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Idaho's Plight by Alwyn Scott, Seattle Times business reporter Seattle Times - June 17, 2001

Despite a potato glut, processors and farmers aren't cutting water use - yet

CALDWELL, Idaho - Thunder erupts every few seconds in this dusty farm town, as two tons of potatoes plunge into cauldrons of boiling water at the J.R. Simplot French-fry factory.

Moments later, a maze of oozy pipes and booming machines slices, deep-fries and freezes them. In three shifts, the plant gobbles 95 semi loads of potatoes and 2 million gallons of water, enough to supply the 23,000 residents of this town for a day.

And the power bill?

Shift manager Ernie Ozuna, in a hairnet and safety glasses, lowers his voice and smiles.

"A lot," he says.

Plants like this, among the big industrial users of water and electricity in the West, have escaped the tussle over scarce resources.

As the region grapples with soaring electric bills and the second-worst drought on record, everyone is being asked to conserve. But the Caldwell plant and two dozen others like it, mostly in Washington, Oregon and Idaho, chug along, turning out 10.8 billion pounds of frozen fries and other potato products a year.

That inequity is made even more acute by a glut of potatoes on the market. Massive piles of spuds sit in storage sheds around the Northwest - enough to fill 114,000 semi trucks reaching bumper-to-bumper from Seattle to Los Angeles.

Farmers are donating last year's potatoes to charity and plowing them back into fields, yet they're likely to grow even more this year than last in an effort to make up in volume what they lose to falling prices - prices that benefit processors such as Simplot.

The power and water shortages, coupled with the potato glut, change the equation underlying agribusiness, which for a century has used cheap water to transform desert into productive farmland.

Where once there was enough water to go around, the demands of crops and power dams now dry up rivers every year, endangering wild fish and boosting energy bills.

But processors, who wield enormous economic and political clout, don't want to sacrifice their business for fish or electricity.

In Simplot's 13th-floor boardroom in Boise, Chief Executive Steve Beebe bristles. Washington utilities, he says, already use Idaho rivers to generate power.

"You don't want coal-fired plants in Washington, you don't want nuke plants in Washington, you'd like to run Bonneville Dam as hard as you can," Beebe fumes. "But people are sucking off the Boise River to get power for growth for Washington."

Water is god in Idaho. Water rights are as permanent as land deeds. An entire courthouse in Twin Falls is devoted to a decadelong adjudication of rights. But cutting the state's water use isn't part of the discussion.

"Nobody is questioning dumping water on otherwise economically unviable crops," says lawyer Fritz Haemmerle.

'Mr. Spud': J.R. Simplot

John Richard "J.R." Simplot, the company's billionaire 92-year-old founder, is an Idaho legend. The potato king, whose Lincoln Continental vanity plate reads "Mr. Spud," invented the frozen fry after dehydrating onions and later spuds for troops in World War II. As fast food boomed in the 1960s and 1970s, Simplot became the nation's biggest French-fry maker, thanks to an exclusive contract J.R. worked out with Ray Kroc, the creator of McDonald's.

Simplot and others built more than a dozen plants along the Snake and Columbia rivers. The factories were paragons of progress, offering jobs for town folk and a reliable potato market for farmers.

Today Simplot's eight U.S. factories, all but one in the Northwest, and those of competitors Lamb-Weston and McCain, use about 14.4 billion gallons of water a year, enough to supply Seattle for nearly four months.

That's about what farmers use in a single day irrigating Idaho crops, and explains in part why conservation groups have targeted farmers first. Processors also have political power; few laws exist governing water use.

"Neither legally nor politically are we well-positioned to take on Lamb-Weston or Simplot, except where they create pollution and violate federal laws," says Reed Benson of WaterWatch Oregon, a conservation group.

But critics point to the industry's broader costs, visible not just in mounds of excess potatoes, but in low-priced power generated by hydro dams, subsidies from taxpayers, lost wildlife and failure to produce a sustained, stable rise in area living conditions.

A 1992 report found that Washington's potato-processing industry had the highest yields in the world and enjoyed low-cost power and water from public irrigation and generating projects. Government-subsidized loans helped build some of the French-fry plants.

The study, by the Columbia Basin Institute, a conservation group, found high levels of nitrates around processing plants, and said the plants strained groundwater already burdened by irrigation.

The study also found living standards in small communities in the Columbia Basin were low by state standards. Wages today are 68 percent of the state average.

Chasing profits in glutted market

Simplot expects to sell $1.5 billion worth of fries and other processed vegetables this year, the largest slice of a $3.5 billion business that includes feedlots and fertilizers. The privately held company doesn't disclose its profits but expects a "decent" return despite high power bills, Beebe says.

