Profits Out of Reach on Some Fruit Farms

Michael Mikaelian feels a twinge of envy when he gazes out over his neighbors’ cotton fields, almond orchards and vineyards spreading across this corner of the San Joaquin Valley.

The Mikaelian clan, which has farmed here for 60 years, grows peaches, plums and nectarines -- referred to as stone fruits for the hard pit at their core. And lately times have been hard for growers of these labor-intensive crops, which haven’t brought the ripe profits other California farmers have enjoyed this year.

Mikaelian, who estimates that his 600-acre operation has lost $300,000 to $400,000 over the last three years, is one of hundreds of Central Valley stone-fruit farmers struggling to cope with low prices, foreign competition, high labor costs and rising fuel expenses.

A late run on plums might bring a small profit this season, but at best the family is taking “one step forward before we take two back,” Mikaelian said. “The whole future of tree fruit farming in this valley is bleak.”

Medium-sized stone-fruit farmers like Mikaelian, with spreads of around 100 acres to 500 acres, are too small to run their own packing and sales operations, yet too big to survive only by selling to farmers markets and local independent grocers.

“If you are stuck in that middle,” said Phil Martin, an agricultural economist at UC Davis, “you are going to get squeezed.”

Standing in his plum orchard just a few miles from Cutler, Alan Borba polished a sample of the deep purple fruit between his palms and rattled off the ways he’s getting squeezed.

First, he says, there’s the price he gets from retailers -- recently about $8 per 28-pound box. That’s not enough to make him a profit, he says.

Growers like Borba used to be able to negotiate better deals. But over the last decade, the regional supermarket chains have been swallowed by a handful of national megagrocers, reducing the number of customers for fruit and diminishing what little pricing power growers once enjoyed. Retailers typically charge consumers four to six times what they pay farmers for the fruit.

“How to get a bigger share of an increasing retail price, that’s the great puzzle that we have to solve,” said Dave Parker, national sales director for Fruit Patch, one of the nation’s largest packers and shippers of fresh stone fruits.

Borba also feels the squeeze from the other end: his cost of production.

Unlike dairy, cotton or almond production, in which there is a high degree of mechanization, tree fruit farming requires much manual labor. Borba’s farm has about 50,000 trees, and each one requires pruning, clearing, spraying, thinning and finally harvesting over the course of the year. Depending on the time of year, it takes a team of up to 300 farmhands to tend his 350 acres.

Like most farmers in the valley, Borba pays his workers minimum wage, $6.75 an hour. “It is real hard work for not a lot of money,” he said.

Borba would pay them more if he earned more, he said.

By the time the fruit is picked, Borba’s costs are $3 to $5 for each box of peaches, nectarines or plums. He then pays Cal West, the packing house in Parlier, Calif., that markets his produce, an additional $3 to clean, polish and package each box of fruit, plus an 8% to 10% commission on the sale to the grocer.

Depending on the crop, Borba needs to get $6 to $8 a box to break even -- and this year that hasn’t left much room for profit. Peaches, for example, brought farmers an average of $7.50 a box, according to Western Growers Assn., which represents 3,000 fruit, vegetable and nut growers in California and Arizona.

Dan Gerawan demonstrates why bigger is better in this business. Gerawan said his biggest problem this year was filling all of his customers’ orders.

His family produces about 5 million boxes of tree fruit and table grapes on 12,000 acres near Reedley, Calif. It also owns three packing houses where fruit is conditioned, boxed and shipped, primarily to East Coast supermarket chains, including Wegmans Food Markets Inc., Great Atlantic & Pacific Tea Co. and Ahold USA.

The family’s integrated operations allow it to keep the profit that otherwise would have gone to the packer and shipper. The savings help Gerawan put more money back into his farm operations, where the family has planted high-quality late varieties of plums and nectarines that typically hit the market when prices are peaking.

And by keeping the packing and shipping in-house, Gerawan is following an axiom in the business: Processing and marketing always make money, while farming might or might not.

“There is no question that economies of scale are important in this industry,” Gerawan said.

That’s why Borba and Mikaelian don’t think things will get any easier for small growers like them.

“In my grandfather’s generation, you farmed 40 acres and could support your family,” Mikaelian said. “Then in my father’s time, you needed at least 100 acres. Now, you need hundreds and hundreds of acres.”

Instead of getting bigger, they will probably just get out.

Borba and Mikaelian are partners in a business that stages outdoor markets in Orosi and Selma, small farm towns in the Central Valley.

“We don’t depend on farming,” Mikaelian said. “We have flea markets.”