By Dale Lathim, Potato Growers of Washington
One of the defining characteristics of the potato industry has always been the partnership between growers and processors. Neither succeeds without the other. Processors need a dependable supply of high-quality potatoes, and growers need financially healthy processors that can compete and invest in the future. That partnership has served our industry well for decades.
But partnerships only remain healthy when both sides share in the rewards – and the challenges.
Following the difficult market conditions several years ago, we made meaningful progress restoring grower profitability through the 2021 and 2022 contract negotiations. Those agreements recognized that growers could not continue absorbing escalating production costs without corresponding improvements in contract pricing.
Unfortunately, that progress has been reversed.
For each of the past three crop years, growers have accepted reductions in contract prices while the cost of producing potatoes has continued to climb. Inputs such as labor, crop protection products, equipment, irrigation, financing, insurance, and regulatory compliance have not become less expensive. If anything, they continue to move in only one direction.
At the same time, most processors – the J.R. Simplot Company being the notable exception – have reduced contract volumes. Producing fewer contracted acres doesn’t simply reduce revenue; it also reduces efficiency. The fixed costs of specialized potato equipment, storage facilities and skilled labor must now be spread across fewer acres and fewer hundredweight, increasing the cost of every potato produced.
These developments come as processor profitability has largely recovered. While most privately held companies do not disclose financial results, the one publicly traded processor that does report its earnings has returned to profit levels comparable to those enjoyed before the industry’s downturn. That is encouraging news. Strong processors are essential to a healthy potato industry.
However, processor profitability alone cannot be the measure of success.
If growers are forced to accept little or no return on the tremendous investment and risk required to produce a potato crop, many operations simply will not remain financially viable. Potato production is among the most capital-intensive and risk-laden crops in agriculture. Weather, disease pressure, pests, water availability and changing regulations all create uncertainty that growers willingly manage every season. That level of risk deserves the opportunity for a reasonable return.
Another example illustrates the imbalance that has developed.
Processors continue encouraging growers to evaluate new potato varieties that may produce higher yields, require fewer inputs or offer other production efficiencies. Growers willingly devote land, management time and financial resources to testing these varieties because innovation benefits the entire industry.
Yet when those efforts succeed and a variety proves capable of lowering production costs or increasing yields, the conversation often shifts toward reducing contract prices so processors capture nearly all of the economic benefit. The grower assumes the risk of developing and proving the variety, but once success is achieved, the reward is too often transferred almost entirely to the buyer. That approach discourages innovation rather than encouraging it.
If growers are expected to invest in new technologies, management practices and varieties that improve efficiency, they should also participate in the value those improvements create. That is how partnerships work.
Throughout my career, I have heard processors describe growers as partners. We are reminded that “we’re all in this together.” When processors face new customer demands, sustainability initiatives, food safety requirements or other challenges, growers are routinely asked to invest additional time, capital and effort to help meet those needs. More often than not, growers respond because they understand that the long-term health of the industry depends on cooperation.
Partnership, however, is a two-way street.
Today, growers are facing very real economic pressures. These concerns are not negotiating tactics or temporary complaints. They are the financial realities confronting farm businesses that continue to absorb increasing costs while revenues move in the opposite direction.
The potato industry has been successful because growers and processors have historically found solutions together. That same spirit is needed today. Growers are not asking processors to be unsuccessful. Quite the opposite. We want processors to remain profitable, competitive and financially strong.
But processors must also recognize that healthy processing companies cannot exist indefinitely without healthy growers. Long-term sustainability requires that both sides earn a fair return.
It is time for processors to truly listen to the challenges growers are facing, understand that those concerns are genuine and recommit to the balanced partnership that has made our industry successful for generations.