- Author: Ria DeBiase, Communications Director, Giannini Foundation of Agricultural Economics
New research estimates economic losses due to congestion, inefficiencies
Between wildfires, drought, a trade war and the COVID-19 pandemic, the last few years have been hard on California farmers. But recent research by agricultural economists from UC Davis and the University of Connecticut suggests that economic losses to California agriculture from recent supply chain disruptions may have an even greater economic impact.
In an article titled “‘Containergeddon' and California Agriculture,” researchers estimate that there was a 17% decline in the value of containerized agricultural exports between May and September 2021, resulting from recent port congestion. This amounts to around $2.1 billion in lost foreign sales, which exceeds losses from the 2018 U.S.-China trade war.
By the peak of the disruption in September 2021, nearly 80% of all containers leaving California ports were empty – about 43% fewer filled containers leaving California's ports than there were prior to the pandemic. And since 40% of filled shipping containers leaving California's ports are filled with U.S. agricultural products – around a third of which are from California – farmers in the state experienced significant lost export opportunities.
By September 2021, there were around 25,000 fewer containers filled with agricultural products leaving California ports than there were in May 2021. Processed tomatoes, rice, wine and tree nuts saw the sharpest average trade declines.
“We calculated California tree nut producers lost about $520 million,” said Colin Carter, UC Davis Distinguished Professor of agricultural and resource economics. “This was followed by wine with a loss of more than $250 million and rice with about $120 million lost.”
During the pandemic, an increase in household savings led to increases in consumer spending, with many of these additional goods being imported from Asia. California ports were overwhelmed by the added shipping containers coming in from Asia. At times, bottlenecks at Southern California ports left more than 80 vessels waiting off the coast to unload. Docks and warehouses ran out of space and the turnaround time for shipping containers nearly doubled.
Increased U.S. demand for imported goods from Asia also led to increased demand for empty shipping containers in Asia. Prior to the pandemic, freight rates for shipping containers from Shanghai to Los Angeles were already higher than the return trip from Los Angeles, but this gap widened significantly after COVID-19. By September 2021, the fee to ship a 40-foot container from Shanghai to Los Angeles had increased sixfold to $12,000 – while the return trip from Los Angeles was only $1,400.
The high prices for containers from Asia, coupled with shipping delays from the high volume of imported goods entering California ports, made it more profitable for shippers to return containers to Asia empty, rather than waiting at the ports to have them loaded with U.S. exports for the return trip.
“If port inefficiencies persist, the ramifications for California agriculture will extend beyond the immediate loss of foreign sales, as importers begin to view California as an unreliable supplier of agricultural products,” Carter said.
To learn more about the supply chain disruptions at California ports, and their effect on California agriculture, read the full article by Colin Carter (Distinguished Professor in the Department of Agricultural and Resource Economics at UC Davis), Sandro Steinbach, and Xiting Zhuang (assistant professor and Ph.D. student, respectively, both in the Department of Agricultural and Resource Economics at the University of Connecticut): “‘Containergeddon' and California Agriculture,” ARE Update 25(2): 1–4. UC Giannini Foundation of Agricultural Economics, online at https://giannini.ucop.edu/filer/file/1640021835/20297/.
ARE Update is a bimonthly magazine published by the Giannini Foundation of Agricultural Economics to educate policymakers and agribusiness professionals about new research or analysis of important topics in agricultural and resource economics. Articles are written by Giannini Foundation members, including University of California faculty and Cooperative Extension specialists in agricultural and resource economics, and university graduate students. Learn more about the Giannini Foundation and its publications at https://giannini.ucop.edu/.
- Author: Wendy Powers
It is shaping up to be a long, short week. I know we are all anxious to see how the week unfolds. So far, so good.
The combination of prolonged COVID and national unrest is getting to all of us, inspiring retirements and departures in unexpected places. I am hoping to get a Vice Provost recruitment underway soon, backfilling Mark Lagrimini's position. In addition, I am serving on a search committee for a new Executive Director to the Western Extension Directors Association. The pool of applicants is strong with some surprising submissions. It leaves me optimistic that we will have a strong pool to fill the gap in UC ANR.
If the pressures of earth get to be too much, perhaps Mars offers a solution in the near future. We need to check in with students in Calaveras County who each had a chance to build a Mars rover, donated by the 4-H STEM program. Nice work, JoLynn!
Given the lack of rain so far, the timing couldn't be better for completing the UCANR Disaster Guide. The Guide contains great examples of how UC ANR has responded to fires and COVID-19. Thanks to Susie, Faith, and team for putting this together! I have no doubt that many will download the document!
Congratulations to Monica Cooper for the quote of the week, “This is consistent with our UCCE mission to ensure the continued economic prosperity and ecological sustainability of agricultural operations in California in partnership with industry and government agencies.” Read what Brad and John had to say as well.
Be sure to tune in for the Town Hall on Thursday from 2 to 3 pm. We will build on this week's Martin Luther King holiday by learning more about planned ANR events for upcoming Black History Month.