In contrast, growers in Idaho and Washington have lost millions of dollars on crops in recent years as the prices paid by processors have fallen. The price of "open spuds," or potatoes sold on the open market, has dipped as low as 25 cents for a 100-pound bag from highs of $6 a few years ago - and well below the $6 to $8 cost to grow and store each bag.

To trim supplies, farmers donated spuds to charities and as cattle feed, or plowed them into fields. A federal program that ended last week sopped up another $10 million worth - at $1 a bag.

Even so, 4.8 billion pounds of spuds are sitting in sheds in Idaho, Washington and Oregon - 44 percent more than were in storage a year ago.

"You would think the laws of economics would stop this," says Mel Anderson, executive director of the Idaho Potato Commission, a state agency.

Why don't they? In the strange logic of this business, growing as much as possible gives each farmer the best chance at a profit - even if it hurts all growers as a group. Processors such as Simplot pay a set price per bag for everything a farmer can grow on a specified number of acres.

A few miles from the Caldwell plant, John and Bill Hartman are growing 160 acres of potatoes under contract with Simplot, which will pay $4.75 for every bag they produce. The brothers need 400 or 500 bags per acre to make a profit. "If we get less than that we're just trading dollars with Simplot," says John Hartman.

Crop yields have risen dramatically. To illustrate, Jim Bean, a field supervisor for Simplot, tugs a young plant from a damp field outside Caldwell and spreads the roots. Amid the tangle of tendrils, he points out a dozen tiny bulbs. By August, buds like these on 400,000 Idaho acres will grow into perhaps 20 billion pounds of potatoes, up from 12 billion pounds 20 years ago.

"We fought for these yields," says Bean, who has worked for Simplot for 48 years. "Now we keep digging ourselves into a deeper hole."

Banks also play a role. The millions of dollars farmers invest in machinery make switching crops difficult. And since the equipment is financed, banks often demand that fields be planted. "The bank won't let you leave the land out of production, because they have an investment they're trying to recover," Anderson says.

Last year, the Potato Growers Association urged noncontract growers to cut back production and drive prices higher. But some made end-runs around the deal, diminishing its effect.

"It's awfully hard to get a group of farmers in a room to agree on something," Bean says. "No one wants to be the one to grow less. In some ways we're our own worst enemy."

Water rights considered sacred

There was no water when the Hartmans' great-grandfather homesteaded their land 1892. But irrigation was coming, and with it, prosperity.

Those who joined to dig water canals gained rights to water that have been considered sacred for a century. Today, the Hartmans farm 1,200 acres, much of it covered by early water rights.

"First in time, first in rights" is the rule of water, and it's as much an Idaho motto as "Famous Potatoes." Farmers can bank water they don't use and draw it down another year. But after five years of not using it, they lose the right to it. That keeps them farming.

This year, rationing is in effect all around southern Idaho. Doug Gross, a member of the Idaho Potato Commission, farms 1,600 acres near Wilder, drawing water from the same reservoir the Hartmans use. His water has been cut by about a third, to one foot per acre, or about 326,000 gallons. With the water he didn't use last year, he'll have enough to bring in his crops, most of which he has already sold at a profit under contract.

"For me to step aside and not produce is to walk away from my business," he says. He bristles at the idea of giving up his water for salmon. "Do you expect us to give up our business for your business?"

The fish factor: no simple tale

Ironically, the Washington and Idaho rivers are teeming with fish despite the drought.

That doesn't mean the endangered species are safe. Drought and demand for hydropower have drained and slowed rivers to near-records. That has stranded thousands of young salmon on the trip downstream and may dry out spawning grounds for adult fish.

"We're worried adults will get to their natal streams and there won't be any water there," says Brian Gorman, a spokesman for the National Marine Fisheries Service in Seattle.

Increasing river speed, lowering temperature and spilling more water over dams, rather than through power turbines, help fish.

"But those things mean drawing water out of the upper Snake River in Idaho, which is cold," says Gorman.

Yearly fluctuations in fish populations can be misleading. While there are plenty of hatchery fish, the supply of wild salmon is trending down. Snake River sockeye are virtually extinct.

"If we were to operate for the next 10 years the way we've been operating for the last 10 years, we would ensure the extinction of virtually all the listed salmon in the Pacific Northwest," Gorman says.

That's unlikely, because the Endangered Species Act and other measures are changing the way waterways are managed.

But industry's help has been limited.

Simplot says it recycles water 20 times before discharging it, and employees turn off lights at plants and offices.

"But the fact is, at our potato plants we must have power 24 hours a day, seven days a week," Simplot spokesman Frank Zerza says. "Without it, the plants can't operate. There are virtually no opportunities to reduce consumption significantly, short of shutting down the plants."