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Forces are changing the national potato industry

by Tad Thompson | January 11, 2011
Rising fuel costs, heightened freight rates and the natural course of national agricultural economics may be forcing a change in the country's potato business, observed Bob Johnson, president of Katz Produce Sales LLC in Rosholt, WI.

The nature of potato marketing and transportation this season reflect matters that will continue to impact the potato industry, Mr. Johnson said Jan. 12.

For a variety of reasons, the Wisconsin potato crop is short this winter.

Katz Produce, which mostly operates as a potato broker, must ship more potatoes from western sources than usual. The firm has "contractual agreements with packingsheds" in a variety of production regions. “We don’t physically own them anymore. We have connections and people on our payroll in other areas. But logistics doesn’t solve freight rate problems. Geography is geography. Customers who are used to overnight deliveries” from Wisconsin “need to think about third-day arrivals and to think a little different.”

Mr. Johnson said that his staff is “disappointed when we can’t do our job the way we want to. The whole state has the same problem. This is not unique to us.”

He added that his firm has to adjust because “we are not here for one year. We have been at this for 45 years, and the company plans to be here a lot longer.”

Mr. Johnson noted, “I kind of think you might see this problem continue. Oil is 92 bucks a barrel today. I don’t see fuel prices going down in the next few years. High fuel and high freight rates make proximity to market more valuable. And in the meantime, all of the alternative crops available to growers at a lot less risk are out there. I don’t see acreage in Wisconsin increasing dramatically. Maybe slightly. But there is only so much farmland to raise potatoes on. Not that I want the oversupply situation of the past.” But, as freight rates rise, there are more potatoes grown in the West than can be moved.

Meanwhile, “we haven’t seen the ability of the railroads to move [potatoes] well. There are not a lot of railcars out there. We depend on trucks for the vast majority of the crop. As freight rates go higher, because of proximity in the Midwest,” there is a higher f.o.b. for Wisconsin than for western potatoes, “which reflects the difference in the freight rates.”

There is, then, a good reason to offer more production from the Midwest, if possible.

“At one point in time, a lot of people felt the Idaho logo was worth a lot of extra money on the bags. And still, some customers feel that way. Others have an interest in having a smaller inventory and turning their inventory quicker and believe filling orders overnight is more important than having an Idaho logo on the bag.” As a result, in the potato business, “A lot has moved from the West to the Midwest. This is an unpopular conversation with the people in Idaho. But it’s my personal feeling.”

This season in the national scene, “it is particularly Wisconsin potatoes that is a pretty short crop. We are moving it way too fast. We are not happy about that. It will be difficult to take care of all our customers that we would like to in May, June and July. Our proximity to market is a two-edged sword. We are cleaning up quicker than we would like to. We like a 12-month business, but it will be difficult to do that. I’m not happy with that. What can you do? We had a poor onion crop this year, too,” atop storage onion losses.

The remaining percentage of the Wisconsin storage potato crop in mid- January was “down to probably in the high 30s percent. I would rather it be in the high 40s. But there was some pressure, and there were storage losses early. There was pressure to move because we had a lot of rain at harvest time, and we suspected there could be problems at storage. We felt the crop may not be suitable for the long term. After September rains, we moved quickly to assure we did not lose them totally. Plus, yields were down 10 [percent] to 12 percent to begin with. Holdings now are down 25 percent from a year ago in Wisconsin.”

Thus, Mr. Johnson said, “It is pretty grim as far as supplies go. We are taking care of our [regular] customers at this point in time. We are warning them we won’t be able to do it in the spring like we would like to.”

Mr. Johnson is urging his customers to promote five-pound or eight-pound potato bags over 10s, “which spreads the crop out a little. That is not necessarily happening. People who traditionally push 10s and 15s tend to want to do so again. A bigger ring at the cash register is what they want. You only get to sell them once.”