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Potato giant defends company's land stewardship in water permit flap

PARK RAPIDS, Minn. -- The patriarch of the biggest potato producer in the world says his company is not the poor environmental steward critics have accused it of being in a snafu over Minnesota water permits.

Ron Offutt, emeritus chairman of the board of R.D. Offutt Co. in Fargo, N.D., says his company got ahead of itself in applying for more preliminary water well permits than it needed or wanted. But that was, in part, a reaction to a changing permit application process and a rare offer to explore buying land from Potlatch Corp., which has sold thousands of acres it had used as timberlands.

In April, Offutt's company appealed a Minnesota Department of Natural Resources decision to require an Environmental Assessment Worksheet for its 56 water permit applications. A court recently agreed to drop the appeal, after Offutt withdrew all but 18 of those applications. The withdrawal prompted some to question why the company was against the environmental assessments.

Offutt, who gave a field and factory tour in Park Rapids, says his company will always work with the Minnesota Department of Natural Resources, but questions the agency's requirement for an environmental worksheet.

DNR commissioner Tom Landwehr says the environmental requirement was appropriate because of the potential size of the project. He says he regrets that publicity surrounding the case might have implied the Offutt organization is not a good steward of the land.

"This is not an indictment of the company," Landwehr says, noting the company is "doing some really nice things with respect to sustainability."

But he says the large number of preliminary permit applications couldn't be handled one by one without an understanding of their total impact.

Some legislators think it casts an unfair, negative light on potatoes in particular, and agriculture in general. They've taken legislative steps to make sure companies such as Offutt get a two-week warning if their water permit applications trigger an environmental assessment.

Since 2011, Offutt's company has purchased about 7,800 acres from Potlatch. About half of that is in farm production. The other 3,700 acres tdon't have water permits, leaving them with an uncertain future.

Offutt says the episode has changed his attitude about investing in any new farming projects in Minnesota.

"I would say that the least amount of expansion in the state of Minnesota is the best for our company," he says. "There are other areas in the United States that are a lot friendlier to agriculture and agriculture production than the state of Minnesota is under its present situation."

Spud specialist

At age 72, Offutt has been heading his company since 1965 -- 50 years. He  started with a family farm on nonirrigated land in his native Clay County, Minn.

Today, the company is headquartered near downtown Fargo. Offutt operations are housed in two substantial companies that have revenues of about $3 billion -- the R.D. Offutt farming and food company and RDO Equipment Co. Ron's daughter Christi Offutt, CEO of the equipment company, recently became chairwoman of both companies. Ron's son-in-law, Keith McGovern, is the CEO of the farming company.

Offutt is the largest single potato producer in the world, and probably the biggest ever. The Offutt operation involves some 60,000 acres of irrigated potatoes in Minnesota, North Dakota, Wisconsin, Nebraska, Nevada, Oregon and Washington.

A third of Offutt's U.S. potatoes are grown on nine farms in Minnesota, most of which supply potatoes to the Park Rapids Lamb Weston-RDO Frozen Foods factory, including 8,000 to 9,000 acres in the Park Rapids area.

The company owns roughly 40,000 acres in Minnesota and gets the rest of its rotation acres for other crops through a variety of partnership deals, often with landowners or farmers who control those crops.

Offutt says the land purchases will increase crop rotations from three to four years. But some have questioned whether the new land is for more potato production. McGovern, however, says the company has limited storage space and cannot produce more than the 20,000 acres it grows in Minnesota now.

A decent proposal

In the past five years, Potlatch Corp., headquartered in Spokane, Wash., offered a rare opportunity for Offutt to accumulate land.

Potlatch owns about 1.6 million acres nationwide and operates five solid wood manufacturing operations, says Mark Benson, the forestry giant's vice president of public affairs.

