For decades, California has been the center of specialty crop agriculture for the U.S. and much of the world, growing fruits, nuts and vegetables for Californians, Americans and international consumers. The Mediterranean climate was perfectly suited to many specialty crops, and the microclimates within the state allowed growers to choose growing slots that fit an increasingly common 12-month production calendar, allowing retailers to show consumers that they could get the same produce items every week of the year (whether or not they knew it was grown in different locations). Consumers, retailers and producers got used to the week-to-week availability, and growers increasingly built operations for scale. Many got vertically integrated and handled growing operations, processing facilities and supply chain logistics. As specialty crops got recognized as being a great source of healthy food, many went through surges in popularity—including strawberries, avocados and almonds—and California growers continued to support the new demand. New restaurant chains created growth in the food service category, and some growers chose to focus on that and other market opportunities.
Then, as the 1990s and 2000s came into frame, things got more challenging. The never-ending set of cost challenges California growers faced led to many growers choosing to relocate acreage outside of California, often to neighboring states like Arizona and increasingly to international locations like Mexico and Peru. California retained a first-mover advantage in a lot of key crops and built systems for scale, including logistics and processing facilities. But many crops that have a significant percentage of their costs tied up with labor relocated and never came back. In addition, regulatory cost increases from $109/acre/year to $1,600/acre/ year over 18 years forced many smaller farmers to exit the business. On top of that, challenges created by the passage of the Sustainable Groundwater Management Act (SGMA) are forcing growers to reconsider permanent crops like almond trees and wine grapes in light of a possible fallow allocation by an SGMA quasi-government agency. Rotational crops like processing tomatoes are often becoming a better fit than permanent crops when increased risk of a fallow allocation, which forces you to stop farming some acreage, is taken into account.
If you analyze the U.S. Department of Agriculture (USDA) Census data from 1997 to 2022 and then perform some straight-line estimates through 2052, you can see the damage that has already been caused and the damage that is likely to be caused in the next 25 years. The short version—California is projected to lose 32 percent of acreage and 52 percent of growers from 1997 to 2052. This is where the “Tale of Two Cities” becomes apparent. Will California be able to make enough changes to retain irrigated acreage well above the forecast and keep all the benefits that go with the acreage (ag jobs, agtech jobs, new high-skilled jobs to sell and support the new agtech that keeps the acreage local)? Or will California move too slowly or not at all and turn the forecast projections into a baseline scenario that ends up looking optimistic? From my perspective, that answer hinges largely on one variable—how much automation can be developed at scale to improve the economics to help keep the acreage in California?
Labor has been an ongoing problem in terms of both cost and availability for California (and increasingly for other growing regions in the U.S.). Availability was addressed in part by the H-2A program, which created an access path for international farmworkers to come into California on temporary or seasonal work visas. This added costs because those workers were paid an AEWR (adverse effect wage rate—designed to give the advantage to domestic farmworkers, who could work for less than AEWR) and growers had transportation, food and lodging costs to manage for all H-2A workers. Current costs in California are estimated at $30 to $32/ hour for H-2A workers, and H-2A usage in California has tripled in six years, represents 10 percent of the farm workforce and is forecast to continue rising because there is an increasingly small pool of domestic farmworkers applying for these jobs. The 2024 numbers—growers paid $16.3 billion for 850 million farm labor hours.
So, automation is the best and truly only scalable way to solve the labor challenges. One-third of those hours comprise non-harvest activities (weeding, thinning, spraying, harvest assist, autonomous mobility), which are 3 percent to 5 percent automated and forecast to get to 16 percent to 20 percent automated by 2030. Two-thirds are on harvest activities and less than 1 percent of that is currently automated. With venture capital declining by 70 percent from 2021 to 2025 (from $54 billion to $16 billion), harvest is going to struggle to attract additional venture capital because it is a small addressable market (each crop needs its own robot—compared to weeding where one robot can do dozens of crop types), and building harvest robots is really tough (turns out that replicating the skilled farmworker’s ability to look at a field, identify the fruits and vegetables that are ready to be picked, pick them and place them into a container without damaging them is pretty hard). This lack of capital, combined with these aforementioned difficulties, will continue to make harvest solutions challenging. Western Growers is working with our partners at Reservoir Farms and John Deere to help harvest and other automation startups reduce their time and capital needed to get through R&D to first commercial product, and that does make it easier—but not easy.
All of the above is why the most important number in specialty crop automation is not the venture capital total the segment receives. No, it’s the amount of revenue the startups are able to deliver annually. Venture capital helps startups stay alive and build products—and ideally get to commercialization and scale. But the more accurate indicator of how the economics are working for local ag communities is the revenue number. This is the number that makes sure local jobs are created. I mentioned above that we have a clear path to $1 billion in automation revenue by 2030 based on the $3 billion in automation revenue investments already made in the last 10 years.
In a similar fashion, if you model out the next 10 years, even with the 70 percent reduction, there is likely to be $7 to $8 billion in venture capital into agrifoodtech over the next 10 years. Historically, I expect agtech to be like most tech segments—the first billion is the hardest, as infrastructure is built that can be reused by future investment dollars to grow the category more capital-efficiently. With $7 to $8 billion in additional VC, an additional $2 to $2.5 billion in revenue would be generated. On top of the $1 billion forecast by 2030 (which will grow past 2030—likely to $1.5 to $2.0 billion by 2035), the total agtech automation revenue forecast for 2035 is somewhere between $4 billion and $5 billion. If we use the midpoint of $4.5 billion in 2035 automation revenue, that will create an additional $1 billion-plus of opportunities in systems integration and data/analytics solutions. All of this will create tens of thousands of jobs, many of them in rural areas where the automation solutions will be sold, serviced and supported. These will be highly skilled rural jobs with agtech skills required.
The tale of the second city happens if California is unable to make some key policy changes. Acreage is already moving to Mexico and South America, where California’s $30 to $32/hour H-2A labor contrasts with domestic $4/hour labor. Peru is investing $24 billion in private-public partnership funding to develop 22 surface water storage projects while California struggles to put a shovel in the ground and get the $6.2 billion needed to build Sites Reservoir to put the start line into play. Peru and China built the $3.6 billion Chancay Port—which cuts 10 to 20 days off logistics for much of the produce that goes from Peru and other parts of South America to China and Asia. Finally, Peru has publicly stated an objective to develop 1 million hectares (2.47 million acres) of additional irrigated ground to help push their ag exports to $40 billion by 2040.
My forecast is that Peru passes the ag export total for California in 2035. That’s the horror story tale of the other city—what if Peru executes on not all, but just most of the plans laid out above? How will California respond, and will it be fast enough to protect the decades of agricultural production, processing facilities and supply chain expertise that is already here? California growers are the best growers and entrepreneurs in the world—they have to be to continue growing here. It’s not going to be their fault if the second city becomes the actual scenario.