Plus or Minus One

Moderation and cooperation are keys to success in the fresh potato business.

Published online: May 30, 2018 Articles Buzz Shahan, Chief Operating Officer, United Potato Growers of America
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This column appears in the June 2018 issue of Potato Grower.

Acknowledging as a potato grower that profitability depends more upon tailoring your crop’s delivered volume than it does upon any other production factor, how much attention should you give to making sure that your production-volume analytics are exactly right? To further make the point of this opening statement, let’s go back 150 years to Boston’s farmer’s market:

Imagine yourself in late summer 1868 on Boston’s outskirts, watching your potato crop approach field maturity, hoping desperately that your potatoes will be the first ones to appear in Boston’s farmer’s market. Why would your attention be so acute? Because if your potatoes ripen in concert with every other farmer’s potatoes, you will all arrive in the market at once, glutting it, and price will be the only lever left to get the ladies to buy your potatoes and not your neighbor’s. As you look back over the summer, it’s only too obvious that that is exactly what happened to your strawberries, to your peaches, to your cabbage, and to everything else that you labored so hard to produce. With your mind reviewing disastrous glut after disastrous glut, logic suggests that there must be a better way; and there was (or is).

To stop these gluts from ruining their economic lives, knowing that food was a necessity all people must have, farmers began getting together and regulating the amount of produce going into a market, and presto! Price stabilized and stabilized at whatever level the farmers decided. This practice became common in small and large cities alike and spread to many other consumer products. Unhappy with rising prices, consumers brought heat on politicians, and Congress passed the Sherman Antitrust Act of 1890, prohibiting producer collaboration.

The unintended consequence of this ill-advised crackdown was that the farm economy immediately fell into deep recession. Farm profits that once energized the nation’s largest economic sector—agriculture—had been taken away. With the agricultural economy forming the basis of the national economy, the national economy fell apart as well. Recognizing the harm they had done to one of agriculture’s vital economic aspects, politicians reversed themselves and passed the Clayton Act, whose Section 6 exempts agriculture and labor from antitrust legislation. What’s the message here?

In today’s free-market economy, growers of fresh produce only get a fair return on investment (profit) by matching supply to demand through an organized, legally sanctioned effort. To omit producers’ intense focus on supply as price’s fundamental driver, and getting it right, is to throw price (a fair return) to the wind and wait, instead, for random supply impulses to determine one’s financial future. This makes no business sense; it is economic Russian roulette. Today, virtually every successful fresh produce segment recognizes the economic fundamental of supply and focuses on it.

An old-timer in the process contract business advised, “Always be one load short or one load long on a process contract—never more nor less, even if the balance goes to the dump.” This observation of supply’s unmatched value in creating price applies just as well to fresh, non-contracted potatoes as it does to contracted potatoes—or to fresh strawberries, or to lettuce, or to any other produce segment. Something to think about.