Farmers’ Growing Pains
State-sponsored signs in produce aisles this winter will urge grocery shoppers to “Buy California.” Legislators are considering a bill requiring state-run institutions such as hospitals and prisons to buy California-grown produce.
These and other steps are among the most aggressive ever by state government to support California growers of fruit and vegetables. Traditionally, farm support programs have been the domain of the federal government, largely focused on mass-produced commodity crops such as grains, cotton and dairy products. Fruit and vegetables, considered “specialty” crops, were not seen as needing subsidies and marketing programs.
But things have changed.
California farmers are saddled with a glut of produce, the result of bumper crops in California and around the globe that are pushing down prices down for the third consecutive year. Meanwhile, pressures have intensified from higher energy, labor and other costs just as the U.S. market is being flooded with cheaper imported fruit and vegetables from countries such as Turkey, Chile and Mexico.
Profits are being squeezed, smaller growers are exiting the business and more farmland is lying idle. Many growers are abandoning their fruit and letting it rot in the hot Central Valley orchards, drawing clouds of flying pests and causing headaches for neighboring farmers. Hardest hit are growers of grapes (the state’s No. 2 farm product in terms of sales) and tomatoes (No. 5), most of which go to canneries to make paste. Also hard hit is the state’s tiny apricot industry.
The economic picture has become so worrisome that subsidies for California’s specialty crops--in addition to supports for staples such as cotton and corn--are being considered by Congress as part of the 2002 Farm Bill. And Congress already has approved $60 million in relief for California fruit and vegetable growers as part of a separate farm bailout.
Some economists say the shakeout is an inevitable result of too many farmers growing too many crops, and the consolidation is painful but critical to the industry’s long-term survival. Indeed, not all farmers in this cyclical business are suffering.
Many larger and more efficient agribusinesses remain profitable and appear better able to weather the current difficulties. And navel orange and strawberry growers are making a profit, as are growers of some tree fruits and nuts such as fresh-market pears and walnuts.
California is not in danger of losing its place as the nation’s dominant grower. It raises more than half of the country’s fruit and vegetables. The state, because of its favorable growing conditions and bigger farms, in fact has taken market share in certain commodities from other states.
But California’s overall loss of produce market share to foreign producers appears to be accelerating. These producers, some say, have improved their farming methods to the point that they yield fruit and vegetables equal to California’s in quality but at a lower cost.
Accusations of Dumping
California growers contend that foreign producers have unfair advantages, such as government subsidies, and aren’t saddled by minimum-wage and other regulations.
And many accuse their competitors of dumping--selling their produce below cost to gain market share. Grape growers in the Coachella Valley, for instance, unsuccessfully tried to pin a dumping charge on their Mexican and Chilean competitors. The case was recently thrown out by the International Trade Commission, which found there was no material damage.
Although growers and state agriculture officials believe they can sell California products across the country and around the globe as premium goods, California growers insist the bottom line for most buyers is price and their higher costs leave them at a disadvantage.
“I don’t know how we can compete in the world market against Third World markets,” said Gerald Chooljian, a third-generation Del Rey raisin farmer and packer, who was forced to take a loss this year to unload his fruit and regain some of the customers he had lost to Turkish producers.
About a quarter of last year’s state raisin harvest, 96,000 tons, was pulled off the market and is piled up in warehouses near Fresno, waiting for buyers and depressing prices for this year’s crop.
Peach, apricot and pear farmers were paid from an industry pool to pull out trees to shrink the harvest, now that several canneries have slashed production.
“It’s not like you make money every year in agriculture,” said Bill Pauli, president of the California Farm Bureau and a Mendocino wine grape and pear farmer. “We’re used to that. But this is the third year [of economic problems]. It’s the year where people are starting to get washed out.”
The first to go, economists say, could be highly indebted small and mid-size family farms, which have been struggling to compete not only with the state’s agricultural powerhouses, such as Grimmway Farms and Tanimura & Antle, but also imported produce.
“Our costs are increasing, and the prices we’re receiving are less and less each year,” said Bill Brammer, an organic farmer who grows 50 crops in the foothills of San Diego.
Four years ago, Brammer was hailed as one of California farming’s most savvy entrepreneurs, and his weekly produce delivery service was featured in newspaper and magazine articles.
Now with electricity bills that have tripled and with increased labor costs, his 400-acre Be Wise Ranch, one of agriculture’s success stories, is looking at a possible third straight year of losses. Brammer is worried about his future.
His Chandler strawberries are competing not only with organic strawberries grown by huge companies such as Driscoll Strawberry Associates Inc. in Watsonville that have contracts with big supermarket chains, but also with cheaper organic berries from Poland and Mexico.
His baby lettuce has been edged out of supermarkets as bagged salads have taken off and large-scale producers, with more sophisticated equipment, have cornered the market.
