Great article from Cassidy Walter in Successful Farming comparing Midwest farming with California farming. They are the same in terms of margin pressure and increasingly global competition. They are different because California farmers deal with these issues while operating in the most regulated state in the country. Cassidy does a great job of getting the growers perspective on increasing regulatory costs and their impact while also laying out the cold hard facts – which as Cal Poly has determined are that regulatory costs have increased 1,366% over 19 years to more than $1,600/acre/year. The regulatory costs of water have risen (by up to 60% since 2017), but the far larger cost with water is SGMA (the Sustainable Groundwater Management Act), which will end up resulting in farmers having to fallow agricultural production acreage because of a lack of groundwater. Overtime laws have only exacerbated the problem because workers are often capped at 40 hours/work to avoid additional cost increases from overtime pay, which creates the need for more workers via the H-2A program resulting in $30-32/hour labor rates when fully loaded with transportation, housing, and food costs.
Automation remains the most scalable solution to labor challenges. For non-harvest (weeding, thinning, harvest assist, spraying), we are around 3-5% automated with a clear path to 15-20% and $1 billion in annual automation revenue by 2030 for the key players in this segment. For harvest, we are at less than 1% automated and trying to get more creative in developing a solution. This rise in regulatory and labor costs is one of the reasons why USDA data and some straight-line projections suggest California will lose 32% of acreage and 52% of growers over 55 years. It is increasingly more difficult for small farmers to make California ag acreage operate profitably.
I talk about Peru often because the policy decisions Sacramento and Lima are making are very different, from infrastructure ($3.6B Chancay port) to water (Peru investing $24B in private-public efforts on 22 projects), and combined with an inherent labor cost advantage (domestic availability at $4/hour – versus the $30-$32/hour for H-2A for CA growers). Peru’s targets of adding 1 million additional hectares (2.47 million acres) of irrigated production and reaching an ag export target of $40 billion by 2040 mean Peru is likely to exceed California for ag exports by 2035. The Midwest and specialty crop growing states would do well to watch what California has done to decide if they want to go in the same direction – or do something different.