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Grocers Claim Potato Cartel Fixes Prices

KANSAS CITY, Kan. (CN) - A nationwide potato cartel - the "OPEC of potatoes" - fixes prices and production to line its own pockets, a grocers association claims in a federal antitrust complaint.

Associated Wholesale Grocers sued the United Potato Growers of America (UPGA), the United Potato Growers of Idaho (UPGI) and 20 other entities.

The defendants own more than 80 percent of the potato acreage in the United States, and used OPEC as a model, according to the complaint.

"Defendants analogized their potato cartel to the Organization of Petroleum Exporting Countries ('OPEC') - the notorious petroleum supply-reduction and price-fixing cartel composed of various foreign nations. Defendants suggested that they should 'study' the OPEC model and their organization was referred to as the 'OPEC of Potatoes,'" the complaint states.

The grocers claim: "Defendants, who include the largest potato growers and shippers in the United States, conspired to use pre-harvest and post-harvest methods to control and reduce the supply of potatoes in order to raise and stabilize the prices at which potatoes were sold in the United States.

"In order to facilitate the conspiracy, the defendants first came together in 2004 to form regional and nationwide 'cooperatives' - not for the purpose of marketing and selling their potato products collectively, as is the function of a traditional cooperative - but rather for the purpose of creating a national vehicle for potato growers and their co-conspirators to reduce potato output and fix prices."

A November 2004 meeting of potato growers from across the Western United States "announced the group's price-fixing plans to several hundred potato farmers, which prompted a standing ovation," the complaint states. "Many farmers signed on to the supply reduction agreement on the spot, agreeing to pay annual dues ranging from about $10,000 to $50,000 depending on how much acreage each farmer utilized for growing potatoes."

One month later, "UPGI adopted a three-phased approach to fixing prices. First, UPGI sought to control the acres being planted to adjust for any oversupply. Second, UPGI would monitor the crop for yield and collect information on stocks-on-hand to better manage the supply. Finally, UPGI would institute a farmer buy-out program to remove excess supplies before the crop reached the market."

The cartel focused on acreage reduction, with "UPGI's first year acreage management program ... implemented in spring 2005," the complaint states. "The number of planted fresh potato acres for the fall 2005 crop was reduced by approximately 15 percent (26,000 acres) relative to the 2004 year acreage base against which the reduction was measured.

"In 2005, there were approximately 70,000 fewer acres of fresh potatoes planted nationwide. UPGI claimed responsibility for 55 percent of the reduction and 75 percent of the reduction in the states where UPGI was organized.

"In 2005, UPGI called for reductions in crop volume of 8-10 percent.

"In 2005-06, UPGI 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."

The complaint includes numerous communications from in the cooperatives, including a 2005 letter from UGPI's CEO: "'YOU HAVE PROVEN THAT WE CAN CONTROL WHAT WE PLANT. WE CAN AND MUST BALANCE THE MARKET IN 2006 OR RISK WATCHING BAD HISTORY REPEAT ITSELF! In the past, the way you prospered was to plant with no real analysis of national supply and demand fundamentals and then hope for the best. But this year, YOU HELPED CREATE A GOOD MARKET BY PLANTING ONLY ACRES THAT WILL SUPPORT A GOOD MARKET! The strategy of 'over-planting' so you can get 'lucky' and prosper in '06 will create the same disaster we have had in recent years ... overproduction of +10-12 MILLION cwt. This will again result in rock bottom, cut-throat pricing and $1.00-$3.00 returns to growers. WE CANNOT LET THIS HAPPEN! Instead, we must REMEMBER THE PAST, LEARN FROM IT AND MAKE OUR OWN LUCK and CONTROL WHAT WE PLANT!'" (Capitals and ellipses in complaint.)

The grocers claims acreage reduction continued over the next several years, as did the rhetoric from the UPGA, which told its members: "'Act responsibly. Don't be part of the problem. ... PLEASE BE PART OF THE SOLUTION! Remember: LESS ACRES means MORE $$$$$$.'"

The grocers claim that the defendants' claim to be a "cooperative" is a sham, because "UPGA does not wash, grade, package, store, transport, or distribute its members' potatoes. UPGA does not negotiate contracts of sale for its members. UPGA does not 'market' its members' products. Rather, as set forth in its promotional materials, publications, website, and numerous public statements, UPGA was founded for the express purpose of implementing a scheme to manage and restrict the supply of potatoes."

Also named as defendants are Wada Farms Inc., Wada Family LLC, Wada Farms Potatoes Inc., Wada Farms Marketing Group LLC, Pro Fresh LLC, Albert Wada, Blaine Larsen Farms Inc., Potandon Produce LLC, Michael Crannery, Cornelison Farms Inc., Snake River Plains Potatoes Inc., Driscoll Potatoes Inc., Lance Funk, Rigby Produce Inc., Pleasant Valley Potato Inc., KCW Farms Inc., Kim Whalen Farms, Raybould Brothers Farms LLC, R.D. Offut Co., Ronald R. Offut Jr. and Idahoan Foods LLC.

The grocers seek a restraining order and injunction and damages for violations of the Sherman Act and the Kansas Restraint of Trade Act.

They are represented by Patrick Stueve with Stueve, Siegel and Hanson, of Kansas City, Mo.

U.S potato production declined from 23.3 million tons in 2000 to 19.2 million tons in 2005, according to "The Potato Association of America Handbook." Idaho produces about 28 percent of the national crop, followed by Washington with 17 percent. But China produces more potatoes than the United States.

The average U.S. citizen eats 73 lbs. of potatoes a year: 1.4 lbs. a week.

The potato originated in Peru, which has more varieties of potato than anywhere else.

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