By Dale Lathim
Now that we are several months into the COVID-19 pandemic, it is becoming clearer that many aspects of life as we knew it will no longer exist. This is true for the potato industry, as well.
Prior to the pandemic, all sectors of the industry valued having a potato contract with a frozen potato processing company. However, since this spring when contract acres were dramatically reduced right at or slightly after planting, the true value of the contract has been revealed. This goes for long-term contract commitments, as well as joint venture type arrangements in many cases.
I will give credit where credit is due and commend the one company in the Columbia Basin that did not reduce its long-term/joint venture commitments one acre. Another reduced its commitment by less than it did for the annual contract growers, and the third reduced all growers and contract types the same.
Growers traditionally give up a percentage of their revenue or share in the profits with the processing company for long-term volume commitments. In the past, it was thought that the grower was paying for the privilege of not risking any volume reductions when those times came around. Now that we have seen that the minimum volume in those arrangements is not firm on the processing side with the exception of the one company, many growers and their bankers are questioning the value to the grower for having such an arrangement.
The thought is now that since the firmness of the commitment seems to rely 100 percent on the grower, shouldn’t all new arrangements being made have a premium paid to the grower instead of the processor? Time will tell if that comes to happen, but the thought is there and the value of the contract has totally evaporated as more than one bank is now saying they will look at financing contracted potatoes the same as they would fresh or open potatoes. While this makes total sense for the banking side of things, it will more than likely force more smaller growers to seek non-traditional funding sources and may lead to further consolidation of the grower community.
Another aspect of the contracting situation that will no longer be the same is how growers plan for future growing seasons. With less certainty in the contract volume that will actually be wanted by the processor, growers can no longer assume that they will have the same volume as the year before unless their field person tells them in the fall of any reductions. That had been the mantra of most processing companies for years. Growers would heed that advice and make financial commitments to their processor for land and seed, prepare the ground with fall fumigant and fertilizer and plan their rotations accordingly. The processors have silently asked the growers to make more than a $1,000/acre commitment to them while the processor takes the time up until planting to view the world market for as long as possible before returning the commitment to growers in the way of contract volume.
The one sidedness of the grower commitment will be altered as many growers will be hesitant about how much of their livelihood they are willing to commit before receiving a firm commitment. Even in cases where growers may want to make those commitments early, their banks may not be on board with financing those activities for the coming year until the books are closed on the current crop.
Our industry has done a great job of absorbing the body blows that have come our way this year. At the beginning of the year, the question was would we be able to make enough frozen potato products in North America to meet the ever-growing demand. By April, we were wondering just how far demand would fall with the pandemic and the subsequent economic shutdown to August when things were looking somewhat stable and slowly returning to normal.
Very few segments of any industry could have handled that as well as the potato growing community. We should all be proud of what we have endured and accomplished. But whenever humans go through what we have gone through, things will never be exactly like they were before. Hang on, the wild ride is not over yet, but the new normal is starting to appear on the horizon.
