May 1, 2024

Spiraling Labor Cost and Opportunities Lost

America’s agriculture sector has been through the ringer these last several years. First came the trade wars and exceedingly high tariffs imposed by China on numerous American agricultural products. Then the COVID pandemic and the supply chain disruptions that created logistical and economic chaos for many food producers. More recently came spikes in fertilizer and other input costs amid world conflict.

For growers reliant on the federal agricultural guest worker program to meet their labor needs, none of these pain points matches the anguish caused by rapidly escalating wage costs. Mention the H-2A wage rate in a gathering of farmers for whom that program is the only labor supply lifeline, and you’re likely to get an earful. And possibly worse if you are charged with advocating for the interests of growers before Congress and the federal government.

For those fortunate enough to be uninformed, the federal H-2A agricultural guest worker program is a mess of bureaucratic red tape and a multitude of rules that test the fortitude of growers who only turn to the program because they cannot find adequate domestic labor to ensure their perishable crops are harvested on time.

No one engaged in federal public policy seriously argues that American farmers have access to enough domestic workers. Some argue, simplistically, that farmers just need to raise wages to attract enough domestic workers. As if farmers can simply pass along higher costs to the buyers of their products – retailers and restaurant chains whose sophisticated sourcing strategies increasingly tap into lower cost (and high-quality) produce from abroad.

The central element of the H-2A program is the so-called Adverse Effect Wage Rate, or AEWR. (In practice most of us say, “Ay-were.”) The purported purpose of the AEWR is to ensure that employers can’t use foreign guest workers to displace willing and available domestic workers, and to do this the AEWR is set higher than the state minimum wage, using a convoluted and flawed formula favored by the U.S. Department of Labor.

California growers using H-2A now pay the highest AEWR in the nation: $19.75 per hour, well above the state minimum wage of $16.00 per hour. Arizona growers pay $16.32 for H-2A workers, nearly two dollars per hour over that state’s minimum wage. Add in the legally mandated costs for worker transportation to and from their home countries plus housing, and the effective wage expenditure lands in the mid twenty-dollar range for California employers.

Under the Biden Administration, H-2A wages have spiraled. Since 2020, the AEWR for California employers has risen 33.7%; for Arizona and New Mexico, 26.4%; for Colorado, 16.6%. The AEWR has risen dramatically in other states, too, such as Georgia and South Carolina (25.4%) and Florida (26.1%).

Taken together with higher costs for everything from fertilizer to energy (especially in California), the Administration risks numerous unwanted consequences, such as increased consolidation and offshoring of food production.

Here’s the part that drives me crazy: This was largely avoidable.

The Farm Workforce Modernization Act (FWMA) was passed with bipartisan support in the House of Representatives in 2019 and again in 2021. Both times, the Senate sat on the bill, effectively killing it.

The legislation was the product of intensive, negotiated compromise between agriculture industry segments with the greatest labor needs (and chronic shortages), labor organizations and congressional leaders. Among its three main components was a 10-year wage formula for H-2A workers that would have frozen the wage for the first year and capped the total possible increase in succeeding years at 3.5% for most states and 4.5% for high minimum wage states like California.

Had the 2021 legislation been passed by the Senate and signed into law, instead of the precipitous H-2A wage increases imposed by the current administration, farmers using the program would have saved $2.8 billion in wage costs so far. The average H-2A wage rate nationally would be 12.7% less today.

All of that begs the question: Why didn’t the Senate pass this legislation? There are several reasons, including some not easily influenced by the industry. But the biggest reason is that the industry was not unified in support of the bill, with some organizations preferring a version that would be even stronger for farmers at the expense of any chance for bipartisan support. As most people have come to realize, immigration, like many complicated issues with partisan dividing lines, cannot be addressed in a durable way without bipartisan solutions. In the case of the FWMA, Senate Republicans saw agriculture divided and turned away.

Someday, hopefully sooner than later, another opportunity to address agriculture’s labor needs will emerge, and when that window finally opens again, our industry better have learned from the hard experience of what might have been. In our current era of partisan division, bipartisan policy compromises are tough enough to advance. A divided agricultural industry only makes the fate of such delicate compromises more susceptible to the partisan inclinations of our elected legislators.