Early in 2007, a group of Idaho potato growers were working with a large, privately held agricultural company to bring together six relatively small potato processing companies to form a mid-size food business. The United States potato industry had been experiencing typical agricultural peaks and valleys. Each year fresh-market potato growers in Southeastern Idaho would mortgage their family business of multiple generations to finance planting their crops. In some years they would do well, in others they suffered great losses. It was said that in any given year a grower could become a multi-millionaire or lose everything and fall into the depths of poverty. Leaders in this group felt strongly that one way to ensure long-term economic viability was to vertically integrate. By owning the dehydrator to which they sold a minority of their annual production—the over- and under-sized and odd-shaped potatoes that are part of every field yet unsuitable for the fresh market—they could mitigate the volatility of their business and improve their chance of survival over time.
The private company was the largest potato grower in the US, yet without an acre of farmland in the state of Idaho. This diverse company had a vision of consolidating the potato dehydration industry in an effort to gain efficiencies, lower costs, and make a modest profit in a highly competitive, global market. The grower partners would supply a majority of the potatoes to the plants located in Idaho. The private company acquired one of these dehydrators and the all of the production of another. In the meantime, the growers went through a slightly different acquisition of yet another, solely grower-owned dehydration business. On July 17, 2007, the businesses of both groups were contributed into what I would soon refer to as the new Idahoan Foods.
I joined the company that day as its CEO. I had experience in the industry, and was perhaps one of a few people who had gained the specific expertise required to transform what was previously a mostly losing proposition into a strategically focused entity which would grow in value by generating enduring profitability. That’s at least the way I would describe the future. In reality, the private company had extensive experience in successfully acquiring and consolidating businesses. The grower cooperative was very new to the game and naturally viewed their new company through the lens of potato growers who, by the very nature of the risk they took each year, defined long-term vision as what might happen tomorrow, or maybe as far out as next week!
I went to Idaho to take on this significant challenge out of respect for these growers. I had worked closely with a smaller group of growers in the past, and admired their persistent nature. Without this nature our country would not have emerged as a world leader in agriculture, and the economic boom that began at the turn of the century would not have occurred. Too many times the risks of planting far outweighed the likely reward from a profitable sell-off of the respective crop. Yet they, independently, persevered.
Within a few weeks of formation of Idahoan Foods, the independent nature of these growers was revealed in a number of ways. In many respects the term “grower cooperative” is an oxymoron. The personality required to psychologically absorb the inherent risk defies cooperating with others. A significant battle line began to be drawn over just how the benefit of the efficiencies created in this new business would be shared.
Potato harvest is a chaotic frenzy as growers work quickly amid a potentially dynamic set of obstacles to scoop their investment out of the ground and store it safely in cellars for use throughout the next eleven months. Potatoes aren’t all that get scooped up by harvesters. These tubers grow in fields that have a relatively abundant supply of volcanic rock. Rocks, a few stray golf balls, and the decaying vines that previously gave life to the tubers are “harvested” as well. It is common practice for truck loads of potatoes to be delivered to food processors with a small percentage of dirt, rocks, vines, and other extraneous materials. The processor accepts responsibility for sorting the debris away from and washing the potatoes, and discounts the payment to the grower based on the statistically estimated weight of the debris. It all works unless the amount of debris in any given load exceeds an industry-accepted maximum. At that point the cost associated with the debris becomes an inequitable burden to the processor.
Those of us working together to integrate and get this new business up and running were putting in long days, and negotiating ourselves through a multitude of issues unresolved by the owners at the time of formation. The leader responsible for procuring our supply of potatoes came to me one day and told me that a few growers were delivering loads with an amount of rocks that far exceeded the accepted maximum. This was causing a lot of problems in operating our production facilities. In spite of how clearly he explained the issues, some growers just kept delivering loads that were “out of spec”. After listening to this leader and doing my best to clearly understand the cause of our problem, I blurted out, “Get control of the game!”
I told the leader what I had learned from Dick Burleson, head referee of the 1998 Rose Bowl Game, a high-profile contest with the national championship riding on the outcome. He wanted his crew to throw a penalty flag by the third play of the game to let the coaches and players know they intended to have control of the game!
The only chance we had of establishing a mutually beneficial relationship with our growers was to flip (reject) a few loads of potatoes that were out-of-spec. It might seem simple enough, but among the grower community persists a victim mentality. In other words, Idaho growers by nature assume a processor will try to take advantage of them. When we flipped the first few loads the leader and his managers took a lot of heat from the growers. They accused us of adjusting the weight measurements to our favor with a litany of blames as to why we would do so. It’s not that we were perfect. It took a while to get all of our production facilities on board with a fair and equitable measurement and reporting system. But the loads we rejected were extreme in terms of the percentage of rocks and dirt they contained. We had to modify the behavior—get control of the game—quickly. If we didn’t, bad practices would continue at a high cost to our business at a time wherein we were fighting to reduce costs to be competitive in order to survive in a global market.
It took sacrifices on the part of many. Yet, as time went on, we were able to create value in this business for the benefit of all of its owners by getting control of the game early in its new history.