The intimate relationship between information and capital

Published online: Jan 12, 2018 Articles Mark Klompien, President/CEO, United Potato Growers of America
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This column appears in the January 2018 issue of Potato Grower.

Growing up on a family seed potato farm in the Gallatin valley of southwestern Montana, one thing was always very clear to me: Not only did my dad and mom work really hard, but they had invested their hearts and souls into that way of life. They had also invested essentially all of their capital into the family farm. Though not being able to relate as much to that aspect at the time, production businesses such as agriculture require very large amounts of capital investment.

Production ag operations require capital to purchase assets such as the land they farm, the machinery to plant and harvest crops, irrigation systems, and farm structures to store and process those crops. They also require operating capital for things like seed, fertilizer, labor and insurance. So how do these very large capital investments relate to information? Successful investment of one requires the successful acquisition of the other.

While agriculture’s capital requirements for both fixed assets and operating funds are almost always proportionately large, they also can vary greatly from operation to operation. The total capital variance between a Montana dryland wheat farm and a Columbia Basin potato farm can easily exceed 10 times. The value of information between the two types of farms varies just as much. Wheat requires relatively simple cultural practices, and wheat’s market information and corresponding value is globally based. No matter how intensely the dryland wheat grower studies world wheat markets, such a study usually avails him little advantage in his crop returns. In stark contrast, the Columbia Basin potato grower, who finds himself entirely invested in the constantly churning fresh produce business, must incorporate supply and demand intricacies into most every decision. He must stay thoroughly in touch with the potato market, and this only happens through a constant feed of reliable information.

There are many examples of fresh produce crops that are returning fair profits from their capital investments, from tomatoes and pears to citrus, driven by growers who demand and act upon reliable market information. Then there are positive examples from our own potato industry. The success of the 2017 red potato crop transition was achieved precisely because of a strategy based on information carefully gathered and collaboratively acted upon, where despite increased production the market was maintained to bring growers a fair return.

Yet another example of the power of well-utilized information is that of a balanced supply situation in the current 2017 russet potato crop. Growers, understanding the volumes that the fresh-potato market demands and producing to that number, have created a favorable market environment where they can expect a fair return on those large capital investments. Perhaps most impressively, they hold this power of information that will allow them to bring those fair returns from year to succeeding year. Pairing market information with capital investment is critical to a potato grower’s long-term success.