- Author: Laura Tourte
Mark here. I'm including below really nice overview of the current ag labor issue in California by colleague Laura Tourte. The intensity of work and dependence of our agriculture on labor here on the Central Coast make this topic really relevant and, given the looming changes in cost and availability, pretty important to understand well.
Growers often report – and researchers generally agree – that labor shortages exist in agriculture along the Central Coast and elsewhere in California, and that labor costs are rising. The reasons are for this situation are complex and multifaceted. Here are some considerations:
- The fresh market crops that dominate agricultural production along the Central Coast are labor intensive. Weeding, pruning and training, irrigation and harvest are examples of practices that are especially labor intensive.
- Labor represents between almost 30 and 60 percent of total production and harvest costs, depending upon the crop and crop cycle. It may be even higher for some crops grown elsewhere in California.
- Labor costs are rising, in part because of changing regulations associated with minimum wage, overtime, health care, paid sick leave and non-productive time, but also because there is a shortage of agricultural labor along with an increased demand for workers.
- Increased labor and production costs can strain and negatively impact the already thin profit margins associated with some crops.
- Immigration constraints and tightened border enforcement have reduced the number of agricultural workers from Mexico—the primary source of labor—that are seeking work in the area and state. The expanding agricultural industry in Mexico has also reduced the number of workers seeking employment here.
- The agricultural labor force is aging and more settled, and have families and other connections to local communities. Because of this, experienced workers do not migrate with the crop production and harvest cycles as often as in the past.
- Most harvest and other labor intensive practices for fresh market crops have not yet been highly mechanized or automated because of important “sensory attributes”—particularly sight and touch—that humans bring to agricultural work. Some commercially available technology already exists, and public and private research efforts are underway to mechanize or automate other labor intensive practices. Mechanical aids are also being used if available, or are being developed, with the goal of improving labor efficiency.
- Some of the area's farmers now supplement their labor forces with foreign guest workers using the federal H-2A program. The program has expanded rapidly in California in recent years increasing from roughly 3,000 certified farm jobs in fiscal year 2012 to 15,000 in fiscal year 2017. However, the program's recruitment process, requirements and associated costs limit it as a viable option for some growers.
- Affordable housing for farm workers is often lacking or constrained. Efforts to address housing issues are in discussion and in progress in the area.
The full impact of labor shortages and rising labor costs is not yet known. The Race in the Fields: Imports, Machines and Migrants, a California Agriculture article by Philip Martin, Professor Emeritus of Agricultural and Resource Economics at UC Davis considers whether current conditions will result in rising imported produce, mechanization, or more foreign guest workers in agriculture. It is also one of the sources of information for this blog article, along with other articles from California Agriculture. http://calag.ucanr.edu/. Cost information is from various cost and return studies, which can be found at https://coststudies.ucdavis.edu.
- Author: Mark Bolda
Labor easily takes top billing in most conversation concerning berry production today. While this is a very big deal for us, what does it look like outside of this industry?
A lot of the same actually.
Trucking: In spite of rising demand for freight shipment in our strengthening domestic economy, trucking businesses are hurting for drivers. Under the heading “Who's driving?” the August 28 trucking industry analysis by ValueLine, a leading stock advisory service, describes that a “worsening driver shortage is the biggest news affecting the industry today”. Truck fleets will have to either lower driver standards, raise pay or consolidate with other companies to purchase access to more drivers.
Housing: Likewise to trucking, what should come under the heading “Who's building?”, the September 21 quarterly earnings call of Lennar Corporation, one of the largest builders of single and multi-family homes in the US, alluded to labor as “having become a limiting factor” in being able to build houses. This has to be really frustrating, because the prospects for builders right now are really good – employment is up, demand is strong and consistent and Millennials, long understood to be on the sidelines of the market, are starting to form households. Nevertheless, according to the call, the entire labor market has tightened and rapid growth in the housing market will be limited by available labor.
So, are the worker shortages we face in the berry industry simply a reflection of a larger, secular shift in the labor situation in the USA? Given the above examples, one could say maybe so.
- Author: Mark Bolda
This article below is written for the American economy as a whole, but it is very significant for the labor intensive berry business on the Central Coast.
Bottom line is that even though McDonald's might be raising its minimum wage by 10% at 1500 outlets, this raise is only for 90,000 workers, leaving the other 750,000 working for MCD franchises without raises. The author, Josh Brown, makes the point that this supposedly large raise only comes out to be 1.1% when all McDonald's minimum wage employees are included.
Josh points out that the real value is a signaling to other workers in minimum wage industries that times are changing and pressure on wages is going in an upward direction.
http://thereformedbroker.com/2015/04/03/qotd-slow-your-roll-on-mcdonalds-wage-hike/
- Author: Mark Bolda
Really great article here by UC Davis' Philip Martin concerning immigration reform bills and what they might mean for the labor situation in the agriculture of California.
http://californiaagriculture.ucanr.org/landingpage.cfm?article=ca.v067n04p196&fulltext=yes
Interestingly, it looks like the longer periods of US employment permitted by one bill, S 744, as well as the opportunity for immigrants to bring family with them, could result in a larger number of people coming here from Asia to work.
