Making the Grade
Off-grade potatoes now have a home
thanks to Keystone dehydrator plant
By Dan Campbell, Editor
tanding in a steady drizzle under a
steel-gray October sky, Cory
Schlegel and several other men are
peering at the gauges on a control
panel, trying to find the kink that has interrupted
the flow of gas under the road to the
new Keystone Potato Products plant. The huddle
takes place on a giant landfill, the final resting
place for trash from all over the Northeast.
Decomposing garbage is the source
for the methane gas that
provides fuel for the steam Keystone needs to
process fresh spuds into 40-pound bags of
dehydrated potato flakes.
The culprit for the power interruption ultimately
proves to be a defective switch that shut
down one of the blowers that drive methane
gas into and through the underground pipeline
that leads to the plant, located near the town of
Hegins in the Appalachian Mountains of eastern
Pennsylvania.
When the methane gas system shuts
down, the plant’s back-up propane
burners kick on, so the potatoes keep
rolling. “But we hate to have to use the
propane because of the higher cost,”
explains Schlegel, the plant’s general
manager. Indeed, it was the availability
and economics of a low-cost, waste-to-energy
power source that was the
lynchpin for getting this $12 million
project built.
There’s a lot riding on the outcome
of the effort. This plant could play a
major role in determining whether
Pennsylvania’s fresh-market potato
industry stabilizes and grows or
continues to contract. The
Keystone plant — the only one of
its kind east of the Mississippi
River and outside Maine — was
built so that growers here could
stop dumping their off-grade
potatoes or giving them away for
cattle feed.
“For our industry to be viable
in fresh markets, we need to have
a market for our off-grade potatoes
as well,” says Keith Masser,
president of Pennsylvania
Cooperative Potato Growers Inc.,
one of the nation’s oldest co-ops,
and the largest of 42 stockholders
in the LLC that was formed to
build and operate the plant.
Masser is also president of the
Keystone board and runs his family
potato farm and a large packing
house (Sterman-Masser) in nearby
Sacramento, Pa. Masser is the second
biggest stockholder in the
LLC.
In the early 1950s, about 100,000
acres of potatoes were planted in
Pennsylvania. “Today we grow less than
12,000 acres,” says Masser, whose family
grows about 600 acres of spuds. “Our
decline has gone out West.”
Competing with the NW
Producers in the Pacific Northwest
dominate America’s potato industry, and
growers there have long had the advantage
of access to processing plants
where they can sell their off-grade potatoes.
This has given them a considerable
marketing advantage, Masser says.
He’s long been convinced of the need
for a plant like Keystone in the East —
ever since returning to the family farming
operation in the late 1970s after
several years working in the paper
industry for Proctor & Gamble.
Buyers in the East typically have to
pay about 12 cents per pound more for
fresh potatoes than do their counterparts
in the West, he notes. To offset
that differential, a cheap source of energy
was needed for a processing plant.
Attention was first focused on one of
the half dozen or so small co-generation
power plants located in the region that
burn waste coal to produce electricity.
“The coal industry wasn’t as efficient
in the past, so a lot of good coal went
out with the rock deposited in waste
piles that built up over the past century.
There’s still a lot of energy in it,”
Masser explains. These co-generation
plants use steam turbines to generate
electricity, but just blow off the excess
steam as a useless byproduct.
The original idea was to build the
plant next to one of these co-generation
plants and use that waste steam for running
the driers, peelers and blanchers.
“We pursued that idea aggressively, but
the logistics just didn’t work out.”
Part of the problem was that to
maintain the steam pressure required,
the potato processing plant would have
had to be located virtually next door to
the co-generation plant — not exactly
an appetizing prospect for a food factory.
Further, there was concern about
how long the coal supply at any one of
these plants would last.
With methane gas, the supply will
last as long as the landfill is in operation,
and probably even long
afterwards. So, the co-op found 83
acres of land adjacent to a landfill
where a methane-collection system
was already in place, but the
gas was just being flared off. A
contract was negotiated with the
CES (Commonwealth Environmental
Systems), the private company
that operates the landfill, and
the county agreed to sell the adjacent
land. Project backers then
went to work to form the LLC
and line up financing.
