Price crisis prompts
potato growers to form
national cooperative
By Stephen A.Thompson
Assistant Editor
otatoes have been a staple of the American diet
for more than a century, and U.S. and Canadian
growers together produce about 18.5
million tons of them a year. For many Americans,
a meal just isn’t complete without potatoes,
whether mashed, fried, boiled, or baked. However,
recent trends in consumption and increases in growers’ productivity
are keeping potato prices down, putting farmers in
a bind. In response, a nation-wide cooperative is being
formed with the purpose of better managing supplies to help
growers earn a fair price.
United Fresh Potato Growers of America was organized
March 3, in Washington D.C., during the annual meeting of
the National Potato Council. United of America hopes to
become an umbrella organization for a network of state coops
that will monitor the potato market and encourage farmers
to take voluntary action to limit potato production when
required to keep prices at, or above, a break-even level.
Until recently, the amount of potatoes people eat each
year was rising: the total weight of potatoes eaten in the
United States per person is about 30 percent higher now
than it was in 1980. But the popularity of the “low-carbohydrate”
diet and other trends have put the squeeze on fresh
potato consumption: in 2002, annual U.S. per capita consumption
dropped more than 10 percent from its peak in
1993, according to USDA’s Economic
Research Service.
Part of the problem is the growing
proportion of people who live in oneor
two-person households. People who
live in families with children are the
greatest consumers of potatoes.
Reduced demand for French fries in
fast-food restaurants is another factor.
But the most conspicuous cause is the
rise of the “Atkins Diet” and its imitators.
Such diets require people to consume
drastically reduced amounts of
carbohydrates.
In its first phase, the Atkins Diet
requires consumption of only 20 grams
of “carbs” per day. Normal carbohydrate
intake in the United States, according to
the Institute of Medicine, is about 200
to 330 grams per day for men, and 180
to 230 grams for women. The average
potato contains about 26 grams.
Whatever the causes of the slump in
potato demand, the impact on prices
has been dramatic. Bulk prices for
fresh potatoes now hover around the
$2-per-hundredweight mark — $2.50
below the price producers say they
need to stay in business.
Responding to a crisis
In response to the low-price crisis,
Florida farmers have come up with a
low-carb potato they hope will find its
own market (see related article, page
8). But northern potato producers will
be unable to grow the low-carb variety.
They need a different strategy, and
they need it soon.
Idaho is the largest potato-growing
state, producing a third of the country’s
crop, and Albert Wada is the
largest potato farmer in the state. He
grows more than a billion spuds annually
on 12,000 acres near Blackfoot,
the self-styled “Potato Capital of the
World.” Wada’s father began the operation
after he moved to Idaho from
California to avoid the federal government’s
internment of Japanese-Americans during World War II.
Wada says that potato farmers are
losing money steadily, watching the
equity they have built up in their businesses
over many years go down the
drain. He believes the problem isn’t
just lowered demand. “We’ve been
over-producing fairly consistently,” he
says. “If this keeps up, all the growers
are going to go broke.” Other Idaho
farmers point out that, while Idaho
potatoes used to be a recognized
“brand,” and commanded higher prices
than others, that advantage has now
lapsed, exacerbating the price problem
for Idaho farmers.
“We’ve operated on the assumption
that with free enterprise, hard work,
and good weather we’ll do okay,” says
Wada. “But the other side of that coin
is globalization of the market.”
The advent of the North American
Free Trade Agreement (NAFTA),
which opened U.S. borders to the
import of farm products from Canada
and other countries, has put a heavy
downward pressure on the prices
American farmers can get for their
potatoes. “Historically, we would get
two years out of five that we made
decent money,” Doug Hanks, president
of the Potato Growers of Idaho,
says. The two good years would get
the farmers comfortably through the
three bad years. But in the last
decade, under NAFTA, he says, “It’s
more like two out of ten.”
