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Mon June 17, 2013
Dirty Spuds? Alleged Potato Cartel Accused Of Price Fixing
Originally published on Tue June 18, 2013 2:09 pm
Editor's Note: Many of you noted that the price for a 10-pound bag of potatoes cited in the lawsuit seems ridiculously high. So we look into the matter further — you can read what we found in this follow-up post.
High-tech spying with satellites. Intimidation. Price fixing.
Sound like the makings of a Hollywood thriller? These are actually among the allegations being thrown about in a federal court case against America's alleged "Potato Cartel." It's enough to make Mr. Potato Head blush.
A civil lawsuit that last week shifted into U.S. district court in Idaho — America's potato country — alleges that the United Potato Growers of America has become a veritable OPEC of spuds. The group's members, who produce about 75 percent of the potatoes grown in this country, are accused of illegally conspiring to inflate 'tater prices.
The allegations, which the potato growers deny, are being lobbed by the Associated Wholesale Grocers, which represents more than 1,900 retailers, according to its website. The grocers group is based in Kansas, where the suit was originally filed this spring.
In their lawsuit, the grocers accuse Big Potato of enforcing its pricing schemes through a variety of strong-arm, high-tech means, including using GPS systems and satellite imagery of farmland to make sure farmers aren't planting more spuds than they're supposed to. They were "using Spudnik, if you will, from the sky," AP reporter John Miller, who recently wrote about the case, joked with Robert Siegel on All Things Considered in describing the lawsuit's allegations. Growers who violated the production limits, the suit alleges, were fined $100 per acre.
At issue is whether the potato growers were engaging in predatory conduct or merely running a smart cooperative that helped its members avoid the cycle of boom and bust in the potato biz. According to its website, United Potato Growers of America formed in 2005, following the creation a year earlier of an Idaho cooperative with a mission to "manage their potato supply, matching it to demand to help their growers receive a reasonable price for their product."
Mission accomplished, it would seem: As AP's Miller notes, the lawsuit alleges that in 2007, a 10-pound bag of potatoes sold for about $8 or $9; by 2008, the lawsuit alleges, that price had shot up to $15 or so. (Update: Some of you have noted that these prices sound too high. Here's what the lawsuit alleges: "In 2005-06, UPGI [United Potato Growers of Idaho, an affiliated group] helped erase 6.8 million cwt. [hundredweight] of potatoes from the U.S. and Canadian markets. This helped drive up the market price over 48 percent." Update No. 2: Elsewhere, the suit also states: "As a result of these efforts, by the summer of 2008, according to the Idaho Potato Commission, a ten pound bag of potatoes cost consumers $15 — up $6 over 2007.")
Now, under a 1922 law known as the Capper-Volstead Act, agricultural producers are allowed to band together to more efficiently market their products. And the potato folks clearly think they're on the right side of the law.
In a statement, UPGA told NPR: "United Potato Grower's goal has been to help growers provide quality potatoes at reasonable prices to American consumers. We have always acted openly and within the bounds of the law. We are confident in our legal position and look forward to a favorable outcome in court."
But in recent years, the Justice Department has been scrutinizing just how far such antitrust exemptions should apply to large modern agricultural operations.
And the current lawsuit is quite similar to another lawsuit filed against the potato co-op back in 2010. The judge in that case, Miller says, rejected a motion to throw the case out of court. Instead, the judge says it remains an open question just how far growers can stretch Capper-Volstead's antitrust protections.
You can hear Robert Siegel's interview with John Miller by clicking on the audio link at the top of this page.
ROBERT SIEGEL, HOST:
From a big, wholesale grocer come allegations of price fixing on the part of big potato. Associated Wholesale Grocers is based in Kansas. They're doing the accusing. The United Potato Growers of America, the UPGA, denies it all. This is a lawsuit. And the question is: Are the big potato growers engaging in predatory conduct, or are they running a smart co-op - smart enough to avoid a cycle of boom and bust when they overproduce?
Well, for these and other questions related to the price of potatoes, John Miller of The Associated Press joins us now from Boise, Idaho. Welcome to the program.
JOHN MILLER: Yeah. Thanks very much.
SIEGEL: And first, what does Associated Wholesale Grocers charge here?
MILLER: Well, the Associated Wholesale Grocers charges that about 75 percent of the fresh potato growers in the country have gotten together - as part of the United Potato Growers of America - and have run a price-fixing scheme, according to the lawsuit, not unsimilar to the OPEC cartel; in order to boost the prices of potatoes illegally, and charge consumers more at the supermarket aisle.
SIEGEL: And they actually alleged that to make sure that producers aren't producing any more potatoes that might reduce the price, they're going high tech, even, according to this suit.
MILLER: Well, according to the lawsuit, in order to enforce elements of the production plan, that they've been using GPS systems, satellite imagery, flyovers and other methods to enforce its agreement to reduce potato supply - using Spudnik, if you will, from the skies.
SIEGEL: And according to the plaintiff here, what kind of a premium are we paying because of what they allege is a potato cartel and what it's doing?
MILLER: Well, a 10-pound bag of potatoes, you know, might previously have gone for 8 or $9. And, you know, after that - and this is 2006 figures, this is two years after the United Potato Growers of America organized, that perhaps folks were paying about $15 for a bag of 10-pound potatoes. [POST-BROADCAST CORRECTION: After this story aired, Miller contacted NPR to say he misstated the years referred to in the example from the lawsuit. The suit alleges that the price of a 10-pound bag of potatoes rose from about $9 in 2007 - not 2004, as implied - to $15 in 2008 - not 2006.]
SIEGEL: And the United Potato Growers of America, how do they respond to this?
MILLER: Well, they clearly say that the lawsuit is not accurate; that they have organized their co-op according to a 1922 federal law called Capper-Volstead, that allows agricultural producers to form cooperatives to more efficiently market their products. They say they've done everything properly. They've had the advice of excellent antitrust attorneys when they set this up, and they're clearly saying that the allegations are without merit.
SIEGEL: Now, this is a civil lawsuit. The Justice Department isn't claiming an antitrust violation here, are they?
MILLER: No. This one is a civil lawsuit, and it's similar to another civil lawsuit filed in federal court in Idaho, back in 2010. And this particular case by the Wholesale Grocers was moved out to Idaho from Kansas this last week. And it's pretty likely, according to the attorneys, that the two cases are going to be combined because really, what's at stake - or what's at issue is similar, or nearly identical.
SIEGEL: I assume that in Idaho, where you are, the price of potatoes is pretty important.
MILLER: Oh, the price of potatoes in Idaho is very important. We're a very important potato-growing state. We produce about 30 percent of the nation's Russet-style potatoes. So we have a potato on our license plate. This is potato country.
SIEGEL: Now, all of us consumers of potatoes would probably prefer to pay less for potatoes rather than more. On the other hand, when growers get together and they try to keep prices up, what they say is if you overproduce, the price of potatoes can go down so fast that people are driven out of business.
MILLER: Well, and I think that that, back in 2004, was the impetus for the United Potato Growers of America getting together and talking about how they could get away from these boom-and-bust cycles that according to some of the farmers that I spoke with, left them with so many potatoes that they just put them in the manure spreader, and dumped them back in the field and used them as fertilizer. It's certainly not the way any self-respecting Idaho potato farmer would like to deal with his crop.
SIEGEL: Well, John Miller, thanks for talking with us about it.
MILLER: All right. Thank you very much, Robert.
SIEGEL: That's reporter John Miller of the Associated Press, speaking to us from Boise in Idaho.
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