By Dale Lathim
If you follow this column closely, you might recall that I have pointed out numerous times when Potato Growers of Washington (PGW) has chosen to evolve to keep up with the ever-changing environment of the potato industry. Just a few years ago, we chose to restructure our voting procedure, moving from the one-man-one-vote system used in most organizations to a new structure in which each vote is weighted based on the member’s potato production the previous year. This change has proven to be very popular and successful in addressing the divergent needs of growers both large and small.
Now it is time for another evolution.
For several years, growers in the northern part of the Columbia Basin have been complaining that they never see the yields that many growers in the south basin get on a regular basis. While this has always been the case, the situation was tolerable when there was enough profit in the contracts that offsets in yield were offset by lower costs. As processors have squeezed the profit down so low in the contracts and production costs have gone up faster in the north basin than the south, the offsets are no longer enough to make up for the difference in yield.
All pre-harvest inputs that growers make to produce a potato crop are made on a per-acre basis. Harvest, hauling/handling and storage of the potatoes are the only inputs that are calculated in relation to the volume of potatoes produced. There is no argument that growers in the southern basin have always had higher growing costs due to higher land costs and longer growing seasons, requiring more crop inputs. However, that difference is getting smaller and smaller as land costs in the northern basin have risen sharply the past few years as competition from other crops, especially permanent crops, intensifies.
It seems like this should be a pretty easy problem to rectify. However, the tradition in the Columbia Basin for the past three-plus decades is for the largest of the processors to go first in establishing the contract price and the smaller processors to match that price at average quality levels. However, with the recent expansions that have taken place, a much greater percentage of the largest processor’s volume is being sourced in the higher yielding southern basin. Having that processor use its overall average yield and quality to establish the price for all potatoes in the Basin no longer works.
In a perfect world, having one price for all potatoes would be a great deal for the growers in the south basin if the north basin growers were able to be at a reasonable profit margin. After all, processors are buying potatoes on a per-ton basis. Why do they care how many acres of land it took to grow them? In the real world, all buyers want to get the best product at the lowest possible price. Therefore, if processors price the potatoes at the lowest possible price and still get their volume in the higher yielding south basin, that price will not work in the lower yielding regions.
PGW has had the philosophy of a level playing field for more than 25 years. Our thought was having each processor pay at average the same price for the same hypothetical average lot of potatoes by variety and delivery type was the fairest way to help our processors focus their marketing efforts on factors other than raw product pricing. Now, we must not only include the level playing field for them, but we must also start to level the playing field for growers in all parts of the Basin.
Our new challenge is to find a reasonable, sustainable profit level for each part of the Basin – not only for the growers, but our customers, the processors.
This will be a very monumental task that will take time to get right. But no race was ever won without that first step being taken. We at PGW recognize this issue and are making it a focus of our attention as we go forward with contract negotiations.