Stimulating a stagnant economy
Local government agencies and
the state have backed the Keystone
project both as a way of shoring-up
the state’s potato industry and
to create industrial jobs in a region
where the coal industry has long
been fading and the garment
industry has almost entirely
migrated overseas.
But it took several unsuccessful
attempts before a strong enough application
and business plan were developed
to win a Value-Added Producer
Grant (VAPG) from USDA Rural
Development. The VAPG grant was
considered essential to making the project
fly.
“The second time we failed to get
the USDA grant, our then-state agriculture
secretary asked me what kind of
help the state could supply to make it
happen,” Masser recalls. “I told him we
needed about $50,000 to hire someone
who could work for a year to develop a
really strong application.” The state
department of agriculture came through
with that grant, and Schlegel — a manufacturing-process engineer and a
home-town boy — was hired away from
Alcoa Aluminum to go to work on the
application package.
In 2001, the revised application —
predicated on the use of methane gas to
power the plant — was approved by
USDA, and Keystone was awarded a
$450,000 VAPG. As a matching grant,
Keystone members had to put up a like
amount of equity. The money was used
for everything from attorney fees to
incorporate the business to start-up
capital. Another huge boost
came in the form of a $1 million
grant from Pennsylvania
for an on-site wastewater
treatment plant (the grant was
actually awarded to an intermediary,
which in turn is
leasing the treatment plant to
Keystone). A well was drilled
for an on-site water supply.
The state also kicked in
with $1.75 million in low-interest
loans for machinery,
land and the building. Keystone
borrowed $5 million
from a local bank, with the rest
of the money coming from
member equity investment.
Higher-value products eyed
Schlegel says he hopes to produce 8
to 10 million pounds of dehydrated
potato flakes this year, and to double
that amount within the next couple of
years. Most of the plant’s initial sales
are being made to buyers who repackage
Keystone’s product into smaller
packages and sell it under various private
labels.
The extremely depressed potato
prices in recent years (although 2005
saw some improvements) resulted in big
carryover inventories of dehydrated
potatoes, which has put a damper on
flake prices.
Keystone is targeting the food-ingredients
industry, where dehydrated potatoes
can be used for just about anything,
from breads and rolls to ice cream. The
ultimate goal is to expand production
into higher-profit-margin foods, such as
fresh-cut French fries. Masser says it
doesn’t take an economic genius to see
why: it takes six pounds of raw potatoes
to make one pound of dehydrated flakes
that sell for 40 cents a pound, whereas
one pound of fresh potatoes can nearly
yield one pound of French fries that sell
for 50 cents a pound.
Keystone is working with the
National Agri-Marketing Association at
Penn State University to identify the
most promising value-added products
to pursue. About 10,000 square feet in
the plant has been allocated for
producing
such products.
The plant’s business plan calls for
pulling raw product from a 600-mile
radius, although sky-high fuel and
trucking costs have currently shrunk
that radius, says Schlegel. The rise in
fuel prices actually costs Keystone’s
competitors in the West far more. “A
fuel increase that costs us an extra 1-2
cents per pound will cost them 7-8
cents per pound,” Schlegel says.
In addition to off-grade fresh-market
potatoes (usually kept off the fresh market
due to small size or superficial blemishes),
another source of raw supply is
Pennsylvania’s large potato chip industry.
The state is home to about a dozen
major and minor chip fryers, and those
plants frequently reject loads that arrive
with a flesh color that will not fry to the
food-maker’s specifications. As with the
other off-grade potatoes, these are perfectly
good spuds, just not quite what
the potato chip makers require. But
Schlegel says they work fine for him.
Shake-down cruise
Like most new plant start-ups, there
have been a number of bumps in the
road and a learning curve to master
during the plant’s start-up cruise,
Schlegel says. The plant began operating
in mid-May, but it took most of the
summer to prefect the process to produce
a superior product.
“This is a unique operation
for this part of the
country,” Schlegel says. “We
couldn’t just run around the
corner for answers every
time we ran into a problem.”
The equipment supplier,
Idaho Steel Products, has
been a big help, as has been
the ability to consult with
others who had experience
in potato processing, says
Schlegel.