And his home delivery service, the most profitable part of his business, has suffered as the economy has softened. Consumers are becoming less willing to pay $26 each week for a surprise assortment of organic produce and herbs.
But economists still point to Brammer’s model as one of the few ways for small farmers to survive in this intensely competitive business. He sells directly to consumers, building a relationship, dishing out recipes and providing pesticide-free products that many think are worth paying more for.
State officials hope to boost demand for locally grown produce such as Brammer’s with a marketing program urging shoppers to look for the Calfornia label rather than the cheapest price. (Even though prices paid to farmers have been falling, consumers aren’t seeing lower prices at the checkout counter, largely because supermarkets see the produce aisle as a profit center with high markups.)
A campaign similar to the California dairy industry’s “It’s the Cheese” promotion will be launched this winter, portraying California produce as the premium stuff.
The hope is that the ads and signs will prompt consumers to buy California products, increasing demand and driving up prices paid to farmers.
“I think the first thing we can point to is that our quality is superior,” said Vanessa Arellano, executive director of the California Department of Food and Agriculture, which will administer the marketing program. “They are not just buying an unknown commodity, they are buying something they know was grown in the most strictly regulated environment there is.”
Sending the Wrong Signal?
Gov. Gray Davis announced the program last month after a survey found that the majority of shoppers polled would buy state-grown produce if they could identify it.
Davis has asked the Legislature for $5 million for the program, which also will receive funds from growers and shippers. Rep. Gary Condit (D-Modesto) is proposing an additional $12 million in federal start-up money.
Farm leaders think it’s a good morale booster for the ailing industry, but economists say it’s not enough to set the farm economy back on course.
Some are proposing more aggressive measures. Assembly Members Simon Salinas (D-Salinas) and Barbara Matthews (D-Tracy) are sponsoring the bill that would require prisons and hospitals to buy California produce if it is available and priced within 5% of the lowest bid. The bill already has passed the Assembly and is being considered by a Senate committee.
If California produce cannot be found, the bill would require these institutions to buy from companies that process and pack in California, as long as they meet the price limits.
At least one economist called it a desperation move, one that sends the wrong signal and could hurt the state in the long run.
“What we are saying is, ‘We are going to be isolationist and protectionist,’ ” said Dan Sumner, head of the Agricultural Issues Center at UC Davis. He said it could spark boycotts and retaliation by other states and nations.
“If California wants to start a war with the rest of the country, this is the way to do it, and everyone loses.”
Sumner and others say California’s farming industry has just gotten too large after years of good weather and expanding acreage and now needs to be pruned back.
Wine grapes, for instance, have been so over-planted in the Central Valley that there are too many to be sold for wine. They now are being sold for grape juice concentrate, a market raisin producers had traditionally counted on to get rid of excess fruit.
After six months of intense negotiation, last year’s bumper crop of raisins brought growers just $877.50 a ton, a 40% plunge from $1,470 the previous year. Prices are set by an independent, grower-sponsored board that negotiates with packing houses.
No price has been set yet for this year’s crop, which will be harvested in a couple of months. But thanks in part to the carry-over from last year’s crop, the price is expected to remain below $1,000.
California raisin growers, who supply half the global demand, also fear they are losing ground to lower-cost producers in Turkey, Mexico and Chile, countries that are boosting production and whose weaker currencies make their produce cheaper in foreign markets.
The economic strain of growing in such a high-cost environment already has prompted Westlake Village-based Dole Food Co.to pull out of farming in California.
But the state’s largest agribusinesses probably will survive and small farm operators will be squeezed out, economists say.
One Fresno real estate firm, Pearson Realty, said it lists a record 243 farms for sale. It listed only 150 farms during all of last year.
The hope, said Pauli of the Farm Bureau, is that these farms won’t be paved over and turned into housing developments.
Sumner, however, doesn’t believe the situation in California farming is quite so dire. He said farmers can ride out the storm a little longer because they aren’t dealing with high interest rates, as they were in the last agriculture bust.
“There’s nothing going on that a year of bad weather somewhere in the world wouldn’t fix,” Sumner said, pointing to the increasing market for California rice in Japan because of disrupted planting there.
California farmers are just going to have to continue to improve efficiency and increase the yield per acre, Pauli said. “We’re just going to have to find ways to do more with less.”
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The California Top 10
Here are the leading agricultural commodities in the state (1999 revenue, in billions):
Milk and cream: $4.09
Grapes: 2.74
Nursery plants: 1.99
Cattle and calves: 1.22
Tomatoes: 1.10
Lettuce: 1.09
Strawberries: 0.89
Flowers and foliage: 0.78
Hay: 0.69
Almonds: 0.69
Source: California Department of Food and Agriculture
