alleged price-fixing
7:01 am
Sat November 30, 2013

You Say Potato Co-Op, They Say Potato Cartel

A set of lawsuits winding its way through federal court in Idaho combine a couple phrases you might not expect to find together: massive international cartel and potato.

According to a group of grocers, the innocuous-looking potato on your plate got there through a conspiracy involving price-fixing, coercion and aerial surveillance. But potato growers counter there is no cartel; just a co-op.

’The Sultans of Spuds’

In 2004, in an office in Blackfoot, Idaho, 23 potato growers got together to see what they could do about the sorry state of potato prices. That, at least, is how a class-action lawsuit describes the genesis of a group that would become the powerful United Potato Growers of America.

Journalist Matt Jenkins wrote about the group for High Country News in 2007. The article was titled “The Sultans of Spuds.”

“Potato farmers have historically had a pretty tough row to hoe, so to speak. They would get these years where they would get a really good year and prices would go really high. And then the following year, people would plant like crazy, drive prices down. Everyone would take a huge beating,” Jenkins said.

So the United Potato Growers—at first just an Idaho cooperative—sought to bring together the notoriously independent-minded potato farmers. Jenkins says the basic idea was counter-intuitive: you pay someone to make you grow less.

“You know, you sign up and you agree to play by the rules. And they kind of coordinate, ‘OK, this is the overall nationwide production target for this year,’” Jenkins said.

The production target would prevent a glut in the market. Jenkins says the officials at the organization told him they would check up on farmers to make sure they weren't planting too much, and even examine aerial photos and satellite imagery of members’ fields.

‘Classic Cartel Behavior’

The Idaho cooperative soon became a national cooperative of cooperatives representing 80 percent of the industry, including growers in Washington, Oregon and California. A sister organization formed in Canada. You might recognize some of the labels associated with the groups: Green Giant, Dole and Idahoan Foods.

A University of Idaho study found that the price Idaho farmers could get for a hundred pound bag of potatoes reached a record high in August 2008: $19. Compare that with $2.42 in some of the worst years for growers.

“You know, the fact that they're in court right now is, I think, a sign of just how successful they were in erasing this rollercoaster ride that all the farmers were going through for decades and decades, and decades,” Jenkins said.

The Potato Growers are in court right now because a group of grocers claims the organization violated what’s known as the Capper-Volstead Act, a 1922 law that allows farmers to coordinate in ways that would be illegal for most businesses.

But according to the lawsuit, the potato growers went too far. The lawsuit claims that under banners of “market unity” and “stabilization,” the potato growers engaged in “classic cartel behavior.”

Jerry Wright heads of the United Potato Growers of America, based in Salt Lake City. He and other members of the organization are in the midst of being deposed by lawyers. As a result, Wright declined to talk in much detail about the case. What he would say is that the purpose of the co-op is to be a source of information for growers.

“So this is not some smoke-filled room with the shades drawn and some sort of a conspiracy. We're very confident we have completely followed the law. And we're very confident that we will have a favorable outcome in court,” Wright said.

Wright says many of the assertions in the lawsuit are flat-out wrong.

Alleged Cartels Up and Down the Grocery Aisle

The potato industry is not the only agriculture business to be accused of manipulating the market. Other lawsuits have gone after an alleged cranberry cartel, a mushroom cartel, an egg cartel.

And there's a reason these are all happening now, says Peter Carstensen, a professor of antitrust law at the University of Wisconsin. He says it's easier than ever to organize entire ag sectors because there are fewer people involved, and they represent thousands of acres.

“As they become larger, they are much more focused on what they can do to raise their profits and saying, 'Gee, you know, if we could raise the price of a potato by 2 cents a pound, we could really make a lot more money,’” Carstensen said.

Of all the antitrust lawsuits against farmers, Carstensen says the potato case may be most likely to go the Supreme Court if it doesn't settle. And the University of Wisconsin professor believes controlling supply, if that indeed went on, is blatantly illegal market manipulation.

“You're not authorized any more than allowing all the plumbers in Madison to get together and agree that they won't repair old sinks; they'll insist that you buy new sinks. That's not the way you make a market function,” Carstensen said.

The judge now hearing the potato case understands that argument. In a 2011 memorandum decision, Judge Lynn Winmill drew this distinction: Farmers are allowed to work together to control processing, handling, and marketing. They can share information and even set prices—once the crop has been harvested. But controlling how many potatoes there are to begin with? He says that's a different story.