The Case of Potato Industry Essay

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Introduction

At the beginning of the 21st century, potato growers in the US were in severe conditions due to low prices for potato. Such a situation happened because of the reduced demand for potato, which mainly resulted from moderate consumption of carbohydrates dictated by the “Atkins Diet” (Thompson, 2005, p. 5). The other factors, such as low demand for French fries, also took place. Keeping in mind the mentioned conditions and the grower’s idea that potato buyers were price elastic to the production, the decision to lower costs to make consumers buy more could lead to reduced profits. It was so – the producers failed to overcome the business hardships as they did not take into account the fact that the potato market was perfectly competitive.

A firm in a perfectly competitive market takes the price of its products as a given, independent of the volume of products it sells. However, due to any cost exceeding the given one even by a small amount, the volume of demand is 0 (Webster, 2014). The company will lose its customers if it tries to raise the price. Therefore, when choosing the size of output that ensures maximum profit, the company should consider its production as a constant value.

It should also be mentioned that the US started to import more, which led to the closing of the most productive potato plant located in Idaho. Thus, in 2004, the potato growers had to do something to improve the situation, and they decided to establish a cooperative that is called United Potato Growers of America (UPGA) (Thompson, 2005). It was done in order to keep prices high enough and increase income. However, the members preferred to act independently and established no governing board. Nowadays, the growers have understood the appropriacy of the collective approach and have the opportunity to verify quotas and control supply, which leads to a favorable business environment.

Response to “Yummy Potatoes”

The fact that potato is a trendy vegetable for consuming might be considered as a general truth. The author is right in the claim that there is a plethora of companies that are involved in the potato business supplying the homogeneous product. The mentioned factors are the main characteristics of a perfectly competitive market. Indeed, the agreement of United Potato Growers of America for elevating sale costs is an example of suppliers attempting to get control of the market. The author reasonably notices the visible threat of the perfectly competitive market – the possibility of free entry of new suppliers into the business as they can offer lower prices for potato. Hence, the assumption that the mentioned fact is mostly the reason why potato growers are forced to act as price takers is credible. Moreover, the homogeneous product may lead to the situation when it is difficult for independent producers to take recoup for last year’s market prices, if the largest potato producer, China, increases the supply. It might be assumed that the work demonstrates appropriate pieces of evidence and suggestions.

Response to “The Plight of the Potato Farmer”

Sometimes, it is necessary to create a cooperative in order to survive in the conditions of a perfectly competitive market. The author reasonably states that the establishment of United Fresh Potato Growers of America was done to take minimal control over prices and reduce production to get stable profit margins. However, such an action contradicts the principle of fair competition in the modern market economy. Thus, the threat of filing a lawsuit against the cooperative policy might take place, which happened to United Fresh Potato Growers of America. Nevertheless, as the author rationally suggests, keeping in mind that the cooperative’s activity contributes to the success of the US potato producers, the growers’ coalition should refrain from any unlawful practice and be vigilant. Thus, the work demonstrates the coherent train of thought and rationale.

References

Thompson, S. A. (2005). Price crisis prompts potato growers to form national cooperative. Rural Cooperatives, 72(2), 4–7.

Webster, T. J. (2014). Managerial economics: Tools for analyzing business strategy. Lanham, MD: Lexington Books.

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