The problem of foreign competition
hit home for Idaho farmers in
2003, when a large French-fry processing
plant in Canada began production
– replacing one in Idaho – and the
United States became a net importer
of French fries. The announcement of
the Idaho plant’s closing had come
after the 2002 crop was already planted,
resulting in a large surplus of potatoes
in the state.
In 2003, despite voluntary acreage
reductions, farmers realized an even
larger surplus. The resulting low prices
have affected potato prices across the
country.
Co-op role in supply management
Wada thinks the answer lies in
managing the supply of fresh potatoes.
He founded United Fresh
Potato Growers of Idaho in late
2003, hoping it would form the
nucleus for a nationwide federated
cooperative with member co-ops in
each potato-producing state. The
idea, he says, is to unite potato growers
and “rationalize the industry,” by
tailoring production to the market,
much the same way milk producers
have managed to do with dairy production.
The plan is called United
We Stand (see sidebar).
Attorney Randon Wilson, legal
counsel for the co-op, stresses the need
for the effort to conform to the
Capper-Volstead Act so as not to be
subject to anti-trust laws. That means
that packers and other ineligible businesses
can’t participate. “We’ve got to
be a pure farmer’s cooperative,” he
says.
With the formal organization of the
national federated cooperative this
March, the effort is underway.
Representatives of state and regional
potato-grower associations and cooperatives
voted Albert Wada the interim
chairman, and pledged to help set up
the state and regional co-ops that will
form the foundation for United Fresh
Potato Growers of America.
The effort will face a number of
challenges. The first is the necessity of
getting enough producers on board to
be effective. Not only must a high proportion
of growers join, but the co-op
must represent all the major potatogrowing
states. “We need to get participation
from all the significant growing
areas,” says Wilson. “If we don’t, it’s
curtains for this deal.”
Potato farmers tend to prize independence,
and don’t have the same
kind of strong cooperative tradition
that helped the organizers of the
CWT program in the dairy industry
(See Newsline, page 33). But Wada
and David Beesley, the secretary of
United of Idaho, say that the beauty of
their program is that it preserves
farmer autonomy.
Producers will still sell their crop to
whomever they wish, for terms agreed
between buyer and seller. And as long
as prices remain above the trigger point,
the program will take no action. Should
supply reduction be necessary, participation
in buyouts of acreage or crops
would be entirely voluntary. A farmer
with formal or informal obligations to
sell his full output to buyers would still
be able to do so; others with comparatively
more incentive to reduce production
would bid to reduce their own.
supply reduction be necessary, participation
in buyouts of acreage or crops
would be entirely voluntary. A farmer
with formal or informal obligations to
sell his full output to buyers would still
be able to do so; others with comparatively
more incentive to reduce production
would bid to reduce their own.
“One thing we want to be careful
about is how we treat our customers,”
said one farmer at the organizational
meeting. “And this program will allow
us to treat them with respect and preserve
our good relationships with
them.”
Two approaches to
Supply management
“There are two basic approaches to
dealing as an industry with oversupply,”
says attorney Wilson. “One is to
seek a government program, such as
marketing orders or subsidies. The
other is for the industry to take the
initiative to unite and pursue programs
of mutual benefit.” Many farmers are
very reluctant to seek a government
marketing program or other assistance,
for fear it will compromise their independence,
he says. “Often, federal programs
mandate participation. But the
beauty of an industry program like this
is that it leaves growers free to make
their own decisions.”
Some experts wonder if large buyers
such as Wal-Mart and the large supermarket
chains will balk at attempts to
raise prices, and seek alternative
sources. But Beesley says that, for the
most part, the large customers would
like to see a stable price situation.
“They can’t plan ahead with prices
going up and down the way they do
now,” he says.
One possible stumbling block is the
cost of participation. Member farmers,
many already strapped for cash, will be
required to help fund cooperative
administrative programs. In addition,
co-op funds may be used to offer
incentives for switching acreage to
other crops, and, if necessary, to buy
out portions of a crop after harvest.
