Farming: California’s Green Economic Oasis : Commerce: Despite problems with pests and drought, the sector appears to be doing better than any other in California.
It was not a California Chamber of Commerce kind of day.
Missing from the August meeting of the chamber’s Economic Advisory Council was any sign of boosterism. Gloomily, the economists gave their reports, each seeming to paint a worse picture of the state’s economy than the one before.
“I was the only optimist . . . the only one saying things were not quite so bad,” remembers Ray Borton, senior agriculture economist at the state Department of Food and Agriculture.
While other sectors of California’s behemoth economy--such as commercial real estate, defense, retailing and banking--are suffering, agriculture seems to be the state’s one bright spot against the dark backdrop of the recession.
There have been no significant crop failures this year, exports are holding their own and, because of troubles in the mid-1980s, agribusinesses are leaner, more efficient and generally carrying light debt loads.
However, there are pockets of troubles for the state’s growers, ranchers and their suppliers and employees. Commodity prices are being kept low in global markets, and farmers aren’t making as much money on their products as they would like. And in areas untouched by the recession or low prices, growers have had to contend with a surfeit of pests and a dearth of water.
Yet the good luck and bad “gets evened out,” Borton said. “That’s what makes California’s agriculture different.” With 250 different products, the state’s agribusiness is diversified enough that a problem in one crop doesn’t usually bring down the entire sector.
Borton compared California to New York state, where “55% of the agriculture income is from dairy farms. So the price of milk makes a big difference there. Dairy is No. 1 here too, but accounts for only 12% of income,” he said. “And no other product accounts for more than 10% of the total, so we have quite a bit of insulation from big swings” in fortune.
In large measure, economists say, the relative health of the state’s agribusiness today is due to the severe downtown in agriculture in the mid-’80s.
“If you had gone to one of those (economic advisory) meetings in 1985, ’86 or ’87 or even ‘88, everybody in the room would have had a positive story, with the exception of Ray Borton,” said Frederick Cannon, an economist with Bank of America who is also a member of the advisory council.
Agriculture “went into a long, deep down-cycle as result of the 1981-82 recession,” Cannon said. “Commodity prices fell . . . and there was a substantial crisis in agriculture. Now, it’s financially quite strong, relative to other industries, in part because it has already gone through a major recession.”
The crisis came, economists said, because many farmers had overextended, going deep into debt to buy additional land and expand operations. When land values plummeted, those who had overextended themselves faced foreclosure or even bankruptcy. The stronger survived.
“Since 1985, it has changed dramatically. The balance sheet of agriculture is much stronger than it was . . . . A lot of debt was written off by farmers and banks, and many people went out of business. Those people who are left are collectively stronger than farmers were six or seven years ago,” said Seth Hall, senior research analyst for the Farm Credit Bank in Sacramento, the single largest lender to California farmers.
Borton agrees. “A lot of people still in agriculture were the ones who didn’t overextend themselves and hadn’t gone out on a limb, so that a fairly good segment of California agriculture is debt-free now,” he said.
Within the state’s diverse agriculture industry, of course, there are varying degrees of financial well-being. “The livestock sector is having a good year,” Hall said. “The cattle herds--both beef and dairy cattle--have grown quite slowly. As a result, prices have stayed up.”
On the other hand, farmers who grow tomatoes for the processed-tomato market (as opposed to fresh produce) are having a tough time this year because of excess supplies in the previous couple of years.
In fact, many growers could say that this year has been too good. Harvests, for the most part, have been bountiful. But in farm products, plenty does not mean prosperity. The greater the supply, the lower the prices.
“It happened to be a year when things went right from the production standpoint,” Hall said. “The problem with that is that farmers don’t make a lot of money. There’s a fine line between having enough production and too much. It doesn’t take much surplus at all to drive prices down considerably, especially when it comes to vegetables.”
So, farmers’ income is expected to decline slightly this year because of lower commodity prices. However, exports--another significant indicator of agriculture’s financial status--remain strong. More than a quarter of the state’s $18 billion in agricultural products is exported.
“In this recession, with the value of the dollar quite low (overseas) and interest rates quite low, export-oriented, capital-intensive industries like agriculture should outperform other industries,” said B of A’s Cannon.
When the economy is in a stall, consumers can become more cautious about grocery shopping. While they may still consume the same amounts of eggs, milk and vegetables, they often cut back on cheeses and fancy fruits. Other agricultural products can suffer too: Demand for nursery products and even fibers such as cotton weakens as consumers put off landscaping and redecorating.
In the Imperial Valley, the state’s winter salad bowl, the problem is not demand but a pervasive, voracious pest called the Strain B whitefly. For the second year in a row, the whitefly has been decimating crops and the area’s economy.
Back in August, as the chamber’s economic advisers were comparing gloomy assessments, agricultural workers were jamming the unemployment roles in Imperial County. Of a civilian labor force of 55,950, that month 18,900, or 33.5%, were jobless. In September, the rate dipped a bit to 33.1% as 5,000 additional claims for unemployment insurance were filed.
In an area where agriculture is the largest employer, it seems that the only job growth in the Imperial Valley this past year has been at the unemployment office; six more workers were hired this month to staff the two county offices of the state Employment Development Department, according to Angel Somera, director of the EDD office in El Centro.
Somera said there is no easy comparison to August’s unemployment figure because of changes in the way the county tracks joblessness. The county has registered high unemployment before; in August of 1985, it stood at nearly 43% and in July, 1986, it was 38%.
However, both those figures included residents of Mexico who normally worked in agriculture in the valley. After 1986, the county excluded Mexican residents from the count. If the Mexican workers were included now, Somera estimated that August’s unemployment would have been 50% to 60%.
“Farm workers are having a very tough time of it,” Somera said. The workers are accustomed to what is normally a year-round cycle of planting and harvests in the valley. It is no longer primarily a migratory work force, and there are few alternatives to farm work in the valley.
Imperial County’s growers are not doing so well, either. Rather than plant melons and other crops that the whitefly attacks, the growers have let their fields lie fallow, or planted less-susceptible--and less profitable--crops.
Somera said: “People who aren’t aware of the situation in Imperial County and see all these people drawing unemployment (compensation) often ask, ‘Why don’t they go to work?’ It’s hard to find jobs for 19,000 people. Where in Imperial County do you want 19,000 people to go to work?
“Farm workers are farm workers. They like doing it a lot, but they are at the mercy of the seasons, nature and the whitefly. So, if there’s no work in agriculture for farm workers, then there’s no work for them.”
For most of the state’s agribusinesses, lack of water has been a serious problem. The growers have shown great flexibility in farming with severely reduced supplies, said economist Cannon.
But growers are facing a seventh year of drought and severe cutbacks in their supplies of cheap, federally subsidized water now that President Bush has signed the Central Valley Project reform into law. Cannon--and the farmers themselves--question how much longer they can be flexible in the face of dry irrigation beds.
Despite the trouble spots, “agriculture is basically holding its own, as opposed to being one of the soft sectors,” said Richard C. O’Brien, corporate economist at Hewlett-Packard and chairman of the chamber’s Economic Advisory Council.
“The problem with agriculture,” he said, “is that it is very difficult to forecast whether in 1993 it will be a boost to the state or a drag on the state. You just can’t predict it.”
