Index contracts will be offered to Northwest growers

By JOHN SCHMITZ

For the Capital Press

Starting this year, many Northwest mint-oil growers will see their multi-year contracts flex in value from year to year as the cost of production fluctuates.

Concerned about declining peppermint acreage in 2008, mint handler I.P. Callison & Sons began developing a program that compensates contract growers, both peppermint and spearmint, when production costs rise mid-contract.

Under the terms of what are called index contracts, at least two mint handlers will be making adjustments during the contract period to account for post-contract fluctuations in the cost of certain inputs as compiled by the National Agricultural Statistics Service.

"In the beginning of 2008 we were very concerned about the supply of peppermint oil across the United States," said I.P. Callison purchasing vice president Les Toews. "In fact, the acreage in 2008 was the lowest in 23 years."

One of the chief reasons for the decline in acreage was mushrooming fuel and fertilizer costs that weren't covered under fixed contracts, Toews said. "It was hard for (growers) to sign a longer-term contract that our customers wanted without some protection on the cost-of-production side."

The contracts will be revisited and adjusted each year at specific times based on monthly NASS cost data as it pertains to mint growers for four index components.

Under the program, mint-oil prices will also decline when certain key production costs decline.

I.P. Callison adjusts contract prices based on fertilizer and machinery cost fluctuations in March and for fuel and farm supply cost changes in July.

I.P. Callison decided to make adjustments to the price during contract periods based on fluctuations mainly in the cost of fuel and fertilizer.

Mint-oil handler Labbeemint has also adopted a close version of the USDA/NASS-based index model.

Labbeemint field representative Lowell Patterson, who contracts with peppermint oil growers on a three- to five-year basis, said that as far as he knows not all mint oil handlers are adopting index contracting.

USDA releases figures for a wide range of crop production costs on a monthly basis.

As for the four cost indices Labbeemint will be pegging its contract price to, the index for fertilizer is the one released by NASS in March, because that's the month of heaviest usage in peppermint fields, Patterson said.

At that time, any changes to the contract price for the fertilizer component becomes a "hard" number and not subject to change until the following March.

Cost changes in the other three index components will be released and acted upon in July.

USDA releases numerous production cost indices monthly, Patterson said. But because peppermint growers use or are affected by the four index components at different times than growers of other crops, the price corrections, if any, were scheduled for March and July. Labbeemint will set its 2010 contract price in September after factoring in all four indices.

Toews said that in the past, any contract price adjustments were tied to one factor only -- the price of crude oil.

"I like the index (we've developed) a lot better because it's a combination of diesel, gas, propane and natural gas costs, as well as an average of nitrogen, phosphorous and potassium costs."

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