The mistake of standing alone

THE PRODUCTION OF frozen french fries has become an intensely competitive business. Although the J. R. Simplot Company supplies the majority of the french fries that McDonald’s sells in the United States, two other fry companies are now larger: Lamb Weston, the nation’s leading producer of fries, and McCain, a Canadian firm that became the number‑two fry company after buying Ore‑Ida in 1997. Simplot, Lamb Weston, and McCain now control about 80 percent of the American market for frozen french fries, having eliminated or acquired most of their smaller rivals. The three french fry giants compete for valuable contracts to supply the fast food chains. Frozen french fries have become a bulk commodity, manufactured in high volumes at a low profit margin. Price differences of just a few pennies a pound can mean the difference between winning or losing a major contract. All of this has greatly benefited the fast food chains, lowering their wholesale costs and making their retail sales of french fries even more profitable. Burger King’s assault on the supremacy of the McDonald’s french fry, launched in 1997 with a $70 million advertising campaign, was driven in large part by the huge markups that are possible with fries. The fast food companies purchase frozen fries for about 30 cents a pound, reheat them in oil, then sell them for about $6 a pound.

Idaho’s potato output surpassed Maine’s in the late 1950s, owing to the rise of the french fry industry and the productivity gains made by Idaho farmers. Since 1980, the tonnage of potatoes grown in Idaho has almost doubled, while the average yield per acre has risen by nearly 30 percent. But the extraordinary profits being made from the sale of french fries have barely trickled down to the farmers. Paul Patterson, an extension professor of agricultural economics at the University of Idaho, describes the current market for potatoes as an “oligopsony” – a market in which a small number of buyers exert power over a large number of sellers. The giant processing companies do their best to drive down the prices offered to potato farmers. The increased productivity of Idaho farmers has lowered prices even further, shifting more of the profits to the processors and the fast food chains. Out of every $1.50 spent on a large order of fries at a fast food restaurant, perhaps 2 cents goes to the farmer who grew the potatoes.

Idaho’s potato farmers now face enormous pressure to get bigger – or get out of the business. Adding more acreage increases total revenues and allows more capital investment; but the risks get bigger, too. The latest potato harvesting equipment – bright red, beautiful machines manufactured in Idaho by a company called Spudnik – can set a farmer back hundreds of thousands of dollars. It costs about $1,500 an acre to grow potatoes in Bingham County. The average potato farmer there, who plants about four hundred acres, is more than half a million dollars in the hole before selling a single potato. In order to break even, the farmer needs to receive about $5 per hundredweight of potatoes. During the 1996–97 season, potato prices fell as low as $1.50 per hundredweight. That year was a disaster for Idaho potato farmers, perhaps the worst in history. Record harvests nationwide and a flood of cheap imports from Canada created an enormous glut of potatoes. For many farmers, letting potatoes rot in the field would have been more profitable than selling them at such low prices. That was not a viable option, however; rotting potatoes can damage the land. Prices have recovered since then, but remain unusually low. An Idaho potato farmer’s annual income is now largely determined by the weather, the world market, and the whims of the giant processors. “The only thing I can really control,” one farmer told me, “is what time I get out of bed in the morning.”

Over the past twenty‑five years, Idaho has lost about half of its potato farmers. During the same period, the amount of land devoted to potatoes has increased. Family farms are giving way to corporate farms that stretch for thousands of acres. These immense corporate farms are divided into smaller holdings for administrative purposes, and farmers who’ve been driven off the land are often hired to manage them. The patterns of land ownership in the American West more and more resemble those of rural England. “We’ve come full circle,” says Paul Patterson. “You increasingly find two classes of people in rural Idaho: the people who run the farms and the people who own them.”

The headquarters of the Potato Growers of Idaho (PGI) is a strip‑mall office suite, not far from a potato museum in Blackfoot. The PGI is a nonprofit organization that supplies market information to farmers and helps them negotiate contracts with processors. Bert Moulton, a longtime PGI staff member, is a big man with a crew cut who looks like a Goldwater Republican but sounds like an old‑fashioned populist. Moulton thinks forming some sort of co‑op, an association to coordinate marketing and production levels, may be the last hope for Idaho’s potato farmers. At the moment, most farmers live in areas where there are only one or two processors buying potatoes – and oddly enough, those processors never seem to be bidding for potatoes on the same day. “Legally, the processors aren’t supposed to be talking to one another,” Moulton says. “But you know that they do.” Not long ago, the major french fry companies in Idaho were owned by people with strong ties to the local community. J. R. Simplot was highly regarded by most Idaho farmers; he always seemed willing to help carry them through a lean year. Moulton says the fry companies now tend to be run by outsiders, by “MBA’s from Harvard who don’t know if a potato grows on a tree or underground.” The multinational food companies operate french fry plants in a number of different regions, constantly shifting production to take advantage of the lowest potato prices. The economic fortunes of individual farmers or local communities matter little in the grand scheme.

A few years ago, the PGI tried to create a formal alliance with potato farmers in Oregon and Washington, an effort that would have linked producers in the three states that grow most of the nation’s potatoes. The alliance was undermined by one of the big processors, which cut lucrative deals with a core group of potato farmers. Moulton believes that Idaho’s farmers deserve some of the blame for their own predicament. Long regarded as the aristocrats of rural Idaho, potato farmers remain stubbornly independent and unwilling to join forces. “Some of them are independent to the point of poverty,” he says. Today there are roughly 1,100 potato farmers left in Idaho – few enough to fit in a high school auditorium. About half of them belong to the PGI, but the organization needs at least three‑quarters of them as members to gain real bargaining power. The “joint ventures” now being offered by processing companies provide farmers with the potato seed and financing for their crop, an arrangement that should dispel any lingering illusions about their independence. “If potato farmers don’t band together,” Bert Moulton warns, “they’ll wind up sharecroppers.”

The behavior of Idaho’s potato growers often betrays a type of faulty reasoning described in most college‑level economics textbooks. “The fallacy of composition” is a logical error – a mistaken belief that what seems good for an individual will still be good when others do the same thing. For example, someone who stands at a crowded concert may get a better view of the stage. But if everyone at the concert stands up, nobody’s view is improved. Since the end of World War II, farmers in the United States have been persuaded to adopt one new technology after another, hoping to improve their yields, reduce their costs, and outsell their neighbors. By embracing this industrial model of agriculture – one that focuses narrowly on the level of inputs and outputs, that encourages specialization in just one crop, that relies heavily on chemical fertilizers, pesticides, fungicides, herbicides, advanced harvesting and irrigation equipment – American farmers have become the most productive farmers on earth. Every increase in productivity, however, has driven more American farmers off the land. And it has left those who remain beholden to the companies that supply the inputs and the processors that buy the outputs. William Heffernan, a professor of rural sociology at the University of Missouri, says that America’s agricultural economy now resembles an hourglass. At the top there are about 2 million ranchers and farmers; at the bottom there are 275 million consumers; and at the narrow portion in the middle, there are a dozen or so multinational corporations earning a profit from every transaction.