Potlatch has been shifting some production to Alabama and Mississippi, as well as Arkansas and Idaho. Northern trees take 50 to 70 years to mature, while trees in the south take 25 to 30 years. Another big difference is the high property tax rate for tree land in Minnesota -- $10 to $20 per acre -- compared with $2 to $5 per acre in other states, Benson says.

For the past 15 years, Potlatch has been selling some of its small and mid-size parcels of land in Minnesota. Potlatch is selling up to 60,000 acres in the state, but Benson says only 6,000 to 8,000 acres might be suitable for irrigated farmland.

He says critics have "painted a bigger picture than what really exists for agricultural land." He says Offutt has been a good business partner with a good reputation.

A 2009 land purchase went so smoothly that Potlatch came to R.D. Offutt Co. and made deals for purchasing more land in 2010, 2011 and 2012, Benson says. There were more acres in 2013 and 2014, totaling 7,809.

Fair share

The DNR has two responsibilities, Landwehr says. First, it makes sure applicants don't appropriate more water than is available, or more than their fair share. Second, it makes sure appropriations don't degrade the water quality.

DNR documents obtained by Offutt indicate the agency was considering environmental assessment scrutiny as early as January 2013, but no one told the company about the level of the agency's concern with the permits. McGovern says the company had traditionally dealt with local officials and perhaps should have reached out to statewide officials in St. Paul.

On July 1, 2013, the state changed permit application rules, requiring a prospective irrigator to notify the DNR when drilling even a preliminary, inexpensive well.

In late 2014, Offutt had permits for about half of its Potlatch parcel purchases that statutorily had been approved in October and November 2014.

In December 2014, R.D. Offutt farm managers applied for the new preliminary test wells on more Potlatch land in Becker, Cass, Hubbard and Wadena counties. The farms traditionally operated independently and weren't accustomed to having their applications rolled together.

But with 56 well permits in play -- either in preliminary or water acquisition phases -- the DNR required an EAW. Usually the assesssment is triggered automatically only when a request involves 640 contiguous acres or if a citizen petition asks for it.

McGovern says the company never intended to develop all of the preliminary application land, but relied on the DNR to inform the company if there were concerns. He acknowledges the company should have only applied for permits it could have farmed in a given year, but he says the process was dictated by the fact that Potlatch was trying to sell land. As an entrepreneur, Offutt was trying to seize an opportunity before competitors might.

"We only ever would have developed seven fields a year," McGovern says.

EAW notification

Several legislators have raised concerns about the DNR's roll-out of the EAW news. The DNR informed Offutt of a letter the company would be getting about the EAW, but posted the letter on the DNR website before it was sent to Offutt.

Paul Noah, general counsel for R.D. Offutt Co., asked if the DNR would hold back on the EAW for a week so the company could clarify the number of permits, and possibly withdraw some. The DNR officials said it was too late because the letter had already been posted to the website.

"I read their letter on their website before the fax came to me," Noah says.

Landwehr held a telephone press conference that afternoon to announce the EAW requirement.

News coverage of the EAW and Offutt's permit withdrawals triggered statements by critics, including a blogging group, Toxic Taters, that has criticized the company's stewardship of land. The bloggers suggested Offutt didn't want EAW scrutiny because the company didn't want to reveal the chemicals they're using in potatoes.

"What are they hiding?" asks Amy Mondloch, a coordinator for Toxic Taters.

Offutt says its chemical use meets state and federal regulations.

New legislation

On Feb. 9, Landwehr testified in a Legislative Water Commission board meeting in St. Paul. He said his agency had deliberately not informed Offutt of the pending environmental assessment.

"Candidly, if I'm going to do an enforcement action, I'm not generally going to advise a party that an enforcement or permitting action is going to come because it can trigger all sorts of reactions that complicate things," Landwehr said at the meeting.

Rep. Paul Torkelson, R-St. James, a corn, soybean and pork farmer, asked Landwehr whether he meant "enforcement" action. Landwehr corrected himself, calling enforcement an "inappropriate term."

