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King Spud Struggles To Stay On Top Idaho Potatoes Facing Competition From New Domestic, Foreign Rivals

Sun., April 27, 1997

David Beesley has been working around potatoes his whole life, but right now he cannot bear to look at his 10-ounce dimpled bakers piled 12 feet high in a storage shed.

That is because Beesley, a 50-year-old farmer, has to sell 4.5 million pounds of potatoes from last year’s crop at a horrible loss. “You can’t make enough money off 100 pounds of spuds right now to buy a large order of French fries,” he said, squinting at the Grand Tetons on the eastern horizon with a wry grin.

The Idaho potato, long the king of the U.S. market, is in danger of losing its throne as the world potato industry grows more competitive. A record 1996 crop created a huge glut in the United States, driving prices for fresh potatoes lower than the root cellar.

At the same time, two large Canadian potato processors, Cavendish Farms and McCain Foods Ltd., seized a bigger share of the $3 billion U.S. French-fries market by exporting 450 million pounds of frozen fries at bargain prices - prices that Americans could not match.

French fries - that is what today’s potato market is all about. Growers’ fortunes have soared as this basic building block of the fast-food meal has spread across the globe. But now, ironically, this very success has the potential to turn against the Idaho farmer. For as demand grows and competition sizzles, producers of French fries are aggressively seeking local sources for their raw material.

“We have a slogan: Drink the local wine,” said Harrison McCain, chairman of McCain Foods, the world’s leading producer of frozen French fries, based in New Brunswick. “If we’re in England, we’re buying all of the potatoes we can buy in England.”

Not that the United States, or Idaho, is about to be shut out of this boom. U.S. exports of French fries more than doubled from $100 million in 1989 to $260 million in 1996, and they continue to rise.

But exports could slow considerably, as new potato farms pop up around the world, predicts William Janis, a U.S. Agriculture Department expert on the $2.9 billion international French-fries industry. “As American products become popular,” he said, “there is a lot of political and economic pressure to produce them locally.”

Unsettling disruptions are occurring already, especially in Idaho. The Canadians’ bargain-basement exports created a French-fries glut in the United States, prompting the nation’s largest processors, Lamb-Weston Inc., a Conagra Inc. subsidiary, and J.R. Simplot Co. to cut production and lay off about 500 workers at plants in southern Idaho.

To compete more effectively in Midwest and East Coast markets, Lamb-Weston and Simplot have invested heavily in Midwest processing plants, spawning the growth of new potato farms in the region and cutting into Idaho farmers’ share of the French-fries market, where about 60 percent of the state crop is normally sold.

On the global stage, the trend is similar. Fueled by the booming fast-food business - McDonald’s boasts that it breaks ground on a new store outside the United States every four hours - McCain, Lamb-Weston and Simplot have been building, expanding or buying French-fries plants in places like China, India, Australia and Argentina.

In many cases, new plants have prompted local farmers to produce potatoes, with agricultural experts from McDonald’s or Simplot sometimes even teaching farmers how to grow them.

As Idaho farmers prepare to plant this year’s crop, people like Beesley will start off with heavy debts, hoping for better times ahead. Buoyed by solid profits from the 1995 crop, farmers from Washington to Nebraska planted more potatoes than ever last year. But while they typically count on frost, disease, pests or some other natural disaster to cut into the crop, conditions in 1996 were uniformly favorable.

The result: The crop was the largest in U.S. history - 48.8 billion pounds, enough to feed 355 million people with French fries, baked potatoes, and potato chips for a year. The glut sent the price of a 100-pound sack from about $8 in 1995 to $1.50 or $2 for the 1996 crop, or about a third of what it cost farmers to grow them.

Farmers will lose about $1,000 an acre on the 1996 crop, Beesley said. A farmer who grew potatoes on 500 acres - a typical acreage here - stands to lose a half-million dollars. “It’s just a plain devastating situation,” Beesley said.

If prices do not improve in 1997, bank officials predict trouble in this highly cyclical business. “If we have a repeat of this year, then we’ll have some real problems,” said Bob Finkbohner, vice president of U.S. Bank in Boise. “Everyone is crossing their fingers, hoping that farmers cut back on production and prices go up.”

Dismal potato prices also cut into income-tax receipts for the Idaho state government and hurt the sale of new farm equipment. In heavy potato-farming areas in Idaho, local economies rise or fall with potato prices.

For Lamb-Weston and Simplot, the Canadian imports were an added blow. Taking advantage of a favorable exchange rate and locations closer to the heart of the U.S. market, McCain Foods and Cavendish Farms shipped from plants in Manitoba and eastern Canada.

The bulk of Lamb-Weston and Simplot’s processing plants are 1,200 to 1,600 miles from the Midwest, in Idaho, Washington and Oregon - close to Pacific Rim export markets, but too far from Eastern markets to match Canadian prices.

For Simplot, one consequence was its decision to lay off 370 workers at its plant in Caldwell, Idaho, 20 miles west of Boise, at the end of May. This was an emotional decision, for it was at that site, known as Plant 1, that Simplot food scientists perfected frozen French fries in 1953. “It’s a sobering moment,” said Fred Zerza, director of corporate communications for Simplot.

Zerza notes that the U.S. French-fries market expands only about 3 percent a year, while the capacity of U.S. and Canadian processing plants is growing faster. That means future competition for French-fries sales will be equally fierce.

Fast-food chains, in a competition of their own, are also pushing prices downward, trying to turn a profit on low-priced full meals. “Fast-food chains are focused on cost-cutting, and they’ve got their foot on the throat of the processor. They’re the 2,000-pound gorilla,” said Tom Lipetzky, director of international marketing for the National Potato Promotion Board, a nonprofit growers’ organization in Denver.

To improve their competitive edge in the United States, Lamb-Weston and Simplot have been cranking up production at plants closer to the market, in the Midwest and on the East Coast. But Simplot announced on March 31 that it may cut back or halt production at its Grand Rapids, Mich., plant because of the glut in the market and Canadian competition.

There is a bright spot for Idaho and its neighbors, though. The expansion of U.S. French-fries exports has benefited Idaho, Oregon and Washington farmers because they grow potatoes close to Northwest processing companies and Pacific seaports.

In the 1995-96 crop year, U.S. French-fries exports increased 7 percent, to a record 350,000 metric tons, accounting for 11 percent of domestic production.



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