U.S.: California growers to look interstate, overseas for expansion

December 06 , 2016

A recent survey shows the majority of California growers that have planned to expand their operations will now do so outside the state due to the costs implied by new overtime law AB 1066. farmer-shutterstock_360605585

Sector association Western Growers conducted an electronic survey of its members recently to gauge how they would respond to the new law that the overtime threshold from 10 hours to eight, as well as minimum wage legislation which will raise the rate to US$15 per hour by 2022. 

The group highlighted labor represented the largest portion of operating costs for California’s fruit and vegetable farmers, who will in large part be unable to pass on increased costs to retail and grocery chains.

“California fresh produce farmers are price-takers and compete in a global marketplace. Simple economics dictate that if our prices are too high, our buyers will go elsewhere,” Western Growers said.

“Consequently, to maintain profitability while remaining competitive vis-à-vis growers in other states and countries, our farmers must control costs, and must focus on their biggest line item.”

Only 8% of respondents believed they could pass on increased costs to retailers, grocery stores and restaurants, but the majority will be forced to try to do more with less.

“Our survey indicates that California farmers will seek to contain their labor costs in a number of ways, including by reducing California production, shifting to less labor-intensive crops and mechanization. Each of these options either reduces farmworker hours and wages or eliminates jobs entirely,” the group said.

“Many of these farms will employ a combination of labor-saving approaches such as mechanization, reducing California-based production and shifting to less-labor intensive crops. As a result, many farmworker jobs will be phased out as these two policies are implemented over the next six years.”

As mechanization kicks in there will be a particular emphasis on cutting labor-intensive jobs like harvest crews, packing and processing workers, irrigators, tractor and truck drivers, and equipment operators.

But it won’t be just the hours that growers expect to slash.

“California fresh produce farmers will be forced reevaluate the range of employee benefits many provide to their farmworkers, including requiring employees to contribute more to their healthcare coverage, reducing vacation days and/or reducing company-paid contributions to 401(k) and other retirement accounts,” Western Growers said.

“As a result of increasing costs from minimum wage and agricultural overtime legislation, 32% of respondents indicated they will cut costs related to benefits, including asking employees to contribute more to their healthcare coverage and reducing vacation days and contributions to retirement accounts. 

“Only 34% of farms signaled they will maintain these benefits at current levels.”

And as political debate heats up in the United States with President-Elect threatening “consequences” for firms that move operations overseas, it was interesting to note 60% of respondents to the Western Growers survey indicated they would be shifting their expansion plans either interstate or outside the country. 

“Nearly 38% of respondents indicated their company had plans to invest in expansion in California, but because of the significant added costs of doing business in the state due to minimum wage and agricultural overtime, they no longer plan to expand here (another 26% indicated they have not made a decision yet, which means that many more farms will likely abstain from reinvesting in the state),” Western Growers said.

“Instead, 60% of these companies signaled they will now actively pursue expansion in other states and countries, taking with them hundreds of millions of investment dollars. 

“According to Highland Economics, this economic dislocation will result in $587 million in lost farm investments in California.”

Photo: www.shutterstock.com





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