Friday, 15 April 2011

Bud the Spud Making a Return?

I've said good things about former Federal Agriculture Minister Eugene Whelan before, and here's one more story.   It was the spring of  1981. The potato industry had gone through another bad year, interest rates were through the roof, and Whelan came to a church in Vernon River to offer some financial  help to the industry, but it came with some advice. His message:  PEI has so many advantages to produce high quality seed potatoes (the isolation of an island, long cold winter, Fox Island seed farm, extraordinary experience amongst farmers, etc.)  that it should stick to growing seed potatoes, and let other areas produce the potatoes for the fresh and french fry markets.

There are big differences between these various markets, mostly to do with quantity versus quality.  Seed potatoes start in a test tube (cuttings from what's called the meristem which is a disease-free part of a potato plant) and over 5 to 6 years are multiplied in volume until they end up on a dinner plate or french fry plant. Seed growers generally have smaller acreages, but the potatoes are worth more per pound. 

The french fry business is at its heart a volume game. The benchmark is set by huge farms in the western United States, Idaho, Washington State, and so on.  They farm vast areas of flat dry land using what's called central pivot irrigation. It looks like this:

As long as the Colorado River can continue to supply cheap irrigation (which won't be forever), these Western U.S. farmers will always have yields much higher than any farmers will ever get on PEI, no matter how good the growing season here.  And as with so many other commodities, there's a North American per-pound price that Maritime farmers have to live with.  The bottom line: PEI potato farmers will always be at a competitive disadvantage when it comes to the french fry volume game, just what Eugene Whelan said thirty years ago at that church in Vernon River.

In the 1980's the New Brunswick and PEI potato industries were the exact opposite of each other. 85% of  New Brunwick's potato production went to the huge McCain potato processing operations, and the remaining 15% was for seed and fresh markets.  On PEI the french fry business was struggling at around 12% of the industry, while PEI sold seed and fresh potatoes to the rest of the world. Then PVYN was discovered in 1991 (a minor virus that kills tobacco plants, but was on a list of prohibited diseases in North America,  mostly to keep Dutch seed potatoes out of North America, a story for a different day). PEI's potato world was turned upside down.  Valuable U.S. seed potato markets were lost. At the same time Maine and other important potato growing areas were starting to develop their own seed potato production capabilities.  PEI farmers needed new markets, and quickly.

Enter Irving owned Cavendish Farms, and very quickly after that McCain Foods. All of a sudden the french fry business really mattered here. Over the last fifteen  years the french fry plants have gobbled up almost 60% of the potatoes produced yearly, but as farmers head into the Spring of 2011, this business  is definitely losing ground here. 

The french fry companies themselves have slowly been cutting back on purchases, complaining of sluggish markets, and the big impact of a high Canadian dollar (almost all of Cavendish's sales are in the U.S., and the company does have a second plant in North Dakota, with all of the irrigated farmland the french fry makers like so much).  Just last week PEI agriculture minister George Webster said he could not get any commitment form McCain executives that their PEI operation would stay open in the years ahead.

On top of this a handful of large potato growing farms have decided to quit growing for the french fry plants, some voluntarily, others because they can't get any financing. The ones making their own decisions say the economics just don't work anymore, and unless they can increase volumes, they can't justify the huge outlay of money needed to finance a crop.

It's always been my feeling (admittedly comfortably observing and reporting on the potato business with a regular paycheck coming in)  that the physical layout of PEI just isn't suited to a business that demands huge yields, year after year, to be remotely successful.(look at that picture again).   The real cynics say that PEI ruined its environment so Americans could get fat on french fries.  You do have to balance that view with the desperate need for markets PEI farmers had in the early 1990's, the hundreds of much needed  jobs in the french fry plants, and the stable returns many farmers  had for years  (the french fry market is the one business where farmers negotiate a price, and vote on it collectively.)

I always thought there was one other drawback to the french fry business.  Back in the 1980's I was  in a  big warehouse on the outskirts of Toronto with rows of bagged  PEI potatoes ready to go to supermarkets around the city. There were dozens of various logos and farm names proudly stamped on the bags. There was a real connection between the grower here, and the Toronto consumer, with all of the pride and attention to detail that entails. Driving a bulk truck to Cavendish  Farms and dumping the load into a hopper is a very different relationship with the consumer, in fact there is none. 

I think PEI will be better off as the french fry business losses its importance. I certainty don't deny the hardship many will feel as this happens, but when the dust settles, hopefully the potato business can get back to what it really does better than anyone else.  (Perfect world:  Tom singing about Bud rolling along the 401 right here, maybe you can hear it in your head).

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