The Capper Principle

Is it worth the effort?

Published in the January 2013 Issue Published online: Jan 25, 2013 Jerry P. Wright, President CEO, United Potato Gro
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To stay afloat, a business must make a profit on what it produces. When Sen. Arthur Capper took to the Senate floor in 1922, this Kansas boy knew well the vagaries of making a living producing a farm commodity. Finding growers perennially at the bottom of the economic heap, Kansas Sen. Capper and Minnesota Congressman Volstead decided to help their beleaguered constituencies. How could a Midwestern, 160-acre corn grower negotiate on equal terms with a massive, Chicago-based, grain-trading corporation?

With this challenge in mind, Congress passed a series of bills in the 1920s and 30s that addressed agricultural policy. Out of these bills grew a system of government-managed commodity supply control. Managing a commodity's supply stabilized its price, and rural America prospered thereby. Government supports commodity prices today by the same method. This policy has idled over 50 million acres during times of low commodity prices: 1955-1973 and 1984-1995, most recently.

Government-managed crops include corn, wheat, soybeans, cotton and others. But what if a grower produced a non-government supported crop? What if the grower produced a specialty crop like citrus or tree fruits, or a vegetable crop like lettuce or potatoes? This is where the Capper-Volstead Act made life equitable for all growers who met the requirements of the law: Individual growers, affiliated together as legal cooperatives, would not fall under antitrust statute as they organized, matched supply to demand and stabilized their market.

The Capper-Volstead Act also gave the Secretary of Agriculture the ability to intervene if an agricultural cooperative "unduly enhanced" the price of an agricultural product. But, in 90 years since the Capper-Volstead Act was enacted, not a single cooperative has been cited by the Secretary of Agriculture for antitrust violation or for price gouging. Why?

As Sen. Capper fought for his bill, senators from states with large metropolitan populations objected; after all, re-election often depends upon low grocery prices. To get support for his bill, Capper had to remind his fellow senators of the most basic of capitalist principles, namely: Excessive profit in any market attracts competitive capital to that market. This newly attracted capital introduces competition. Competition narrows the profit margin.

But the real genius behind a capitalist economy is of even greater impact: free-market competition not only narrows the profit margin, it ultimately reduces consumer price to its lowest sustainable level-think of the Walmart model. Nicknamed the Capper Principle, this principle of capitalism proves itself repeatedly by keeping the price of American foodstuffs at the lowest percentage of consumer income in the world.

In 2005, following years of disastrous markets, potato growers organized under Sen. Capper's helpful legislation; they formed the United Potato Growers of America. While the advantage of organizing could be seen, unseen was the Capper Principle; creating a healthy fresh-potato market in a capitalist economy would attract competitive capital, and so it has. So the question becomes: Was it worth the effort in the beginning and is it still worth the effort? The proof is in the pudding.

While all markets cycle, it is a market's trend that tells a tale. Being a potato grower pre-United is not the same as being a potato grower post-United. For 20 years prior to United, Idaho's fresh-potato grower averaged a 1.1 percent return on investment. In the seven years following, Idaho's potato grower fared far better. Other potato-growing regions' profitability strengthened similarly. Are the good times over? That depends completely on whether today's collection of growers and shippers are willing to intelligently match their farm production with actual consumer demand. United knows that number.