Empire analysis of state program shows lackluster results

Posted: Tuesday, August 24, 2010

A state agency has its sights set on making Alaska the nation's most important potato-producing state, topping even Idaho's famous potatoes.

That would result from growing seed potatoes - which sell at a premium when compared to table potatoes - and exporting them to China.

"This is a great opportunity with tremendous economic potential for local farmers and the state of Alaska," said Susan Bell, commissioner of the Department of Commerce, Community and Economic Development.

Her department is subsidizing the seed potato business with a $250,000 Alaska Manufacturing Extension Partnership grant in hopes of exporting 500 tons of Alaska potatoes to China this year before building to an eventual market of $1.5 billion.

That partnership is an effort funded by both state and federal governments that is aimed at helping new manufacturers with technical expertise. It's modeled after the agricultural extension agents that have had great success doing the same thing nationally for farmers.

However, an analysis by the Empire shows Alaska's small manufacturing industry has not been boosted as America's agriculture business has been. That's after several years in operation at a planned cost of $1.6 million a year, not to mention stretching the definition of manufacturing into housing, art and now farming.

Even though the change has yet to pay large dividends, the nonprofit AMEP and the state have been claiming big successes from the grant program.

Some of those triumphs were claimed before the businesses they were assisting came to fruition, while other manufacturing success stories either never went into business, or they did and went bankrupt.

AMEP Executive Director Chris Buchholdt said the partnership is helping companies lower costs and develop new markets, with many poised for national distribution and new hires. He said he hadn't been in touch recently with several companies AMEP had assisted in the past and cited as some of its success stories.

One of those stories was in Juneau, where Black Feather Boats went into the fiberglass boat-building business in 2005.

Owner Greg Welpton purchased rights to a new boat design and molds to make a fiberglass catamaran. That included an innovative vacuum-infusion molding process that resulted in a lighter and stronger hull, and AMEP helped bring national technical expertise to the small company.

Orders dried up during the national recession, however, and Welpton filed for bankruptcy liquidation in 2009 while facing hundreds of thousands of dollars in unpaid bills.

Another business has struggled to find a market for its products outside Alaska. Ladder Rack LLC of Anchorage sells devices which enable a pickup truck to carry ladders. The racks are in Alaska Industrial Hardware stores, getting good reviews and outselling competitors, but owner Loyd Reese said they have yet to get national distribution. He is still in talks with Home Depot about distribution, but Reese has not been able to find an American manufacturer for his product.

"I've been manufacturing these in China," he said.

Aksik Heat Distribution System is a clip-on radiator fin for hot water heating systems, said Edmund Apassingok of Gambell, on St. Lawrence Island in the Bering Sea.

Apassingok said he's got about 80 feet of prototype Aksik fins installed where they help extract more heat from existing systems.

He said he's still a ways away from being ready to start manufacturing or looking for a distributor.

"I'm supposed to go to Ohio for the next stage of this," he said. "In the Rust Belt I'll be closer to the manufacturing help" to begin production, he said.

In some cases, the definition of manufacturing was stretched broadly. A failed housing development got AMEP help, as did a candy maker selling his toffee over the Internet. Also getting AMEP assistance is an ongoing Native art enterprise that is hoped will bring jobs into rural communities by manufacturing, marketing and distributing Native art and other home-based manufactured products.

Alaska House, a New York gallery focusing on Alaska Native art, recently closed its doors after the Alaska Legislature balked at its financing request. AMEP has been funding the Alaska Native Arts Foundation, which in turn supported Alaska House.

The foundation's own gallery remains in operation in Anchorage.

Now the AMEP program is entering the farming business with the seed potato export business, and it is again claiming early successes.

State economic development officials are saying the potato operation is already "bearing fruit" and "paying off" for Alaska.

In addition to being early, the department's claim of a potential $1.5 billion market for Alaska's potatoes appears unrealistic as well. State economic development officers said that's based on Alaska farmers receiving a price of 50 cents per pound for their potatoes and selling 1.4 million tons per year to China.

U.S. seed potato exports to the entire world in 2009 were only 24,000 tons, according to the U.S. Department of Agriculture's Agricultural Statistics Services. And wholesale seed potato prices in the Lower 48 range from 8-16 cents per pound, according to USDA data. AEMP's estimate of 50 cents per pound may be based on retail, not wholesale prices.

AMEP's potato expert, Deputy Director Tom Moyer, said their business partners have not shared closely-held pricing information with them, but based on potato prices at farmers' markets in Anchorage, the state's prices seem reasonable.

"For some varieties, a five-pound bag goes for $25," Meyer said.

Reaching the department's volume predictions would take putting tens of thousands of acres into seed potato production. Currently, there are about 800 acres in production of all potato types in Alaska, according to USDA data.

AMEP executive director Chris Buchholdt said the state's $1.5 billion estimate can be reached, however.

"Most definitely it can happen," he said. "We have the capacity to do it, we just have to have the will to do it."

Alaska has a huge advantage in the seed potato business in that its virus-free potatoes are the only ones allowed to be imported into China, where potatoes are a big business. The AMEP money will be used for the testing to be used to certify that the potatoes remain virus-free.

If the $1.5 billion dream comes true, it will mean Alaska's potato industry will nearly double national leader Idaho's. According to the Agricultural Statistics Service, Idaho's entire potato crop in 2009 was worth $753 million.

The state has already spent 12 years trying unsuccessfully to break into Asian potato markets.

After years of struggling to develop Asian export markets for Alaska's virus-free seed potatoes, the legislature last year declined to spend more money to do so. The $250,000 grant comes from money that was not specifically allocated for potato promotion.

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