“People just aren’t eating out as often as they used to.”
– CALLA FARN, MCCAIN FOODS
A sharp downturn in exports has Manitoba’s processing potato growers bracing for major cuts in contracted acres this year.
McCain Foods Inc., the province’s largest potato processor, will cut potato contracts by 15 to 20 per cent this year, the company has announced.
The company cites a sharp decline in U. S. french fry sales as the main reason for the cuts. McCain exports two-thirds of its production, mostly to the U. S.
The global recession and changing tastes of health-conscious consumers are main reasons for a drop in consumption, said Calla Farn, a company spokesperson in Florenceville, New Brunswick.
“People just aren’t eating out as often as they used to,” Farn said.
Here at home, frozen french fry sales continue strong. But the soaring loonie and lower prices for raw potatoes in Europe make Canadian spuds less competitive internationally, further hurting exports, Farn said.
“The whole situation that’s causing us to cut our potato contracts is entirely driven by our export business. It’s not driven by the Canadian business at all.”
McCain previously announced it will cut orders in New Brunswick and Prince Edward Island this year by 20 to 30 per cent.
Simplot Canada Ltd. , Manitoba’s other large potato processor, isn’t saying if it will cut contracts, too.
“We haven’t fully determined what our course of action will be,” said Darren White, a Simplot regional field manager in Manitoba. “We are feeling the same pressures in the industry with declining consumption but we’re not sure how we’re going to administer that this year yet.”
According to industry sources, Manitoba growers sold 18.2 million 100-pound bags of processing potatoes in 2008. Last year, McCain bought around nine million bags and Simplot purchased roughly 5.5 million bags.
The expected cuts will be tough on Manitoba potato producers, especially since most have recently invested in new infrastructure – irrigation, tile drainage, storages and equipment
– to comply with market quality demands, said Gary Sloik, general manager of Keystone Potato Producers Association.
“The volume reductions alone will be tough on producers as there are no alternative markets. We continue to hope the U. S. recession ends and the markets return,” Sloik said in an email to the Co-operator.
Manitoba last year harvested an estimated 76,500 acres of potatoes, 61,500 of them for processing, according to the provincial Agriculture Department. The rest were table and seed potatoes.
Annual contract negotiations between processors and growers are currently underway. Negotiations in Canada are not far enough along to determine price trends. But producers in Washington, a major U. S. potato-producing state, recently agreed to a 2010 price cut, possibly creating a bellwether for other contracts, said Sloik.
Manitoba grower prices last year averaged around $11/cwt, said Dan Sawatzky, past president of the Keystone Potato Producers Association.
Growers are resigned to a price drop this year after receiving increases in the last two years. This will put them in a further financial squeeze, said Sawatzky, who farms at MacGregor.
“Our margins over the last number of years have been very close to break-even,” he said. “We’ve been eating away at equity.”
Manitoba potato growers got a signal of things to come in mid-January when a processing plant in Jamestown, North Dakota, announced major cuts to its 2010 contracts, including those in Manitoba.
The plant, owned by the New Brunswick-based Cavendish Farms Inc., slashed its previous year’s contracts for 1.7 million bags by over 40 per cent. Nine contracts for Manitobasourced potatoes were eliminated, including one for a producer who’s sold exclusively to Cavendish, Sawatzky said.
Although acknowledging this year’s outlook is “not positive,” Sawatzky said the industry can recover once it reduces high carry-overs from last year’s large U. S. crop.
“In the potato business, because it’s a perishable commodity, things can turn around and correct themselves as long as we control our planting across North America.” [email protected]