet. "So, to avoid that, we are trying to increase the exploitation area in Japan outside of Hokkaido."
According to Mr. Ehara, to further diversify, the company is also considering importing from other markets, such as Europe.
Calbee's sales have stagnated in recent years. To address that issue, the company announced in February that it would invest about $1 billion over three years in areas such as automation and expanding markets abroad.
Emil Fazira, executive director of food expertise at Euromonitor, Asia Pacific, said potatoes are a particularly important "abundant supply" for the US market.
The US alone has a huge market with retail sales five times as large as the Japanese market, Ms. Fariza said. Always having items on shelves is necessary, not only to compete with other potato brands but also with other snacks".
