The Economy, Revisited

Folks, I must say, the economy seems to be affecting our industry more than I expected 6 months ago.

We are definitely seeing a slowdown. Production is down a bit in many regions, varying from practically flat to an 8% or so drop. Simplot has reported they cannot process all the potatoes their Tasmanian growers produce. We are seeing many projects get delayed by 6-12 months, plus a few are getting cancelled. Processors are looking to invest only in those projects with the very highest returns; the threshold has been raised, and fewer projects are making the cut.

Further confusing things is the strengthening of the US dollar: This makes production relatively more expensive in the US, which in turn shifts production to other countries, particularly Canada. So those companies who were considering US capacity expansion two years ago are now using up excess capacity in Canada. Not the best thing for us in the equipment business.

What is Key doing about this?

First, we firmly believe that recovery from this downturn is in the not-too-distant future. At that point, we expect processors will need to invest in areas that have been deferred for the last year or so. So we expect a bit of a spending flurry for several months after the recovery.

Second, because we expect the recovery and the flurry, we are investing now in new product development. We are definitely not "hunkering down" to try to simply survive this period. We want to emerge from it on a ramp of business, and so are developing new solutions to serve our clients better. You have seen recently our announcements of a wide chip/crisp sorting system and a whole potato sorting system. Expect other announcements for new products on a fairly regular basis over the next several months.

Tim

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