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State millions can't get seed potato exports going

Audit says future profits unlikely, despite years of subsidy

Posted: August 13, 2012 - 12:03am

Alaska’s attempts to sprout an international export business selling seed potatoes have failed to develop into a viable enterprise, and will likely never pay big dividends, a state audit has found.

The potato advocates, however, say its still worth investing state money in the effort, and that’s the only way it will ever succeed.

“The potato program, I believe is still a worthwhile program,” said Bryce Wrigley, president of the Alaska Farm Bureau. He’s not a seed potato grower himself.

“Alaska is the only state from which Taiwan and China will accept seed potatoes, and there’s a tremendous opportunity there,” he said.

The fact that Alaska has virus-free potatoes, and can certify them as such to the satisfaction of Asian buyers, spurred hopes of developing a billion dollar market since 1994.

The audit, though, is likely to end the state’s attempt to keep the faltering export dream alive, state officials say.

While supporting the export concept, Wrigley said he couldn’t argue with the audit.

“It lays out all the facts right there,” he said.

The audit was conducted by the Division of Legislative Audit earlier this year and concluded, “The seed project has resulted in minimal returns to the State and private enterprises.”

Further, it’s unlikely to ever produce returns that would cover costs, it said.

An expenditure of $5.5 million in state and federal money has been spent subsidizing the program since 1994 and appears to have produced revenues of $250,000 to $750,000 during that time, the audit said.

The audit said there were non-financial benefits to the program, however.

“Non-monetary returns associated with the seed project include expanding Alaska’s international market relations and expanding the knowledge base of seed potato diseases,” the audit said.

“Both of these non-monetary returns may reap some level of benefit to the State of Alaska over the long-term,” it said.

State funding for the export certification is funneled though the Alaska Manufacturing Extension Partnership, where Executive Director Eric Downey said he and other officials in the Department of Commerce, Community and Economic Development found the auditors’ conclusions persuasive.

“Overall they did a pretty good job,” he said.

He said the state developed a testing program that could produce the virus-free potatoes demanded in the Asian markets, but the state’s fledgling potato industry could never capitalize on it.

“This is a case overall where one part of the industry development, the testing and certification side, got a little bit ahead of the industry and business development side,” Downey said.

Despite multiple test shipments to Taiwan and China over the years, with a high of 100 tons in one year, the industry never developed the overseas markets or built into the kind of scale it needed to keep going, he said.

He said he expects the state to wind down involvement in the export seed potato business, and to return unspent some of the $600,000 appropriated by the Legislature this year.

An ongoing in-state seed potato certification program for Alaska’s domestic consumption will not be affected. That business is worth $2.4 million a year, according to the Division of Agriculture.

Division Director Franci Havemeister said she’s not opposed to future attempts to build an export industry, but such attempts may face some difficult hurdles.

“I think that going forward we need to be sure that there are established markets, and just make sure that there is a way the cost of testing can eventually be absorbed by the producers and still allow for a profit to be made,” she said.

She said she did not dispute the audit conclusions either.

The Farm Bureau’s Wrigley said more state involvement, in more than just certification, could have helped get the export business going.

“The state should have had a bigger hand in it,” he said.

The state could have been more heavily involved in a government-to-government relationship with China that could have helped to give the export effort more credibility there, Wrigley said.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

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