Because of the Offutt episode, Rep. Denny McNamara, R-Hastings, chairman of the House Environment and Natural Resources policy and finance committees, says legislature passed a bill that would require the DNR to give a company 14 days notice before imposing a discretionary EAW. McNamara says the DNR gave more notice to a mining operation in northeast Minnesota on a similar requirement.

McNamara says Offutt is known for its stewardship efforts, including working with a local community college to study impacts of pivot irrigation. It's easy to "point at this land and say this shouldn't grow row crops; it should grow trees," he says, but adds if Potlatch can't make any money on its investment, it should be able to sell it to someone who thinks they can, or the land will come off the tax rolls.

"We can't have the government buy all of the land," he says.

Rep. Steve Green, R-Fosston, says the mode of operation is "disturbing" because it seems agencies are "against the people they serve." He says Minnesota already has a high percentage of land in public lands and trees, which affects its value for property taxes and services.

"Offutt seems very responsible, but yet they seem to have gotten a target on their backs," Green says.

Conflict of interest?

Green thinks the DNR has a conflict of interest because it purchases Potlatch land for trees at the same time it holds sway over water permits for farmers.

Potlatch says the DNR has bought 2,000 acres of its company's land and controls 24,000 acres that have been acquired by conservation groups and transferred to DNR care in the past five years. Landwehr says the 2,000 acres are east of the Park Rapids area, and most of that wouldn't be fit for farming.

After announcing the Offutt EAW, Green says Landwehr made a courtesy call to Potlatch officials to inform them the DNR would not purchase any land in the Park Rapids area, to avoid any perception of a conflict of interest.

Rep. Dan Fabian, R-Roseau, wonders if an EAW would have been triggered if multiple farmers had requested the same permits Offutt did.

"Just because Offutt is big and they've found, I'll say, a 'recipe' for raising potatoes, quite frankly they've been singled out, from my perspective," Fabian says.

Sen. Rod Skoe, D-Clearbrook, Minn., a potato farmer in markets unrelated to Offutt's, says critics of potato farming don't understand Offutt is not increasing potato product, but expanding irrigation to allow for longer rotations. He says the company isn't "clear-cutting" trees, either, but says Potlatch has logged the trees.

"A diversified agriculture is good for Minnesota, and part of that diversity includes potatoes," he says.

Sustainability goals

McGovern says the public criticism affects the company's image.

"If our name is in the paper, it usually affects all of our businesses in some way, shape or form," he says.

Both the DNR and Offutts want to be sustainable and not have a negative impact on the environment, McGovern says.

"But (the DNR has) some people in their organization that don't view agriculture as a part of this part of Minnesota," he says. "It doesn't make the company anxious to put more capital at risk (by developing more) farming expansions in the state."

McGovern fears the EAW is heading toward an environmental impact statement, which would leave the land in a four-year limbo, after a substantial investment.

"We can't remove the sticks and stumps; we can't rent it to neighboring farmers," he says.

McGovern says he could understand an EAW on the entire area, but not for just one company. He notes other producers are getting permits and developing land.

"If the DNR would have said they're thinking of doing an EAW, we wouldn't own those 27 quarters of land," he says.

Offutt says his company is focusing only on working through land it's already purchased and not acquiring any more. Offutt says his organization could more easily accept an EAW supervised by the county, or other state or federal agencies, but not the DNR.

"They sit as judge, jury and plaintiff," Offutt says.

"We're making investments that many other farmers aren't. People at the local level see that and recognize it. People at the state level don't necessarily think we're bad guys; they just think we're big. If we were a bad actor (environmentally), we couldn't sell what we raise.

"Other agencies in the state of Minnesota have recognized us for doing things right," he says. "And we do things right."

Mikkel Pates is a staff writer for Agweek. To subscribe to the weekly agriculture magazine, call (800) 811-2580 or email subscriptions@agweek.com.

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