Supply In Check

Out with the old, in with the new

Published in the June 2009 Issue Published online: Jun 05, 2009 Buzz Shahan, Chief Operating Officer, United Potato Growers of America
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As shipping the 2008 potato crop winds down, what have we learned?

When supply reports came in last fall, two great forces seemed to converge: the market for fresh potatoes was at an all-time high, and the 2008 fall harvested crop seemed poised to record significant profitability. Then along came the global market adjustment-people ate out less, process contracts came into question, Idaho's pack-out percentage leaped and suddenly the fresh market was in decline.

So, what have we learned?

We learned that even though Idaho growers cut acres by a whopping 13 percent from 2007 to 2008, they will still manage to ship nearly the same volume as the last few years, an amount that drops price-and revenue-to barely break-even levels. What does this mean going forward?

If Kern County is any indication, we're in for trouble. Kern's acreage went up about 6 percent in 2009 from its 2008 level, just below industry analyst Bruce Huffaker's dire prediction of an 8 percent bump. Since Kern only plants 0.05 percent of Idaho's acreage, the market can deal with Kern's tiny increase. But what will happen if other potato growing areas follow Kern's lead?

Another take-away from this shipping season is that even though supplies might be in line, and it appeared to be in line last fall, glutting the market by over-shipping negates the value of supply management. Have we ever seen an oversupply of potatoes well managed, even managed such that growers benefited all around? We have.

When Central Minnesota waded into their crop last summer, they began harvesting the largest yields ever recorded in the area. Because a glut had been anticipated even before fantastic yields were evident through the crop transition meetings conducted by United Potato Growers of America, United Minnesota growers had agreed to pre-sell a volume sufficient to relieve market pressure by working with retailers through forward pricing agreements.

Pre-selling this amount of product eased the pressure to sell on the day-to-day sales desk and increased consumer demand by having retailers expand their features and promotions. Not only did the market stabilize when all indications were that it should fall, it rose.

The second red challenge came when Central Minnesota lingered in the market for several extra weeks, treading on space that the Red River Valley depended on and had customarily taken. But reason prevailed and a miracle happened: Red River Valley growers, rather than demand their market share, delayed shipping until Minnesota waned, then went on to manage shipping levels and timing to an advantage previously unimagined. Red River Valley growers made money through informed collaboration with each other, with Central Minnesota and with Wisconsin.

Quoting United founder Albert Wada, "Growers working together makes them more money than growers working against each other." Generous communication and reliance upon supply and shipping information produces sustainable and needed profits. Only four years ago, reliable market information was unavailable and communication systems had not been established. Today growers have both.