“I thought the learning
curve would be shorter than
it was,” Masser says. “But
by mid-September, we had
pretty well learned how to
dehydrate our type of potatoes.
Out West, they are
doing mostly Russet Burbanks, with
high solids content.” But that’s not a
variety Keystone handles very often.
“We struggled with the process after
the blanching and cooling. But we kept
at it, and developed a formula that
reconstitutes and tastes better than the
product of our competitors.”
“It’s not as simple as cooking a potato,
peeling it and drying it,” Schlegel adds.
“There are many little things to watch to
get the right time, temperature and consistency.
But we’ve made huge progress.”
The landfill-gas component has been
the most complex and challenging part
of the start-up project, Schlegel says.
“It’s a custom, hybrid system — not off
the shelf. Everything had to be designed
and engineered from scratch. So we’ve
had bugs to work out.”
For the first year, the plant is operating
every other week, running 24 hours
a day with two 12-hour shifts. That
means that the work is half-time for the
20 hourly workers (there are also five
full-time managers). That has made it
difficult to retain workers.
A major warehouse distribution center
has been developed about 10 miles
north of the plant, which is proving to
be a major source of competition for
hourly workers. When the plant converts
to a full-time schedule, it should
greatly help with the labor issues,
Schlegel notes.
He works closely with the co-op to
order supplies needed to keep the
plant running at optimum level. To
help the plant succeed, co-op members
have been willing to sell product to the
plant for less than they can get elsewhere.
High fuel/shipping costs is a major
reason for a regional supply close to the
major markets of the Northeast, Masser
says. He notes that it costs about $9.50
per hundredweight to ship potatoes
from the Northwest to the East Coast.
“But we can grow them here for $8 per
hundredweight — less than the cost of
the freight. It wouldn’t make sense to
lose production here.”
USPB promotion effort enlists celebrity spokespud
The potato may be America’s favorite vegetable, but it
has had to scrap a bit more in recent years to maintain that
status, due in part to the popularity of the Atkins and South
Beach diets, which make scant use of the tuber.
Keith Masser, president of the Pennsylvania Cooperative
Potato Growers, says he believes the impact of
those diet crazes on the market has already largely
passed. But he sees a much bigger challenge
for the industry in the ever-increasing trend
toward consumption of convenience foods
that can be prepared in a hurry — never the
strong point of the potato, although considerable
product development is taking place to
address that demand.
Helping the industry spread messages
about the nutrition of the potato is the United
States Potato Board (USPB), established in 1971
by a group of potato growers to promote the benefits
of eating potatoes. Today, this cooperative
industry effort represents 6,000 potato growers and
handlers across the nation. Recognized as an innovator in
the produce marketing industry, the Denver-based USPB
was one of the first commodity groups to promote its product
generically and to develop a nutrition label approved by
the USDA and FDA.
USPB is funded through a small assessment on grower
production, which generates around $9 million annually.
USPB recently acquired the services of a celebrity
spokesman — or spokespud — who is playing an important
role in helping to educate children about potatoes: Mr.
Potato Head. Yes, the venerable, ever-flexible, face-changing
toy that has entertained children for more than half a
century is helping kids learn that potatoes are an important
part of a healthy, balanced diet.
Through nutritional education programs such
as this, consumer public relations and retail
programs, foodservice marketing and export
programs, USPB strives to educate consumers,
retailers and culinary professionals
about the convenience, good nutrition
and versatility of potatoes.
“The potato is a nutritional powerhouse,
loaded with fiber and essential
vitamins and minerals,” says USPB Chairman
Ray Meiggs of Camden, N.C. He notes
that a 5.3 ounce potato is a great source of
vitamin C; is an excellent source of potassium
when eaten with the skin; contains only 100
calories; has less than 10 percent of the daily value
of carbohydrates and is a good source of fiber when eaten
with the skin.
As evidence that the industry’s Healthy Potato Campaign
is having an impact, USPB cites a recent survey showing
that 4 percent more consumers in 2005 agreed that “potatoes
are a good food for the health of consumers” than in
2004. There was a like increase from 2004 to 2005 in the
number of consumers who reported serving potatoes at
home the previous week.
