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By Dale Lathim
Many years ago, when I was speaking at a grower meeting, my message was that growers needed to be just as concerned about the growers in other growing regions as they were with their neighbors. That was true then, but it is even truer today.
Part of the reason behind my statement at the time was that processors were starting to look to areas other than the Columbia Basin for future expansions. Also, the only growth that the industry was experiencing for many years was in exports, and that market was becoming more competitive, even back then.
Since that time, processors have expanded in many other growing regions of North America. But over the past decade, we have had significant production capacity increases even in the Columbia Basin. So, with the industry seeing phenomenal growth over the last 30 years and production in the Columbia Basin increasing almost 50% during that time, one would tend to believe that processors and growers here would be on top of the world. However, that is not even close to where things are today.
While the expansion we have experienced here is wonderful and welcomed, it came at the peak and then the slowing down of the expansion that was happening worldwide. While processors here were constrained for many years by the limits of their production capacity, often running each plant at well more than its engineered capacity for years on end, many other regions were adding new capacity as fast as it could be built. So, for nearly all of the previous decade, our volume of production has increased yearly up until 2020 when the pandemic hit. Unfortunately, the demand for frozen potato products grew at a faster rate than we were able to expand, and our share of the world market went down every year.
As the industry tries to rebound from the pandemic, my message to growers has become that they need to be knowledgeable about the crop and market conditions all around the globe as the industry has become completely global. This includes processors in the Columbia Basin, all three of which have new plants in South America and Asia. In addition, China, one of our former top export customers, has now developed its own domestic potato processing industry to where it needs very little product from North America to meet its own market demands and has expanded into competing with us for our existing customers in the Pacific Rim. India is also starting to be competitive, and the European Union has only gotten more competitive as it now dominates the world market.
So, what does this mean? On the positive side, it means that the world continues to love frozen potato products, and that market is still growing. Unfortunately, due to the high cost of North American products, our share not only in the export markets, but also domestically, is starting to shrink.
Last week, my good friend Mark Ward sent me a picture of a bag of French fries sold in his local Safeway store that was labeled “product of Belgium.” I was aware that a huge portion of the retail business on the East Coast and into the central part of the country was now being supplied by a Belgian processor, but this was a shock to me that it would be happening in the Pacific Northwest as well. I had to see for myself and visited Safeway stores in several cities and found that all the family-sized bags of fries and tots that I inspected were, in fact, labeled “product of Belgium.” The reason this product is for sale here is the same as any other product in any other industry in America: it is cheaper and nearly as good as the products we make here.
There are many reasons that it is cheaper, including the high value of the U.S. dollar, which is one factor that we can’t do anything about. But the reason that I am sure will be thrown at us when it comes to contract prices for next year is the cost of potatoes.
I will say right now that it definitely is not the cost of the potatoes. A pound of fries has only about 16 cents worth of potatoes in it. As a percentage of the cost of the fry, potatoes have never been less than they are today. Growers have trimmed all the excess out of their operations and only the most efficient have survived the challenges of the last 20 years. There is more gross profit (based on the one publicly traded company’s financial statements) per pound of fries than the cost of the potatoes to make that pound of fries.
Another piece of evidence that the price of potatoes is not the reason North American processors are struggling with sales right now is that there are multiple experienced potato processing companies looking to expand into North America to take advantage of our high-quality raw product for the price. In each case, those building and those still planning to build have no stated issue with the price of the potatoes. In fact, the one under construction appears to have a potato contract that is very fair and far less risky to the grower. That means that for our processors to be able to compete, they will need to make adjustments and find ways to cut costs just like they made growers do over the past couple of decades.
The frozen potato products industry is still one of the greatest agricultural industries and it continues to grow. It has become so global that all our processors have a choice of which continent they want to supply their customers from. While this growth has created competition like no one has seen before in our industry, growers have done all that they can do to keep our processors competitive worldwide. Now it is up to our processors to do their part. If they do, we will all be successful.
