Fast Food Nation - Eric Schlosser [65]
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 Mc-Donald’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