Manitoba potato farmers could face steeper cuts in contracted potato production unless they can become more cost competitive with other areas of North America, a senior official with McCain Foods says.
Christine Wentworth, McCain Foods’ vice-president of North America agricultural procurement, said in a recent interview Manitoba produces the highest-cost processing potatoes in North America.
“The Manitoba region is uncompetitive today and so the future of processing potato growing in Manitoba, at this point, is in the hands of the growing community,” Wentworth said.
“It is at a critical point within the potato industry in Manitoba as well as the potato industry in North America.”
However, the Keystone Potato Growers Association, which is currently negotiating 2014 potato prices with McCain, Simplot and Cavendish Farms, says McCain’s figures are not up to date. “I would submit that those numbers aren’t current and probably not very accurate when you look at the exchange (rate between the Canadian and American dollar),” said manager Dan Sawatzky, noting McCain appears to be using figures from last year.
What Wentworth and Sawatzky do agree on is that the North American demand for french fries has been declining and the growth in exports markets has slowed.
“Because of decreasing demand this industry is facing some challenges that need to be addressed,” Sawatzky said.
“The potato industry really contributes to the economy here. When we start losing some production, it’ll hurt.”
Potatoes are a multimillion crop in Manitoba. Last year there were 70,000 acres of production, making Manitoba Canada’s second-biggest producer behind Prince Edward Island.
Fifty-five thousand of those acres were for processing, grown by about 60 farmers — half the number there were 10 years ago, Sawatzky said.
Simplot has told Sawatzky it will contract 10 per cent fewer pounds of potatoes this year.
Cavendish Farms estimates it will contract 300,000 bags from Manitoba growers, down 50 cent from 2013.
Fewer than 10 of Manitoba potato farmers grow for Cavendish, but those who do will be hurt, Sawatzky said.
North American french fry demand peaked in 2006 and has fallen 3.5 per cent, Wentworth said. Health concerns, an aging population and the price of french fries relative to other fast-food options, are blamed for the drop.
Meanwhile, a new processing plant aimed at the export market built in Idaho is now operating and is expected to sell 60 per cent of its fries in North America, adding to the competition, Sawatzky said.
Forty-five per cent of the cost of a french fry is the raw potato, Wentworth said.
“If french fry prices stay at the price they are, we’re going to see declines (in demand)… and that’s the reason we are asking for these corrections,” she said.
Higher yields would make Manitoba growers more competitive, Wentworth said.
Manitoba farmers have been investing in irrigation and tile drainage, Sawatzky said. And it’s paying off. According to Buzz Shahan of the United Potato Growers of America, Manitoba yields have risen faster the last 15 years than any other region, Sawatzky said.
Manitoba processing potatoes averaged 340 bags (one bag weighs 100 pounds) an acre in 2013. (Average yields in the U.S. Pacific North West are double that, but some of their costs are higher.)
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Manitoba growers aren’t alone, said Dale Lathim, president of Potato Marketing Association of North America.
“They (processors) are trying to lower the price of the contracts pretty much in most areas in North America, but unfortunately growers really haven’t been having great years from a crop standpoint… so we don’t have a lot of money to give back to them,” Lathim said in an interview.
“We don’t need an increase because our costs haven’t gone up, but at the same time we don’t have money to give them back.”
In a news release the association says the last six years contracts took farmers’ costs of production into account and worked well for farmers and processors.
“As those same input costs have levelled out for this coming year, growers expected that contract pricing would adjust accordingly, but that is not what is happening,” the release says.
Lathim said he and other Washington potato growers are starting to plant potatoes, so it’s important to reach an agreement. But he added farmers won’t be rushed into a bad deal.
“Our goal is to have competitively priced potatoes in each market and then let the processors fight it out within each region as to their own efficiencies and let them capitalize on that rather than on growers’ willingness or non-willingness to grow at a lower price for increasing their markets and their margins,” he said.
Sawatzky declined comment when asked if McCain is posturing.
“We plan on planting potatoes this spring,” he said. “I think we have to be realistic in determining a way forward.”