The UC Economic Impact Report is out; don't skip over page 64! If you aren't up to reading all 123 pages, take a look at the factsheet, the last paragraph in particular. Congratulations on a strong contribution to a strong UC!
If you are considering a hike this weekend, check in with Mark Bell for some ideas. He has been out in East Bay and to the Golden Gate area recently, taking extra care to send me photos of his adventures. During his most recent outing, Mark had the good fortune of coming across evidence of UC ANR's impact. Literally, our impact is everywhere!
Someday I will leave my garage. Until then, it seems the end of the month is already near; time to prepare for the meetings regularly scheduled for the first week of the month. This month we have an additional meeting with President Drake. I look forward to that meeting, but I have some prep work to do beforehand.
- Author: Shermain Hardesty
Our University of California Cooperative Extension team measured the economic impact of local food marketing in the Sacramento Region (El Dorado, Placer, Sacramento and Yolo counties). Our key finding was that, for every dollar of sales, Sacramento Region producers engaged in direct marketing (direct marketers) are generating twice as much economic activity within the region as producers who are not involved in direct marketing (non-direct marketers). This strong economic development impact is due primarily to the fact that direct marketers source a much larger percentage of their inputs within the region (89 percent) than do non-direct marketers (45 percent).
We used an input-output modeling program, IMPLAN, to measure the direct marketers' economic impacts. Our project team interviewed over 100 direct marketers in the Sacramento Region to develop a customized IMPLAN database. We asked producers what, where, and how much they spent for inputs in various categories, as well as what, where and how much product they sold. The direct marketers were much more labor intensive; hired labor comprised 45 percent of their total expenses, compared to 25 percent of total expenses for the non-direct marketers. Additionally, most direct marketers also sold through other channels; on average, 44 percent of their revenues were generated through direct marketing, 55 percent through wholesale channels, and one percent in commodity markets.
Three levels of economic impact related to local food marketing can be measured: direct, indirect and induced. Imagine a customer goes to a farmers market in the Sacramento region and buys $10 of vegetables from Farmer Brown. There is a direct effect of 1, which generates $10 in revenue for Farmer Brown. There are also ripple effects
The second ripple effect is called the induced effect. In this example, Farmer Brown spent money to hire labor and purchase inputs. Her spending generates income for her farm, her employees, her suppliers, and the employees of her suppliers—including the sales person at the hardware store. The induced effect occurs when these households spend some of their income on products and services within the region, such as food, clothing, health care, eating out, and recreational activities. The induced effect was .45 for the direct marketers and .33 for the indirect marketers. The induced effect from Farmer Brown's production of $10 of vegetables generated $4.50 of household spending in the Sacramento Region. The direct, indirect and induced effects are added together to calculate the total output multiplier—measuring the total economic impact of one dollar of output. The total output multiplier is 1.86 for the direct marketers, and 1.42 for the non-direct marketers.
There are also large differences in the job effect of the two producer groups. The direct marketers generate 31.8 jobs in the Sacramento Region for every $1 million of output they produce. These jobs include on-farm labor, as well as jobs related to the farms' indirect effects, which involve the farms' suppliers, and jobs created by the direct marketers' induced effects involving household spending. In comparison, the Sacramento Region non-direct marketers generate 10.5 jobs for every $1 million of output. The difference is attributable mainly to two factors: (1) the direct marketers' high rate of local input sourcing; and (2) the direct marketers' labor intensiveness--hired labor expenses comprised 45 percent of their operating expenses, compared to only 25 percent for the other producers.
Readers need to be aware that these results apply only to the Sacramento Region. Gathering the data to develop a custom IMPLAN database for direct marketers is very time-consuming.
Report authors are the following current (and former) UC Cooperative Extension academics and staff: Shermain Hardesty, Libby O. Christensen, Erin McGuire, Gail Feenstra, Chuck Ingels, Jim Muck, Julia Boorinakis-Harper, Cindy Fake and Scott Oneto. The full regional report, as well as similar reports for El Dorado, Placer and Yolo counties, may be downloaded at: http://ucanr.edu/econ_impact. Inquiries may be sent to the project leader, Shermain Hardesty, shermain@primal.ucdavis.edu.
Cementing its place as California's most important agricultural commodity by farm revenue, California farms sold about $9.4 billion worth of milk while the dairy industry contributed approximately $21 billion in value added to the gross state product in 2014, according to a California Milk Advisory Board (CMAB) study conducted by the Agricultural Issues Center, a statewide program of UC Agriculture and Natural Resources. Including sales of inputs to dairy farms and milk processors along with raw milk and wholesale milk product sales, the dairy industry contributed $65 billion in total sales to the California economy in 2014. The growing demand for dairy products like cheese and yogurt as well as strong dairy exports accounted for 189,000 jobs that are dependent on the state's milk production and processing.
“The dairy industry's contributions are vital to California's economy, from creating jobs to stimulating local and regional economies to providing nutritious and enjoyable products to consumers everywhere,” said John Talbot, CEO of the California Milk Advisory Board. “A large number of California residents depend on the dairy industry for employment and these jobs would not exist without it.”
