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The other end of the spud

Producers of one commodity for at least one buyer on the prairies aren’t crying about the dollar’s surge.

They’re the potato growers of southern Manitoba who grow for McCain Foods in Portage La Prairie.

They’re paid in Canadian dollars, the rate set out in contracts signed back in the spring, so the rise of the dollar from 80-something to near-parity doesn’t mean anything concrete for them – for that specific commodity, anyway. But their buyer is feeling the pain of a 96 cent dollar. McCain’s president told the growers at their banquet last night that the rise of the greenback is a big strain on his company, and it makes Canadian potatoes less competitive in the U.S. market.

None of the growers I talked to wanted McCain to suffer because of the dollar exchange rate situation, because they rely on McCain to keep contracting their acres, but there was a bit of a “Better him than me,” feeling. That makes sense, because as one grower pointed out to me, for many years they suffered the opposite effect: signing spring contracts with set Canadian prices and seeing the loonie drop lower but their prices not move. So this is one of those rare occasions on which set-Canadian-price contracts have helped the grower rather than the buyer.

This year will be a big gain for the grower if the dollar continues to surge. It’s not just a couple of cents of protection the contracts give them, but could be 10 cents. It’ll depend how it all averages out.

The scary bit is what happens in the next round of contract negotiations. That’s the chance for McCain and the other companies to reset rates to match not only consumption and market price expectations, but also the exchange rate situation. That’s something for growers to worry about over the winter. Every year there’s one price-setting bazaar, and that determines the entirety of the market outlook for producers, and decides for many whether to be in or out of potato production. In recent years the production base has shrunk as demand has levelled off and productivity improvements mean less land produces more potatoes, requiring fewer farmers. Now there are probably only about 90 commercial potato producers in Manitoba.

Fortunately potato consumption has held up well in the face of the economic downturn. As McCain’s president told me, any cutting of potato consumption at fancy restaurants generally gets taken up by eating at cheaper restaurants, and if people avoid restaurants altogether, they’re likely to throw a couple extra bags of McCain fries into their shopping cart next time they’re at the grocery store. People like eating french fried potatoes, regardless of location.

So, with luck, the currency crunching won’t cause McCain to scale back production and the relatively stable potato biz can keep on squeezing out the fries for rich, poor, home and restaurant.

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