Sustainable Profitability:

A team effort?

Published in the February 2013 Issue Published online: Feb 28, 2013 Jerry P. Wright, President CEO, United Potato Gro
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A quiet historical coincidence happened in America's special year of 1776. The Scottish social philosopher and early economist, Adam Smith (1720-1790), published An Inquiry into the Nature and Causes of the Wealth of Nations. In his pioneering work on economics, Smith identified a concept that he labeled "rational self-interest."

Smith perceived a correlation between an individual's economic prosperity and his moral behavior. He described how seeking self-interest within a set of moral obligations leads to prosperity. Smith's rational self-interest theory spoke to a person's desire to do the best possible in his own interest, a natural tendency and goal. What made virtue out of this seemingly egotistical and selfish vice was Smith's acknowledgement of a person's ability to confine their behavior within a set of moral obligations. For a potato grower, what might those moral obligations be, exactly?

Among the highest obligations a potato grower faces is protection of his family's equity. Equity is best protected-in fact is only protected-by profitability. Thus, ensuring his farm's profitability becomes a potato grower's moral obligation. But, how can a potato grower ensure profitability when everyone knows that growing potatoes can be a very risky business?

Smith's use of the term "rational" suggests that the term "irrational" can also apply. What would be an irrational approach to growing potatoes? How about growing them in an information vacuum? How about using hope as a strategy for growing open potatoes? How about failure to take into account all of the segments of the potato industry: dehydration, frozen process, fresh and seed? Like it or not, any segment at any time may affect another segment, especially when over- or undersupply happens.

Besides just examining his own unique situation when formulating a crop plan, how about a potato grower truly understanding consumer demand and how, when and where his production fits profitably into markets? Think about this: How many times has just one grower in your community made money on his potatoes while everyone else lost money on theirs? The answer: Rarely if ever.

Why would that be? Why is it so hard to show a profit on your potatoes when all of your neighbors are losing money on their potatoes? The answer: Like it or not, acknowledge it or not, making money as a potato grower is a team effort. Play the game however you will, winning or losing depends not only upon your decisions but also upon your teammates' decisions as well.

Is being linked to a `team of potato growers'-seed, process and fresh-necessarily a bad thing? Quite the opposite. Since all within a segment depend upon the same market, and since supply determines the market, managing supply manages the market. And here's the truly great part: Congress not only allows growers to manage supply, Congress hopes they will do it! Knowing that growers are always in a disadvantaged economic position, Congress leveled the playing field with the Capper-Volstead Act of 1922, which allows growers to engage in certain activities to support price by managing supply. Why? It only makes sense that growers not remain constantly disadvantaged. It only makes sense that rural economies, the ones forming the basis of the national economy, prosper.

Seeing the potato industry as a team effort, with each individual player on each special team doing his part, is unquestionably a rational route to dependable profitability for all players. What are your thoughts?