Rising farm labor costs could shift more U.S. crop production to Mexico
A dwindling and aging agricultural workforce, coupled with higher labor costs, have added pressure on U.S. farms over the past decade. A recent study by University of California agricultural economists Alexandra Hill and James Sayre explores these changing trends in U.S. and Mexican farmworker demographics and the potential implications for U.S. farms.
They found that the incentives to enter the United States under the H-2A visa program for farmwork far outweigh the incentives to immigrate for farm work without proper work authorization. However, because these H-2A workers come at a steep cost to employers, this could mean that several crops with high labor costs may increasingly move production to Mexico in a quest to reduce costs.
Over the last two decades, several trends have led to a shortage of domestic crop workers in the United States. A major contributing factor is that fewer immigrant farm workers are migrating to the United States from Mexico. This trend is generally driven by a declining share of Mexican citizens working in agriculture as the country's economy moves into manufacturing and service industries, coupled with declining birth rates, rising education levels, and increases in U.S. immigration enforcement.
The H-2A program — which provides legal authorization for foreign workers to engage in temporary work on U.S. farms — is the one source of foreign crop labor that is on the rise. Employers are required to pay H-2A workers either the local minimum wage or the local H-2A minimum wage (called the adverse effect wage rate, or AEWR), whichever is higher. The H-2A AEWR is often four to five times higher than the average farmworker wages in Mexico, leading to a substantial wage gap that helps pull Mexican workers into U.S. farm work.
“While the high costs associated with the H-2A program will pull in workers, they may also push farms out of the United States,” said Hill, assistant professor of Cooperative Extension at UC Berkeley.
This is due to the fact high H-2A wages are reducing the profitability of U.S. farms that employ H-2A workers, particularly in states such as California and Washington, which have a greater number of high-labor crops, such as fruits and nuts. Mexico's lower labor costs and suitable climate for fruit and vegetable crops allow the country to have an increasing competitive advantage compared to states like California, which have increasingly high AEWRs.
Mexican production of some of these high-labor crops has increased dramatically over the last two decades: From 2003 to 2022, the value of blueberry production grew 2,600-fold, raspberries grew 140-fold, and strawberries 13-fold. Large increases in exports of these crops from Mexico to the United States have occurred over this same period, confirming that high-labor crops are at a greater risk of losing market share to Mexico.
To learn how the changing demographics of U.S. and Mexican farmworkers could affect U.S. agricultural production, read the full article by Alexandra E. Hill and James E. Sayre: “As Mexican Farmworkers Flock North, Will U.S. Farms Head South?” ARE Update 28(1): 9–12. UC Giannini Foundation of Agricultural Economics, online at https://giannini.ucop.edu/filer/file/1730229662/21163 or in Spanish at https://giannini.ucop.edu/filer/file/1732133779/21191/.
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/.