New Look in California Farming : Growers Adapt as Conditions Remain Difficult

In the nation’s Salad Bowl, the bountiful Salinas Valley, Bob Johnson has changed his farming techniques. He has cut his seed and fertilizer costs, improved his irrigation system and reduced his manpower needs in an effort to cope with declining prices for the cauliflower, lettuce and broccoli that he grows near Chualar, Calif.

Farther north at Winters, Stan Lester extracted from his AT&T; 6300 computer the kind of hard numbers he needed to negotiate cheaper orchard leases to reflect the sharply lower prices that his apricots have fetched in recent years.

And in the heart of the raisin-glutted San Joaquin Valley, Mickey Kenneson’s family discovered a new market for their otherwise surplus production--coating the fruit in yogurt, peanut butter and carob to yield healthful snacks. Kenneson also substituted manure for chemical fertilizer, sacrificing crop yield but getting a better price for “naturally grown” fruit.

“We’re learning,” Kenneson said. “None of us had ever done anything like this before.”

Prosperity has hardly returned to the farms of Johnson, Lester and Kenneson, where chronic oversupply and reduced export markets have sent the prices they receive for their crops into a four-year tailspin.

Making Tough Decisions

But they are typical of the California farmers who are making tough decisions and devising new marketing strategies in an urgent effort to recover from their worst slump in half a century.

California farmers are coping with a new, more difficult business environment in which foreign countries are more competitive, farmers worldwide produce far more than is consumed, debts are overbearing and crop prices and land values continue to slide.

In short, the landscape of California agriculture is being redesigned, both by the fallout from market forces and bad business decisions and by the imagination of farmers with an instinct for survival and legendary optimism.

California’s farmers have sharpened business practices, keeping a closer watch on production costs, more efficiently using fertilizers, water and machinery, and marketing with greater gusto. They have developed new products--from wine coolers to almond butter to miniature vegetables. They have cut back on acreage, hoping to boost prices by whittling away at excess crops.

Lenders, meanwhile, are reducing credit to farmers, urging them to produce crops with less fertilizer, seed and equipment. Rather than buy new equipment, farmers have overhauled their tractors, combines and other machinery.

Such changes come amid growing signs of improvement. Interest rates have fallen along with fuel costs, and the prospect for exports has been enhanced by federal farm legislation and a lower dollar, which makes American products more affordable overseas.

Some of the state’s 250 crops already are on the road to recovery, including citrus, some vegetables, avocados and strawberries. Some economists are forecasting that California farmers’ aggregate profits this year will at least equal 1985’s profits of $3 billion, ending a decline of more than 28% since peaking in 1980.

Problems Still Remain

Despite these positive signs, the industry’s deep-seated problems remain and may take years to redress:

- More farmers will have to reduce acreage or leave the business. But in some crops, such as grapes, acreage is still increasing because of previous plantings only now coming into full production.

- Farmland prices must stabilize and begin appreciating. Because farmers use land as collateral for loans, higher land values make it easier to borrow. But it may take years for land prices to rise, partly because changes in tax laws have reduced benefits of tax-shelter farming. Also, debt-ridden farmers are placing more land on the market, depressing prices.

- More farmers must reduce fertilizer, irrigation and other production costs, even if that means lower production. Reducing crop yields in this way would help cut global overproduction, but it will require a drastic new approach for farmers who have become the world’s most productive, said Harold Carter, director of UC Davis’ new Agricultural Issues Center.

- Farmers--particularly those in Kern County and other parts of the southern and western San Joaquin Valley and those growing such irrigation-dependent crops as cotton and grains--must adapt to rising water costs. Although February’s torrential rains and a heavier-than-average snowpack will provide short-term relief, the long-term trend is for rising prices due to the higher cost of pumping water and reduced government subsidies, said Don Villarejo, executive director of the California Institute for Rural Studies. Higher water costs will make it particularly hard for medium- and small-scale farmers to compete, because they can’t spread their costs over larger acreages.

- The industry also will have to boost export sales to achieve long-term prosperity. But it could take years for California to return to the record $4.2 billion of export sales in 1981. Export sales last year dipped below $3 billion.

