Consolidation

A more efficient machine

Published in the August 2009 Issue Published online: Aug 06, 2009 James E. Wysocki, United Potato Growers of Wisconsin

The fresh potato industry can increase its return by $2 per cwt-all it requires is growers working together to reduce marketing and packaging costs.

In today's market, customer consolidation has reduced the number of buyers and increased order sizes. Technology has reduced time required to process an order. This results in more sales firms and employees than needed.

Reducing sales firms and employees by 50 percent could reduce the selling cost by 25 cents per cwt. By consolidating firms and improving their marketing to customer capabilities, 75 cents per cwt would be gained from the market place.

Technology has also reduced the labor and increased the fixed cost components of packing potatoes. The fixed cost of running a facility at 80 percent of single-shift capacity is $2 or higher per cwt. This over-capacity of packing facilities is crippling our industry every year regardless of crop supply or market price. The over-capacity was created as technology reduced the labor required per cwt and increased the cwt capacity of the packing lines.

Our industry operates at 80 percent of single-shift capacity. This is not sustainable, and our customers and the consumer will not pay us for this inefficiency; it will come from growers and bankrupt facilities. If our industry consolidated volume to the most efficient one third and ran two full shifts, the grading charge could be reduced by $1 per cwt as an industry.

One method is to have several marketing firms agree to merge by valuating all their assets and setting a value on volume being contributed and issue stock in the new entity. The marketing would be consolidated into one facility, the best employees would be retained and excess buildings and assets sold with the proceeds going to the new entity. The new firm would operate with profits passed through based on volume committed by the owners and the managing owner would receive a salary.

Several neighboring packing facilities could also agree to merge by valuating all their assets and setting a value on volume being contributed and issue stock in the new entity. All packing would be consolidated into the most efficient facility and the excess building and equipment sold.

Importantly, the end result would be that everyone wins. The remaining marketers would be able to focus on providing valuable market solutions to the customer, at fair prices to the grower relative to supply instead of matching low prices.

United and the United States Potato Board have shown that improved marketing by sellers and retailers can increase fresh potato consumption and grow our industry.

Under this scenario, growers would have a lower cost of packing, higher market prices, reduced marketing costs and a larger market presence. Marketers, packers and growers all should share a common goal. The pride and security of operating your own marketing and packing facility would be replaced by the pride of being part of a highly successful marketing and packing firm. The bottom line would be more money in grower pockets.

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