The $21 billion to California's gross state product included $7.4 billion as income to industry workers and owners and $13.4 billion through related, outside industries such as feed, veterinary and accounting services used for dairy production and electricity, packaging, equipment and trucking services used by processors. The tax revenue generated from these jobs supported important statewide initiatives to improve education, healthcare, roads, community services and the environment.
Overall, 189,000 jobs in California are associated with the dairy industry. Of this amount, approximately 30,000 jobs are on the farm and 20,000 jobs represent dairy processing. For every dairy farm job, there are several more jobs that are tied to the business and create a linked chain of economic impacts.
Additionally, the induced effect of the dairy industry also creates jobs in the community to support the area's dairy workers and their families, such as school teachers and local bus drivers.
California Holds Rank as Nation's Dairy Leader
California leads the nation in dairy production and dairy continues as the top commodity in the country's top agricultural state. It has been the nation's largest milk producer since 1993 and is also the country's leading producer of butter, ice cream, nonfat dry milk and whey protein concentrate. California is also the second largest producer of cheese and yogurt.
Farm milk sales generated $9.4 billion gross revenue in 2014. Wholesale dairy product (cheese, fluid milk, ice cream, butter and other dairy) sales hit $25 billion in 2014.
Dairy Farmers Improve Business Performance
As an essential part of California's farming heritage, dairy farmers understand the importance of protecting the land, water and air for their families, their communities and future generations. In 2014, California dairy farmers produced more milk with fewer resources. Talbot credits “improved dairy practices and management adopted by farmers” for the increased business efficiencies. The pounds of milk produced per cow increased to 24,000 pounds in 2014 from 15,000 in 1984. Farmers are applying 23 percent less water to their fields than they did in the early 1980s and have seen their average crop yields increase by more than 40 percent despite using less water.
Beyond the economic impacts calculated in the report, California dairy farmers and employees are active participants in their communities and contribute to social, environmental and other broad public goals.
Study Leaders and Methodology
The study was conducted by a team of researchers at the UC ANR Agricultural Issues Center (AIC). Daniel A. Sumner, the director of AIC who holds the Frank H. Buck, Jr. Chair Professorship in the Department of Agricultural and Resource Economics at UC Davis, led the study. Josué Medellín-Azuara, a project scientist at the UC Davis Center for Watershed Sciences, and Eric Coughlin, a junior research specialist at AIC, were part of the research team. They measured myriad impacts using dairy-specific data for 2012 and projections for 2014 and a database and model of economic linkages (IMPLAN).
About the California Milk Advisory Board
The California Milk Advisory Board (CMAB), an instrumentality of the California Department of Food and Agriculture, is funded by the state's more than 1,450 dairy families. With headquarters in South San Francisco and Modesto, the CMAB is one of the largest U.S. commodity boards. It executes advertising, public relations, research and promotions on behalf of California dairy products, including Real California Milk and Real California Cheese. For more, visit RealCaliforniaMilk.com.
- Author: Jeannette E. Warnert
The story was based on a report released Tuesday by the UC Davis Center for Watershed Sciences. The 2014 drought, the report says, is responsible for the greatest water loss ever seen in California agriculture - about one third less than normal.
A key concern is the loss of agricultural jobs, said lead author Richard Howitt at a press conference about the report. "What really hurts is you are also losing 17,000 jobs," Howitt said. "(These jobs) are from a sector that has the least ability to roll with the punches."
Consumer food prices will be largely unaffected. Higher prices at the grocery store of high-value California crops like nuts, wine grapes and dairy foods are driven more by market demand than by the drought.
The report calls the groundwater situation in California "a slow-moving train wreck."
“California's agricultural economy overall is doing remarkably well, thanks mostly to groundwater reserves,” said Jay Lund, a co-author of the study and director of the Center for Watershed Sciences. “But we expect substantial local and regional economic and employment impacts. We need to treat that groundwater well so it will be there for future droughts.”
California is currently the only Western state without a framework for groundwater management.
The UC Davis news team has provided these resources about the new drought report:
- Read the full report.
- Watch the recorded webcast of report press briefing.
- Download photos
- Download audio sound bites from lead author.
The report says the Central Valley is hardest hit, particularly the Tulare Basin, with projected losses of $810 million, or 2.3 percent, in crop revenue; $203 million in dairy and livestock value; and $453 million in additional well-pumping costs.
Drought impacts being felt
The ongoing drought has contributed to declines in Fresno County crop values, reported Bob Rodriguez in the Fresno Bee. Fresno County's overall gross value fell 2.2 percent to $6.4 billion in 2013, and with the reduction lost its bragging rights as the No. 1 ag county in California. Tulare County took the No. 1 spot with a record $7.8 billion in ag value, riding on robust dairy prices.
Fresno County Agricultural Commissioner Les Wright said the drought -- one of the worst in state history -- has pinched the production of several west side field crops including cotton, corn silage and barley. The field crop category fell by 42 percent.