The dollar--down 32.4% in May against a basket of 10 foreign currencies after having peaked in February, 1985--must fall by about another 10% to boost exports significantly, according to U.S. Trade Representative Clayton K. Yeutter. Some foreign exchange experts, however, say the dollar may already have bottomed out, at least for the next year or two. Moreover, California now faces competition from such one-time customers as China and South Korea.

Just when the state will fully shake off the five-year farm slump remains a matter of disturbing uncertainty. But this much seems assured: California agribusiness will emerge with a new look and attitude--smaller in size and broader in outlook.

“There’s going to be a shakeout,” said Beth Burnham Mace, regional economist at Crocker National Bank. “In the longer term, the industry is going to be smaller but more efficient and productive and better able to compete.”

The human cost of such change is large and growing. Agribusiness unemployment continues to rise: Since 1982, 24,000 California agricultural workers have lost their jobs, reversing a long-term trend of increasing employment. Dozens of dealers in farm equipment, seed, fertilizer and other supplies have closed their doors.

10% Expected to Fail

Some experts estimate that as many as one in 10 of the state’s estimated 60,000 farmers may eventually be forced out of business. One-fourth to one-third of the rest are deeply in debt and just hanging on.

“I’ve seen a lot of ups and downs, but this is the worst,” said Clare L. Berryhill, a grape grower for 40 years and director of the state Department of Food and Agriculture.

Apricot grower Stan Lester, who saw prices for his best fruit fall to less than $200 a ton last year from about $350 in 1982, expressed his discouragement even before February rains damaged his budding crop near the Yolo County town of Winters. “It’s a challenge, but after two or three years, that challenge starts getting pretty darn old.”

The slump has hit hardest at mid-size, family-owned farms--those that tend to be entirely dependent on income from farming, in contrast to smaller operations supported by non-farming jobs and salaries.

Kenneth Beck, for example, may take his 15,000-acre operation in the high plains of eastern San Luis Obispo County out of wheat and barley after this summer’s harvest because crop prices have made production unprofitable. If so, he would let the unirrigated spread revert to grass, possibly for raising horses. At age 62, he is unsure if he would return to farming.

Beck’s son and partner, Greg, new president of the San Luis Obispo County Farm Bureau, ponders whether to stay in farming at all.

“I’d like to farm,” Greg said, “but I’m keeping my options open.” One is to work with the state Division of Forestry.

Although California’s overall economy has been less affected by farm woes than Midwestern states, its farmers are, by some measures, worse off.

Debt Situation Serious

“The debt situation of California farmers is far more serious than most people think,” said Villarejo of the California Institute for Rural Studies.

California farmers have tended to borrow more per acre than their Midwestern counterparts, since growing specialty crops--ranging from soup fixings to nuts--tends to cost more than grain and livestock farming in terms of labor, equipment, water and chemicals.

California banks have led the nation in agricultural loan writeoffs and delinquencies. According to Federal Reserve Board economist Emanuel Melichar, 6.1% of agricultural loans among California commercial banks were written off in 1985, compared to 3.7% nationally. California also led the nation with a 15% farm loan delinquency rate through the first nine months of 1985, compared to a 9.2% national average.

Cornelius Gallagher, head of agribusiness lending at Bank of America, the nation’s largest farm lender, estimated that while 40% of California’s farmers have no debt at all and 35% have moderate debt that they can pay under current conditions, 25% have more debt than their income and assets can support.

“Some of these guys are borrowed in over their heads,” one agricultural banker said. “Even a recovery isn’t going to help them.”

The intensity of such woes unsettles many Californians who had taken the success of the state’s $14-billion agriculture industry for granted. California’s ability to grow so many different crops, compared to a handful in the Midwest, offered comfort: There would always be some profitable commodities to offset downturns in others.

Also, California’s specialty-crop growers also traditionally had few out-of-state competitors. California production is highly regarded in terms of quality, too, and yields more per acre, reducing growing costs--partly the result of cheap water, good weather and modern machinery.

