20 February 1998

Food processors hold sway over American market

All around the world potato

production is changing, with

processors in the driving

seat. Here we report on

progress in the USA and

Poland and provide an

update on UK aphid and

nematode control

WITH more than 60% of the 20.2m tonnes of potatoes produced in the US going for snack foods and French fries, processors have a stranglehold on the market.

Their size means growers are under intense pressure. Lamb Weston, for example, which is owned by Con Agra, produces 1.4m tonnes of French fries a year. And crisper Frito Lay, owned by PepsiCo, made profits of $1.4bn (£859m) in 1995.

Competition is intense, both with other processors and other snack food makers, especially those using corn. Processors consequently demand top quality potatoes at least cost to maintain profits, says Lincs farm manager Philip Taylor, who visited the US on a Nuffield Farming scholarship in 1996.

"It shocked me to see the size of the companies and the power they wield." Indeed, Mr Taylor was so stunned that all 400ha (1000 acres) of potatoes grown at Loveden Estate, Lincs, have been dropped since – red beet and brassicas taking their place.

"UK potato growers have yet to encounter the full force of the worlds giant food processors and fast food companies. After visiting the US I could see we would not be able to meet the demands of processors in the UK when they started down the road they have gone in the US."

Only growers producing consistently high yields of high quality potatoes, at low costs make good returns in the US, he says.

To achieve that they have moved west to areas where they can exploit vast tracts of uniform, clean land, acre feet of cheap water, cheap electricity, economies of scale and the latest technology to grow and harvest their crops.

Traditional potato land in Idaho yields 42t/ha (17t/acre) – in Washington State centre pivot irrigators spanning 60ha (150 acres) each produce 100t/ha (40t/acre) of top quality potatoes. Not surprisingly the state has nine potato processing plants, seven owned by Lamb Weston.

Prices are held as low as possible. Annual contracts in lower yielding Idaho were the best in 1996 at $5.40/100lb (£73/t). Quality control is strict, with the previous years best growers getting the first contracts. More favoured growers can secure corporate contracts. Watts Brothers in Washington State is a good example. It grows 2000ha (5000 acres) of potatoes for Lamb Weston, which pays a land rent, buys inputs and water and then pays Watts for each field operation.

"The processor knows what it costs to grow the crop, so any profit beyond break-even is split 50:50," says Mr Taylor. But processors dislike growers making 20% return on capital. "They claim growers only work for six months of the year, so they should not expect to make the same profit as processors who work the whole 365 days."

Efforts to introduce contracts offering production costs plus 10% have so far met a unanimous no from growers.

To maintain profits producers exploit technology to the full. One farm in Washington States Columbia River basin was operating 136 huge centre pivot irrigators from the farm office via computer and radio link, Mr Taylor recalls.

Weekly petiole testing ensures ideal crop nutrition, with fertiliser going on through the irrigator. Fungicides and insecticides are applied the same way and eight- to 10-row planters use cut seed to reduce establishment costs.

So how should UK growers respond to growing processor pressure? "Producers have to realise they are producing a commodity," Mr Taylor stresses. "They cant expect the price to rise, only stay static. They have got to look to greater efficiency to maintain margins."

Cost control is the key. "The agronomy used by US growers was not as good as the top 20% of UK growers. But ask them their production costs and they can tell you to the nearest cent. Their cost control is phenomenal."

Powerful processors have pushed US potato production on to ever larger, more mechanised units, says Nuffield scholar Philip Taylor. In Washington State irrigated crops top 100t/ha. Main crisper Frito Lay already demands farm-washed tubers delivered in rear-loaded box trailers.

US PROCESSOR POWER

&#8226 60% of 20.2m tonne crop processed.

&#8226 Big business: Lamb Weston 1.4m tonnes of French fries a year; crisper Frito Lay £859m profits in 1995.

&#8226 Best growers average 100t/ha.

&#8226 Best 1996 contract price £73/t.

&#8226 Big (2000ha+) growers using latest technology, ample water and strict cost control to produce consistently high quality at least cost.

NB $1.63 = £1.