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By Dale Lathim
Sometimes things are so obvious that we have a tendency to overlook them. One example of this was brought up by one of my favorite growers at a negotiating meeting this summer. The grower told the story of how a major local supplier of his was out of stock on a particular item of which he needed a substantial quantity. The supplier said he would contact the manufacturer about getting more in stock. The grower suggested that he just have the manufacturer direct ship him the amount of the item he needed and bill him directly. The local supplier nixed that idea because if that was done, he would not get his 20 percent markup on all of the items that he needed in order “to keep the lights on” at his dealership.
The grower was rightfully worked up over this comment as he could tell that the local supplier was only going to make a phone call and would never touch the items or be out any money or time as the grower would immediately pay the bill either way. Yet the local supplier would be sure to get his 20 percent margin on a very large order, just for placing that phone call to make the order with no “skin in the game.”
After telling this story at the negotiating meeting, the grower went on to ask the processors when he was going to be guaranteed a 20 percent margin for all the “skin he actually has in the potato game” with all of the time spent away from his family all season while growing, managing, harvesting and storing the crop, not to mention the thousands of dollars per acre he has risked to grow the crop. Unfortunately, the grower did not receive a very detailed satisfactory answer to his question, but it makes a very good point that we all know, but rarely talk about.
We have been talking about grower profit margins for the past six years as the processors continue to squeeze them down each year. Are growers still making a profit? In most cases, yes, they are. But they are so far out of line with every other layer of the industry that growers are starting to wonder if they want to stay in the potato game if margins don’t improve greatly in the very near future. No supplier of theirs is lowering their margins to absorb some of the squeeze that the processing companies are putting on the growers, and that includes the processing companies themselves.
At Potato Growers of Washington, we are working hard to get the 2022 contract prices fully negotiated by the time growers need to make cropping decisions for next year. Many growers are looking at growing alternative crops and/or considering other alternatives such as leasing ground to others who have the machinery and expertise to grow these other crops. No potato grower wants to look at alternatives as potatoes have been the top crop to grow in the Columbia Basin for decades. But current economic conditions forced by the processors are making many growers rethink the importance and reliance they have been placing on potatoes in their operations.
The only way this situation will improve is if we all work together. Wouldn’t it be nice to be able to sign a pre-season potato contract knowing that as long as you grow an average crop, you will make a reasonable return on your investment? We urge you to work with us and help us raise the bar for all potato growers who supply frozen potato processors.