Past downturns in California agriculture were tied largely to recessions in the rest of the economy or to high costs for fuel or higher interest rates. But the problems now afflicting California farmers are rooted more in the structure of the industry--and therefore are more long term and troublesome.

New Set of Dynamics

“There’s a whole new set of dynamics in the agricultural economy that we’re simply not used to,” said Mike Fitch, vice president for agribusiness operations at Wells Fargo Bank and chairman of the American Bankers Assn.’s agricultural division.

For example, he and other experts said, export markets have been lost due to inattention, the handicap of a high dollar and, in some areas, unfair trade practices. Thus, while California’s crops continue to be grown about as cheaply and efficiently as anywhere in the world, that cost advantage has been more than offset by the dollar’s value, foreign subsidies and other factors.

At the same time, domestic demand has flattened with population growth, and dietary considerations have hurt such products as beef, pork, dairy products and bulk wines.

California farmers have also paid the price of overproduction and high land and crop prices during the go-go 1970s. Farmers and investors--including many less interested in profitable crops than in tax deductions--bid up land prices, usually with borrowed funds, as values soared on the wings of double-digit inflation. At the same time, more and more acreage was brought into production by farmers who believed that export markets would continue expanding.

But, since peaking five years ago, farmland prices in California have plunged between 50% and 65%. Overproduction from new acreage sent prices of many crops plunging as much or more.

Grape growing is a case in point. Projections of growing domestic wine consumption resulted in expanded vineyards in the late 1970s, many developed by partnerships of professional investors lured by tax benefits. Then, as the dollar rose rapidly in value, inexpensive surplus wines from Europe, where production is subsidized, began flooding the U.S. market at the same time that domestic consumers were turning away from alcoholic beverages.

The result: Wineries cut back on buying the Thompson Seedless grapes traditionally used in blending cheaper wines. Left with tons of unsold wine grapes, many growers dried them, generating an even larger surplus of raisins, sending prices plummeting. Imports of cheap Greek raisins hardly helped.

Raisin Prices Plunged

Raisins that three years ago netted Mickey Kenneson in the Fresno County town of Kerman $200 a ton now bring $70. “Try taking 60% off your paycheck,” he said.

With domestic demand for agricultural products remaining flat, California’s agricultural future appears to hinge on expanding foreign markets. Over the last few years, however, overseas opportunities have hardly been promising. The strong dollar--which makes U.S. products more expensive abroad--has encouraged foreign growers to increase production and push U.S. farmers out of overseas markets. These losses in such products as canned fruit and tomatoes, cotton, grapes, rice and wheat may never be regained.

“We used to be kings of the world when it came to agriculture,” state farm chief Berryhill said. “That’s not true anymore.”

Cotton--the state’s leading export crop--has been hurt by increased production from China, a former customer. South Korea and Taiwan, once major buyers of California rice, are now not only meeting their own needs but competing for export sales. California farmers have also come under mounting assault from Spanish almonds, Greek raisins, Iranian pistachios, Turkish apricots, Brazilian orange juice and canned tomatoes and Mexican canned asparagus. The list goes on.

Some of these foreign producers not only have taken shares of overseas markets but have invaded the U.S. market--sometimes, American producers charge, through unfair trade practices. For example, European canned peaches reach this country at $16 a case, while California peaches cost $18.50. As a result, foreigners have taken 10% of California’s peach sales, said Ronald A. Shuler, president of the California Canning Peach Assn.

Erecting Trade Barriers

At the same time, some countries are strengthening their barriers against U.S. products, partly to protect their own farmers and to help pay debts to Western banks. South Korea has been moving to reduce imports of U.S. oranges, raisins and beef; Europe and Japan continue to impose barriers to California citrus and beef, among other products.

And, while farmers are encouraged by increased federal and state efforts to promote exports through grants to farmers or support of trade shows, these programs are modest to start with and face cuts under the federal Gramm-Rudman deficit-reduction law, warned Jim Youde, executive director of the Western U.S. Agricultural Trade Assn.

The key to increasing exports is through improved marketing and product development, experts say. Farmers can no longer assume that whatever they grow will get sold. This will require growers to change their traditional view of foreign markets as dumping grounds for surplus stocks, said Jed Adams, who heads the Department of Food and Agriculture’s marketing services division.

