Getting the Most Out of FARMING : Growers Are Learning to Diversify, Profit From ‘Value Added’

Jack Parnell, a cattleman, runs a 4,500-acre ranch in Placer County. In recent years, however, he has started a steak restaurant and a butcher shop to diversify operations and pick up some of the revenue that others have drawn from his products.

By opening up a retail outlet during the holidays, farmer Stan Lester is likewise reaping some of the “value-added” dollars others have earned from the apricots and other tree fruits that he and four previous generations of Lesters have grown in good times and bad.

“We had to have a more secure market for our crop,” Lester explained in a recent interview. “And,” he added, “we needed to get a better price.”

Lester Farms, in the Yolo County town of Winters, opened the store in Cupertino in the Santa Clara Valley, near where his family farmed as far back as 1883, until prunes and apricots gave way to silicon chips. Gift packs of his own dried fruits and nuts now account for up to 10% of total revenue, Lester estimated. He said he hopes to develop direct sales until retail revenue accounts for more than half of his crop receipts.

Lessons of Hard Times

“Farmers have grown up in a business sense,” said Parnell, who has headed the California Department of Food and Agriculture since June. They have recognized, he added, that it is not enough to maximize crop yields if there is not a market for the harvest.

The experiences of Parnell and Lester are indicative of those of California farmers who have tried to learn from the five years of hard times that descended on the state’s largest industry. California farmers produced more than 250 commercial crops with a combined valued exceeding $14.5 billion in 1986, the most recent year for which statistics are available. Iowa, at $9.1 billion, was a distant second, followed by Texas’ $8.5 billion. Uncounted other billions in farm-related dollars course through the state’s rural economy.

To a degree, the lessons learned boil down to a new skepticism among growers toward government direction.

Decline Bottoms Out

Farmers remember the urgings--and financial incentives--from Washington in the 1970s to “plant from hedgerow to hedgerow” in order to feed a hungry planet. After having borrowed heavily at high rates of interest to expand production as double-digit inflation kept farm values rising to keep pace, they saw the bubble burst in 1982. Tight money pushed up production costs at the same time the strong dollar slashed agricultural exports, which had, by 1981, accounted for more than a third of total crop revenues.

That decline is only now bottoming out, but for those farmers who managed to hang on through the hard times, it is scarcely a return to business as usual.

Clinton Shick, who farms in Kern County, is fairly typical of the farmers lured into heavy debt in order to expand their operations. “When the crunch came, I had some real tough times,” he recalled. Now he has sought to “climb out of the hole” by selling produce to motorists and building a packing shed with neighbors to share costs and to handle other farmers’ crops.

Throughout the state, growers like Shick are moving “a step or two along the market chain” by using such tactics as building their own packing sheds, said Henry J. Voss, a Ceres peach grower reelected last month to a fourth term as president of the California Farm Bureau Federation. “They’re trying to get more control over their own destiny,” Voss said.

Tighter lending practices are forcing farmers to “cut a lot of the speculation out” of farming, he said. “Overall, people have evaluated every area where they spend money.” For example, he said, a farmer may do less cultivation today to save the cost in fuel and labor, and many growers are carefully weighing the benefits of increasing yield through applications of chemical fertilizers and pesticides against the rising costs of these “inputs.”

“Inputs were so cheap people didn’t worry about them,” Voss said. But now, unit cost is replacing yield per acre as the crucial measure of productivity.

Here is how some other California farmers have learned to diversify:

-Rob Brokaw, Saticoy (Ventura County).

Brokaw Nursery was started 30 years ago by William Henley Brokaw and his wife, Ellen. Their 29-year-old son, Rob, now faces a problem confronting many children of farm families: finding enough new growth in the business to support another generation of partners.

Rob Brokaw has worked full time since he was 18 at the family nursery, which supplies citrus, avocado, kiwi and cheramoya fruit trees, among other products, to farmers. So he was there during the expansive 1970s, when exports boomed and the nursery bought new equipment to keep up with growing demand.

The family also believed in investing in product research, he said, so some severe but carefully studied belt tightening became necessary as California’s farm exports began a 5-year plunge after 1981, from a record $4.2 billion that year to $2.8 billion in 1985 and 1986 (when exports apparently bottomed out).

“We used the talent that high overhead provided to pinpoint costs and identify loss centers,” Brokaw said, “and then we remedied those problem areas to reduce unit costs.”

The family also became much more aggressive marketers as well, he said. “We were order takers for quite awhile. Now we’re much more involved in merchandising, and we’ve computerized the place so we now can run ‘what-if?’ studies.”

The company also has moved operations abroad by forming a Spanish holding company called Brokaw Espana S.A., a 50-50 partnership with Spanish growers that this year produced nearly 100,000 trees, principally avocado.

On his own, Rob Brokaw started a mail-order business, now called South Seas Nursery, which supplies out-of-state growers and even urban residents with the nursery’s more exotic plants. The subsidiary has found a ready market for what he called the nursery’s “peripheral production,” such as plants developed in research projects that often were left unsold.

“Mail order saves a lot of time and still allows you to reach a new customer base,” he said. “We have people up in Michigan growing bananas!”

Mickey Kennison, Kerman (Fresno County).

In Fresno County--the nation’s leading agricultural producer in terms of cash receipts with a 1986 crop value of $2.1 billion--Mickey Kennison has watched his fledgling Sun Empire Foods grow over the past few years until it now generates about 25% of the family farm’s revenue and accounts for 10% of its earnings.

Kennison formed Sun Empire (the name came from a local school district) when the raisins he and his father produced west of Fresno fetched rock-bottom prices in a glutted market. His idea was to coat them with yogurt, chocolate, carob and other flavorings.

“We didn’t expect to be where we are now,” he said, “but we felt we needed to get into marketing so that we could get a little more of the cut that had been going to others.”

Not insignificantly for the rural community of Kerman, Sun Empire Foods has also created 20 year-round local jobs.

George Chiala, Morgan Hill (Santa Clara County)

“Survival,” George Chiala said, forced him to shift from growing sugar beets and tomatoes at his farm south of San Jose to planting such specialty crops as peppers, garlic, cherry tomatoes and raspberries. This mix enabled Chiala to harvest from April through November. Doing so smoothes the flow of cash, minimizing the need to borrow production funds, he said. And he now either grows his crops under contract or finds a market for them himself.

“It’s a tough way to go,” he said, “but it’s a question of survival. I won’t plant now unless I get a set price.”

To increase farming flexibility and reduce overhead, Chiala now leases most of the land he needs--a move facilitated by hard times, which make more farm acreage available on favorable terms. Leasing also allows him to tailor his crop land by soil type and even microclimate to suit what he plans to grow, he said.

In a further effort to gain control over his destiny and assure his farm’s future, Chiala and several neighboring farmers built a freezer plant where they can store crops when prices drop and can handle their own blemished produce that is being diverted to food products.

“Each thing that we have done evolved as a matter of survival,” he said. “If a market goes bad on us now, we at least have another door to try. My operation’s changed to being less dependent on borrowed money and to having more control over sales.”