Growers, Processors Argue Over Price Of Limited 1996 Spud Crop Competition From Midwest, Canada Complicates Pricing

(From For the Record, Wednesday, February 21, 1996:) Farmers’ costs have risen $12 to $16 per ton of potatoes produced. An article in Tuesday’s business section included incorrect information on costs.

Strong demand for french fries and a shortage of raw potatoes has Inland Northwest processors and farmers at odds over how much the 1996 spud crop is worth.

Growers say they should be getting more for their crop because of its scarcity. But processors, citing tough competition in Canada and elsewhere, say they’re only willing to accept a small increase.

The dispute threatens to scuttle contract negotiations for raw potatoes in the nation’s french fry center and possibly raise the restaurant price for an order of fries.

“What we have here is a battle of giants,” says economist Joseph Guenthner of the University of Idaho. “If the growers stay together, they have the market power to match the processors. But it’s in everyone’s interest to come to a settlement.”

For weeks now, six french fry processors in the Columbia Basin and Idaho have been negotiating with the Othello-based Potato Growers of Washington to lock in prices for the 1996 crop. The contract stabilizes the market by guaranteeing farmers income and processors a supply of raw potatoes.

But not since contentious negotiations in the early 1990s have farmers and processors been so far apart in their estimates of the crop’s value.

A small harvest last fall caused a shortage of spuds, pushing prices on the open market up to $190 a ton. That’s more than twice the $85 per ton that processors paid farmers on average under the 1995 contract.

At the same time, farmers say they need more money from the processors to cover the cost of treating fields against the potato late blight, a ferocious disease that can wipe out a field in week. Potato Growers’ negotiator George White said the blight has raised farmers’ chemical and labor costs by $12 to $16 per acre.

“Growers got hammered the last two years,” said White, who worked 31 years for processing companies before switching to the farmers’ group. “They need the price to go higher.”

Howard Bafford, director of manufacturing services for Nestle Brands Potato Division, said processors are reluctant to boost contract prices because of fierce competition in the Midwest and Eastern United States and Canada.

Manufacturers have added 1.5 billion pounds of frozen potato capacity to the market in five years, he said. That’s suppressed the ability of Washington and Idaho processors to earn higher profits and increase payments to farmers.

“I’d say the Northwest is in tough shape,” said Bafford, whose company employs 750 people in Moses Lake and Othello.

However, Guenthner said processors should be doing well. Consumption of fast food is up while the supply of raw potatoes dug last fall dropped nearly 5 percent in the United States.

“Small changes in potato supply usually cause big changes in price,” he said.

The growers’ association represents 230 of the Columbia Basin’s 435 potato farmers, and nearly 60 percent of Washington’s 150,000 acres of spuds.

The Potato Growers of Idaho also strikes contracts with processors, but Idaho laws do not require the companies to negotiate. The processors - Lamb-Weston, Nestle Brands Potato Division, McCain Foods, Twin City Foods, Ore-Ida Foods and J.R. Simplot Co. - are among the nation’s largest suppliers of frozen potato products.

Companies with operations in Washington employ thousands of people who annually cut and bag 3.5 million tons of frozen fries, tator tots and hash browns for supermarket chains and fast food restaurants such as McDonald’s and Burger King.

By state law, the two sides have until March 1 to reach an accord, but often they negotiate beyond that deadline. If no agreement is reached, farmers on July 1 may begin signing individual contracts with processors.

, DataTimes