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Report for 2008 Plan for 2009
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Report for 2008 Anticipation for 2009
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Report for 2008

• Improved data gathering, analysis, and
  implementation systems
• Improved relationship with USDA better numbers
• Increased membership through the addition of the
  Red River Valley and new At-Large members in
  southern Minnesota
• Worked to further trade between U.S. and Mexico
  for fresh potatoes
• Worked to achieve more current reporting for
  Canadian fresh-potato imports

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2008 Report, cont.

• Improved United of Canada structure and
  effectiveness
• Significantly mitigated red-potato price decline
  when Big Lake and Wisconsin began shipping summer
  red potatoes last August
• There is now a United of Europe
• The UK will have a similar structure soon
• Why are Europe and the UK important?
• Dehydrated potatoes are globally priced
• Europes markets are in steep decline due to
  processor policy markets are heavily glutted
• Northwests GRI is heavily influenced by the
  price of washed process grade

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2008 Report, cont.

• Began the United Potato Partner Seminars
• Idaho held five seminars
• Jerry Wrights approach
• Improved growers world view
• The law of supply and demand is real

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Wisconsins World View
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Idahos World View for 2008 Crop

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Scorecard since 2005

• How effective have states been since growers
  began managing the market rather than accepting
  it intended acreage cut compared to actual
  shipments
• Idaho 7.21 over shipping with lowest average
  margin
• Columbia Basin 27.67 over shipping with second
  lowest average margin
• Colorado -3.65 under shipping with second
  highest average margin
• Wisconsin -2.02 under shipping with highest
  average margin

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Spud acreage could grow in 09 demand may not
Rabobank

• Those are among the findings of a recent
  report by Rabobank, a Utrecht, Netherlands-based
  bank that specializes in the food and agriculture
  industries.Because acreage has dropped as a
  result of efforts by Salt Lake City-based United
  Potato Growers of America and its state-level
  affiliates, prices for potatoes went up in
  2008.Because of that, according to Rabobanks
  analysts, acreage is likely to go up again in
  2009 to take advantage of the higher prices.
  Thats despite the fact that because of the
  global recession, demand for potatoes is likely
  to decline this year, according to the report.

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Review of UPGA Basics

• The Premise
• The Law of Free Markets
• The Basis of Farm Profitability
• The law of supply and demand is real
• Potato-growing profits rise and fall in direct
  correlation with how well growers understand and
  manage supply and demand
• Numbers that explain the market allow wise
  decisions

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Result of unwise decisions.
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Normal Business Plan for Farmers
Market Place
Operations

• Commodity driven
• Above average yield

• Supply
• Demand
• Price
• Balance

• Least cost

People
Financial

• Liquidity

• Ownership / Management / Labor
• Goals
• Equity growth

• Solvency

• Financial Efficiency

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Balanced Business Plan for Farmers
Market Place
Operations

• Demand
• Volume
• Package
• Supply
• Volume
• Timing

• Commodity driven
• Above average yield

• Least cost

Price!
People
Financial

• Liquidity

• Ownership / Management / Labor
• Goals
• Convergent / divergent
• Equity Growth

• Solvency

• Financial Efficiency

• Profitability

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Production
The Market

• Supply Demand
• Price

Commodity driven
Above average yield
Least cost
Farmer
Marketing
Financial
People
Ownership/Management/ Labor
Liquidity
Solvency
Goals
Financial Efficiency
Profitability
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Factors to Consider in 2009

• Declining Demand
• Increasing Yields
• Higher Input Costs
• High Risk to Return Ratio
• Less Attractive Alternative Crops
• Bad Macro Economic Conditions
• Unhealthy Trends in Fresh Consumption
• Uniteds Recommendation

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Declining Demand
In-Home usage of fresh potatoes is declining USPB
of In-Home Dinners Which Include Potatoes
National Eating Trends (NET) Years ending in Nov.
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Declining Demand
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Increasing Yields
U.S. potato-growing efficiency increases by 4
cwt/acre per year
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Lower Demand and Increasing Yields

• Average potato yields are increasing an average
  of 4
• cwt per acre per year
• North American fresh potato production exceeds
• 1,325,000 acres per year, or
• With the same acreage, North American potato
• growers produce 5.46 million more cwt of
  potatoes
• each year than the previous year
• The U.S. consumes an average of 1.8 million cwt
  of
• fresh potatoes weekly
• In fresh production efficiency alone, U.S.
  potato
• growers produce a 5-day fresh-potato
  over-supply
• each year without increasing acreage

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Higher Input Costs
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What is the Ratio of Farm Expenses Paid to Farm
Income Received for the Past 10 Years?
Years Expenses
Paid Income Received 2007 - 2008 16 13 2
006 - 2008 25 34 2003 -
2008 51 44 1998 - 2008 66 51
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High Risk to Return Ratio

• 2008 production cost for potatoes 2400/acre
• Average net returns for potatoes 600/acre
• 2008 production cost for wheat 340/acre
• Average net returns for wheat 100/acre
• Risk to Return ratio for potatoes 2400/600
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• Risk to Return ratio for wheat 340/100
  3.41
• For potatoes to make 1, you have to risk 4
• For wheat to make 1, you have to risk 3.4
• What about the downside of each crop?

