Four years ago, Idaho potato growers were staring in the face of continued depressed market prices, so they decided to take the matter into their own hands. In November 2004, the United Potato Growers of Idaho was formed. Realizing that while there’s safety in numbers, there’s more safety in greater numbers. They expanded their efforts, and in March 2005 the United Potato Growers of America (UPGA) was founded.
The UPGA’s members drafted a mission statement, which reads: “We bring order and stability to the North American potato growing industry and increase our member potato growers’ economic potential by the effective use of cooperative principles.” Four years later, it’s mission accomplished. Or, at the very least, it’s so far, so good, according to an economic analysis performed under the auspices of the Giannini Foundation of Agricultural Economics at the University of California (UC) by Shermain Hardesty, a UC-Davis Cooperative Extension economist.
After analyzing grower prices from the USDA-National Agricultural Statistics Service, Hardesty concluded: “Monthly average prices received by Idaho growers in the fresh market are higher and noticeably more stable than before UPGA’s implementation of supply controls in Fall 2005.”
The critical situation that faced growers four years ago didn’t emerge overnight, but evolved over time as consumer tastes changed. Between 1971 and 1996, Hardesty noted that annual U.S. per capita consumption of potatoes rose from 118 pounds to 145 pounds. However, due mainly to the popularity of low-carbohydrate diets, consumption had fallen to 130 pounds by 2006.
At the same time, yields soared, rising from 231 hundredweight (cwt.) per acre in 1971 to 393 cwt. per acre in 2006. Besides the fact that the problem evolved slowly, growers didn’t act right away in part because of their nature, said Hardesty. “They’re pretty hopeful people; they’re always optimistic the market will get better,” she says.
But of course the market didn’t get better. Between 1980 and 2006, real fresh-market potato prices (in deflated 2000 dollars) declined from $12.12 to $5.04 per cwt. Another factor in the decline was a problem faced by all vegetable growers: consolidation toward the consumer end. Besides the emergence of huge grocery chains with their attendant buying power, potato growers were faced with consolidation in the processing industry. That’s a very large concern when you consider that as a percentage of overall consumption, Americans’ inhalation of processed product — mostly in the form of French fries — has skyrocketed in recent decades. “They (the growers) realized they were their own worst enemy,” she says.
Because of the highly concentrated nature of the potato processing industry, individual potato growers and shippers have less market power than their large customers, says Hardesty. The Capper-Volstead Act was passed by Congress in 1922 to address just such a situation. “It provides authority for growers to join together in cooperative associations to gain countervailing market power without violating antitrust laws, as long as they do not unduly enhance prices,” she notes.
So the potato growers got together and began sharing information, which enabled them to understand the potential impact of their shipments on current and future market prices. Because demand for potatoes doesn’t dramatically rise and fall and is basically inelastic, UPGA has been able to implement volume controls to enhance grower revenues. “When demand for a commodity is inelastic, restricting supply is a classic economic tool used to raise grower prices and revenues,” states Hardesty. “This is possible because the resulting percentage increase in price is greater than the percentage decrease in quantity sold, resulting in overall increase to grower revenues.”
Given the success of UPGA, Hardesty says she wouldn’t be surprised to see growers of other vegetable crops form cooperatives. Two modern developments might drive it. First, individual growers generally have decreasing power in an increasingly global economy. Second, as mentioned above, exchanging information gets easier every day. “Recently, UPGA has shared its experiences with egg and mushroom producers,” she notes. “It is likely that producers of other agricultural commodities will also explore using joint action by forming information-sharing cooperatives to improve their market conditions.”