Under the dairy farmers’ CWT program,
farmers pay into an indemnity
fund, through an assessment on projected
output, for this purpose.
However, no decision had been made
at press time about implementation of
such a program.
The cost of such an indemnity
fund should be seen as a highly
attractive investment, says Carl
Taylor, chairman of United of Idaho’s
Future Crop Committee, who hammered
out the basic United We Stand
plan. “If you pay in 40 cents a hundredweight,
but in return you get a
price for your crop of $4.50 instead
of $2, you’ve just made a profit of
over 1,100 percent.”
This strategy assumes that buying
out acreage and harvested potatoes will
be cost-effective. The co-op cites
research by the University of Idaho
indicating that a 1-percent decrease in
fresh potato supply can be leveraged
into a 7-percent rise in prices. The ultimate
return will depend on the prices
farmers are willing to take for reducing
their crops and other market factors –
most especially how many farmers
decide to participate in the co-op.
Will enough potato farmers sign up
to make the plan work? “We’ve tried
to get something like this going
before,” says Doug Hanks, “But we
couldn’t reach critical mass.” However,
he says, “Now the willingness to do
something is at ‘must’ level for growers
in Idaho and across the country,
because of continued low returns
they’re getting for fresh potatoes.”
Potato farmers at the National
Potato Council conference expressed
varying degrees of hope and skepticism.
“I don’t know if it’ll work, but we
need to do something,” said one. Most,
however, seemed cautiously hopeful.
Wilson is enthusiastic about the coop’s
chances. “I have high hopes the
farmers will deal with this problem as
an industry, that they will work together
to bring the supply of potatoes into
line with the demand. That’s the name
of the game.”
The United We Stand program
United Fresh Potato Growers of America envisions
a two-pronged approach to influencing the market,
similar to the successful Cooperatives Working
Together (CWT) program that has helped shore up milk
prices by removing some excess milk capacity (see
page 33).
The first prong is the withdrawal of a calculated
amount of productive acreage. If acreage restrictions
fail to result in sufficient upward pressure on prices,
the second prong calls for restricting the number of
potatoes harvested .
To limited planted acreage, a base acreage will be
defined using historical information verified by USDA’s
Farm Service Agency (FSA). Planting commitments by
farmers will be gathered every year by Feb. 28, and the
co-op will perform a comprehensive demand/supply
analysis, considering such factors as potential yields,
projected market demand, etc.
If the market analysis indicates that the projected
crop will be too large, the cooperative will offer to pay
farmers for retiring potato-producing acreage. Farmers
will bid to plant alternative crops for a chosen price
per acre. Factors to be taken into consideration for
bids will be the location of the farm, its potential productivity,
the varieties of potatoes grown and, of
course, the price the farmer agrees to accept. Co-op
officials pledge that all information provided by producers
will be held in strictest confidence.
Farmers or their agents would take part in frequent
conference calls throughout the year discussing prices
and expected output in their respective areas.
The June 1 potato planting report, issued by USDA’s
National Agricultural Statistics Service, will serve as a
possible warning bell for a potential surplus. Using the
latest information, the co-op will perform another
demand/supply analysis, and determine if growers
should be encouraged to voluntarily limit production by
minimizing inputs on selected acreage.
Another analysis will be done Aug. 15. If projected
yields are not compatible with favorable prices in the
projected market, the co-op may ask farmers to
destroy a portion of the crop in the field. If low price
conditions arose after the harvest, measures would be
taken to limit shipments of potatoes until prices rise to
a reasonable level. Other potential supply-management
tools include a “B market” strategy that would
divert potatoes to export and to non-conventional uses
such as animal feed.
To head off potentially disastrous prices in the coming
year, the cooperative is also attempting to institute
a crash crop-acreage buydown for the 2005 potato
planting.