“That’s no way to develop long-term international trade relations,” Adams said.

Some Californians, however, have already achieved export marketing success.

The California Almond Growers Exchange in Sacramento, a grower-owned cooperative that markets under the Blue Diamond label, boosted exports nearly 30% last year over the record year of 1981, and it had predicted a further 30% rise this year before torrential rains last February wiped out nearly half of the expected 1986 crop. With Spain’s crop damaged by April frosts, a global almond shortage almost inevitably will develop later this year, threatening loss of some of those new markets through a lack of almonds and correspondingly high prices, lamented co-op President Roger J. Baccigaluppi.

Tough Blow to Growers

“It’s a very tough blow to growers,” he said. “This was the year we expected to make some money.”

A happier outcome is expected for citrus. Higher exports of a crop that had been suffering from huge surpluses a few years ago have helped boost orange prices. Sunkist Growers, a big farmer-owned marketing cooperative, announced record profits in 1985 due to increased sales to Pacific Rim customers in Hong Kong, Singapore and Japan, where the cooperative runs television and print ads promoting consumption.

The premium-wine industry also appears to have reversed four straight years of export declines, recording a 4% gain in overseas sales last year, said Brian St. Pierre, spokesman for the Wine Institute in San Francisco. Much of the gain was due to a 179% increase in sales to Japan--thanks largely to increased advertising, tastings, introduction of wine coolers and a weaker dollar.

Growers also are encouraged by a new governmental attitude toward promoting exports.

Cotton growers are optimistic that the new federal farm law enacted last December will help regain markets lost to China, Pakistan and Australia. The law provides incentives for farmers to sell their crops to world buyers at free-market prices rather than to the government at the higher federal support price, said Terry Wyatt, a market analyst at Calcot Ltd., the Bakersfield-based cooperative. The government will pay farmers the difference between the free-market price and the support price, he said, but to participate, the growers must take land out of cotton production and put it into conservation crops that do not compete with unsubsidized crops.

Rice growers, too, take heart in the new farm legislation.

“The California grower is the most efficient and productive in the world in terms of yield per acre,” said Ralph Newman, president of Farmers’ Rice Cooperative in West Sacramento. But, he contended, this advantage had been negated by the previous price-support program that kept less efficient Southern Rice Belt growers in business through direct subsidies.

“California (rice) farmers would flourish in a free market,” Newman said.

Encouraged by Changes

Farmers also are encouraged by other government changes, ranging from President Reagan’s appointment of Richard E. Lyng, a Californian, as new secretary of agriculture to the Reagan Administration’s decision to slap high levies on cheap Iranian pistachios and subsidized Common Market pasta, the latter in retaliation for European barriers against U.S. citrus.

While exports must be expanded, farmers will have to fight hard also to maintain domestic markets--which account for 80% of sales. Some are already taking the offensive.

California dairymen, for example, are finally beginning to reclaim the huge Western market that, over the years, they all but surrendered to Wisconsin dairymen because, in effect, it was easier to produce for the government. The Dairymen’s Cooperative Creamery Assn. plans to build a cheese-processing plant in Tulare, and a huge cheese-making factory opened last October in Corona. Moreover, for the first time, the industry is promoting California-made cheese, calling it “as natural as California.” (Wisconsin dairymen have countered with their own campaign.)

Despite such encouragement, some growers wonder if they’ll be around to enjoy an eventual recovery.

Farming “looks pretty dismal,” grower Bernell Harlan said, sitting in the Victorian homestead that his family built in 1852 on the rich plains of Yolo County. While Harlan’s processing-tomato crop “keeps us alive,” he said, the up-to-date farm loses money on rice and cotton.

“I don’t know what to grow other than tomatoes to make money,” he said.

Though convinced that agriculture will rebound, Harlan said that “it’s going to be different,” explaining: “There’s going to be fewer of us, for one thing.” He wonders whether his son, studying farming at Cal Poly in San Luis Obispo, will go into the business.

“I just hope he wants to farm,” Harlan said. “And I hope I can afford to have him come back and farm.”