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Less Attractive Alternative Crops

• Cyclical nature of commodity prices
• When returns are high for a crop this year,
  everyone plans that crop next year, resulting in
  excess supply and lower prices
• When prices are low for a crop this year, not
  many plant that crop next year, resulting in a
  short supply and higher prices
• Potato prices are high this year so expect
  growers to overplant potatoes next year,
  resulting in lower prices next year

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The North American Potato Industry Environment
By Bruce Huffaker
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Fall Potato Acreage Change Model Accurate to 2
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Potato/Wheat Indifference Function 2009
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Bad Macro Economics

• The world economy is in a recession or
  depression
• Demand for potatoes is declining
• In-home preparation is dropping
• People are eating-out less
• Uncertain and unstable input costs
• Uncertain and unstable packing and
  transportation costs
• Uncertain and unstable availability of lending
  capital
• Unstable equity values

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Unhealthy Consumption Trends

• 30 of fresh potatoes are sold in a restaurant
• Those sales have been off 15-20 since October
• Top line AC Nielsen Scantrack for Retail Grocery
• Fresh potatoes DOWN -3.5 for the 4th qtr. (does
  not include Wal-Mart or Club Stores)
• Wal-Mart announced fresh sales DOWN -
  4.4 for 4th qtr. across all stores

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Effect of Recession on Idaho

• Consumers went to restaurants looking for
  convenience and variety.
• Consumers are changing and reducing their
  restaurant behavior in favor of CONVENIENCE and
  VALUE
• Lower traditional restaurant use in favor of
  QSRs
• Within QSRs, they are choosing value in
  purchases.

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Economic Recovery?

• Statistic 60 of the TOTAL Idaho potato crop is
  sold thru food service!
• This has huge implications for all potato
  products produced across North America

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Key Issue

• - IF consumers are not eating in restaurants
• - And they are NOT eating fresh potatoes-
• Then What ARE they eating?

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Top 50 Dry Grocery Categories

• Total Dry Grocery -4.1 in unit sales
• Up Down
• Dehy Potatoes 11.6 Cola (diet/reg) -10.1
• Dry Pasta 5.3 Potato Chips -4.6
• Canned Tom 2.0 Canned pasta -14.1

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Top Frozen Categories

• Total Frozen Foods Dept -1.5
• Frozen pot pies 31.1
• Frozen entrée- Oriental 12.0
• Frozen entrée- others 8.0
• Frozen entrée- Italian 5.0
• Frozen broccoli 3.5
• Frozen g. beans 3.2 Frozen Poultry
  3.2
• Frozen Potatoes - 1.4
• Frozen meat - 6.3

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Implications for 09-10 Crop

• Expect Food Service trends to continue through
  out the 09-10 marketing season.
• French Fry consumption softness to continue.
• Slow recovery for causal/fine dining
• Expect retail consumption of fresh to be soft for
  the next year.

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More Conclusions

• When consumer return to the Grocery Store, will
  they return with the SAME CONVENIENCE and VALUE
  orientation?
• Fresh potatoes are not perceived well on the
  convenience/value scale
• Our wives dont see potatoes as our mothers did
• That is different than past recessions

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Implications for 09-10 Crop

• Key Question?
• Will lowering the price change ANY of this
  consumer behavior?
• - perhaps marginally
• Will Retailers lower the Every Day Retail Price?
  
• - Probably not

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Uniteds 2009 Recommendation for Fresh Potatoes

• Do not plant a single acre that does not have a
  solid history of profitable pricing
• Understand your packers sales plans and track
  them
• Flex potatoes must be avoided at all cost
• A grower of flex (open) potatoes risks not only a
  lower price for his crop but guarantees lower
  prices for the crops of all others

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Uniteds 2009 Recommendation for Fresh Potatoes

• Attention All Sales Desks
• Promote potato features diligently calendar
  promotions
• Fresh Demand Working Group
• 50,000 seed money donated by UPGA
• Consider supporting this effort
• Revenue mechanism challenge

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Uniteds 2009 Recommendation for Process Potatoes

• Do not plant a single acre that is not
  contracted for
• 2009 contracts must be for acreage and not for
  tonnage
• Flex potatoes must be avoided at all cost
• A grower of flex (open) potatoes encourages a
  lower price for his crop and for the crops of all
  others.

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Uniteds 2009 Recommendation for Process
Potatoes, continued

• Acreage contracts will remove much of the down
  side already inherent in growing the crop
• Potato growers already assume significant risk in
  weather, uncertain and unstable input costs, and
  pests
• Growers need not accept supply risk for
  supplying the processor

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Uniteds Plans for 2009

• Build membership within first, then without
• Map (GIS) Idaho, Washington, Colorado, and
  Wisconsin
• Track acreage and usage
• Member and non-member
• Move the East Coast and Canada into Dataland
• Educate, Teach, and Instruct about correct market
  principles

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Uniteds Plans for 2009

• What is the markets fundamental and guiding
  principle?
• Supply and demand is a real economic principle,
  and one that potato growers can manage
• Become a missionary befriend all growers and
  encourage them to heed marketplace dynamics

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Thank You
123 N. Wright Brothers Drive - Suite 110Salt
Lake City, Utah 84116(801) 517-9000www.unitedpot
atousa.comContact info_at_unitedpotatousa.com