Might be a signal to start learning Mandarin Chinese.
- Author: Mark Bolda
One of the increasing challenges for strawberry and caneberry businesses on the Central Coast in California has been the persistant shortage of labor. Many large operations over this past year reported a shortage of 10 to 15% of workers with some smaller farms reporting even higher percentages.
My prediction is that this shortage will continue to persist, and as a matter of fact may become more pronounced in the years to come. I base this assertion on two theses, the first being changing demographics and an improving economy in Mexico affecting the dynamics of labor immigration and the second having to do with competition for labor coming from strengthening rental markets and improved conditions for home building in the United States.
Much of the information for the post below comes from the excellent and prescient article written several years ago by Dr. Philip Martin at UC Davis regarding Mexico USA migration.
http://giannini.ucop.edu/media/are-update/files/issues/v8n2.pdf
The Labor Immigration Dynamic from Mexico:
Many of the people involved in the success of the California berry business come from Mexico and without them we will not do well.
However, the changing economic and demographic situation in Mexico should be understood when thinking forward who is going to continue to do all the tough and complex work of planting, growing and picking our crops of strawberries, raspberries and blackberries.
Let us consider the drivers of immigration from Mexico in the past and the future:
According to some academics, one of the major causes of immigration to the United States was the disruption to the rural economy of Mexico by the North American Free Trade Act (NAFTA) put into force January 1, 1994. By some estimates, the economic effects of NAFTA displaced some 1.4 million rural Mexicans, and in the five years following about half of them made their way to the US. That such a large number of people were displaced at one time from their homeland is tragic, but it did mean that a large number of people not unfamiliar with tough and demanding farm work showed up for work at US agricultural concerns in the years following the implementation of NAFTA.
Now in 2012, to start to understand the changing immigration picture, we should not be unaware that in Mexico, as in many places around the world, the demographics are changing, especially in reference to decline of population growth. The population growth rate in Mexico has dropped from 1.5% in 2000 to 1.1% in 2012.
To gain meaning from this number in terms of what it would mean for immigration from Mexico, one would want to cast this population growth rate against the current economic growth rate. Mexico has a vibrant economy with productivity growth rate of above 3%, and it is doing well in adapting to the global economic order of the 2010's. Reforms are currently moving through the legislature and more are promised by the incoming administration of Enrique Peña Nieto, including opening the oil sector, simplification of the tax code and labor market reform to further improve the prospects for economic growth. Drawing on all of this, the Central Bank of Mexico estimates GDP growth of 3.5-3.6% for 2013. The economy of Mexico has been growing and will continue to grow faster than the US (forecast 2013 GDP growth 2%) and this can be to some extent be understood by comparing the performance of each country's stock market index (Figure 1 below).
In this economic scenario, one would expect labor (read jobs) growth to be in the range of 1- 1.3%. So population growth of 1.1%, which of course drives labor force growth, has already fallen below the higher end of the rate of employment growth. An employment growth rate matching or exceeding labor force growth means there is no reason anybody should be lacking for work. Perhaps there will be mismatches in skill level and available work, but there is no denying an increasing abundance of work will be a factor in reducing emigration, and could even be a cause of some immigration back to Mexico.
Improving Real Estate and Construction Conditions in the US:
We all know that strengthening rents give impetus for investors to come into the market (especially in an environment of extremely low bond yields), creating eventual demand for the construction of additional office, retail and residential space. Looking to a good proxy for rental markets, real estate investment trusts (REIT's, corporate entities specializing in real estate), represented by the second chart for the REIT index below, we see that the demand for rental income and subsequently the market valuations of these companies has been rising since the middle of 2009.
Additionally, after a very tough stretch caused by a credit driven over- supply of houses, the fortunes of American home builders have made a turn for the better. Indeed, the price of an index composed of the shares of publicly owned homebuilders (Figure 3 below) has been moving strongly upwards for the last year. Knowing that the equity markets think forward, we can assert that what happens on Wall Street tends to be a good predictor of what is to happen on Main Street 6 to 12 months from now. Homebuilders are going to be building again in 2013.
What does all this have to do with the labor force working in berries? A lot as a matter of fact. Rising rents and the subsequent creation of demand for residential and other construction will pull workers away from agriculture because construction work tends to be higher paying (albeit substantially more cyclical as the last 2003 - 2009 boom and bust has shown). Simply put, construction going forward will compete for workers.
In consideration of the above, I think it very difficult to see how immigration of laborers from Mexico will return to the levels experienced in the last two decades. Population growth there is falling, the NAFTA led displacement has run its course, and the economy there is surging forward and generating a lot of jobs.
In addition to the strong economic and employment picture in Mexico, the US housing market is starting to pick up again on the shoulders of a strong rental market and will compete with berry businesses for this already shrinking pool of labor.
