David and Goliath – Tasmanian potato growers verses a global giant

There is an old saying that goes something like; “The golden rule is that those with the gold make the rules.” It’s a strong statement, but history proves it to be true. The third line of our Australian National Anthem tells us that “We've golden soil and wealth for toil.” This should be very true for farmers, especially Tasmanian farmers. The golden soil should provide wealth for toil. Those custodians of that golden soil should also be able to set a few rules, especially when it comes to the price they are able to achieve for the produce from that soil.

Yet time and time again, we see corporations seeking to devalue that toil, such as large businesses like the supermarket duopoly and the big vegetable processors. This is very clearly demonstrated by the current tussle between Tasmanian processing potato growers and Simplot. Simplot is one of the largest privately held agribusinesses in the world and the owners, the Simplot family, are amongst the richest families in the USA.

The relationship between Simplot and Tasmanian potato growers has fluctuated between open conflict and mutual trust and respect for decades. In the early 2020s, growers and Simplot recognised that there needed to be a fair way to determine the price to farmers that allowed for a sustainable return for growers but still allowed for Simplot to do well – in short, it was mutually recognised that everyone needed to benefit.

Through this process, the gross margin (or return before tax) per hectare model that was developed by growers and their representatives in the early 2000s was finally supported by Simplot in the early 2020s. This model accommodates increases in input costs by increasing the price to growers by the same margin – the relativity between cost and price is maintained.

Based on the agreed model, farmers saw returns comparable to normal commercial terms and subsequently invested in the potato industry.

Growers purchased new equipment and expanded their operations either through new land purchases or lease agreements with other farmers. Debt exposure increased, but based, sensibly at the time, with confidence that price setting for potatoes would be determined in a fair, open and transparent manner. Farmers trusted Simplot to do the right thing and placed their family’s future in this trust.

Trust, as potato growers for Simplot have discovered, can be mis-placed. Farmers have trusted Simplot with all their business input costs – Simplot know exactly what their costs are and their financial obligations. No one knows anything about Simplot’s business, other than their American managers seek to now dictate terms to Tasmanian farmers.

Simplot is now seeking to use their commercial strength to force local growers into accepting a 36% cut to their returns per hectare. This would take farmers back to prices last seen before COVID. There has been a corresponding 22% increase in the CPI, let alone the increase in farm input costs. The large serve of fries at your favourite fast food outlet have increased faster than CPI, yet the growers of those potatoes that make those fries are being expected to go significantly backwards.

I doubt there is a person in Tasmania who would see a large private international firm driving down returns to local farmers as being fair when those same international companies push retail prices up.
Tasmanian potato growers are not in a position to simply stop growing potatoes. Local farmers have made investments based on trusting Simplot to stay with the agreement on price setting. They must grow spuds because farmers’ bank managers still need to see the tractor and harvester payments made, the mortgage kept up to date and the overdraft balance kept within agreed levels.

Simplot are betraying the trust that growers have placed in them. Simplot are using their commercial dominance to drive down the price received by local farmers.
That simply isn’t fair. Not fair to local farmers, not fair to the local people they employ and it’s not fair to the communities that farmers support, our Tasmanian communities.