Photo courtesy of UCANR
A strong U.S. economy is delivering a double whammy to agriculture, putting additional stress on profitability at a time of depressed prices.
A new study by CoBank finds as unemployment dwindles, agricultural employers are having to pay higher wages to compete for workers.
“It comes down to a strong economy,” Ben Laine, a senior economist with CoBank told Capital Press.
The economy is humming, unemployment is down, it’s a tight labor pool and agriculture is having to pay high wages to attract workers, he said.
Manual laborers are chasing higher wages offered in other industries such as transportation, construction, hospitality and mining.
Wages in those other industries have always been higher than in agriculture, but those jobs weren’t as widely available. Agriculture is having to increase wages at a faster rate than other industries, he said.
“It’s a different situation than we’ve been in for the last several years,” he said.
Wages in agriculture have some catching up to do and, in many cases, the increases are more than some operations can handle, he said.
“Labor accounts for a significant share of overall operational costs for many types of farms, particularly specialty crops and dairies,” he said.
That’s where the most challenges are, as well as meat processing, he said.
“That’s probably where they’re feeling the most pain right now,” he said.
In 2016, labor costs on all farms made up 10 percent of gross income. In specialty crops, that share was closer to 27 percent.
In some cases, labor costs are more than the price farmers are getting for their production, he said.
The scarcity of farm labor due to the strong economy is exacerbated by tightening immigration controls, declining birthrates in Mexico and Mexican populations moving to urban areas – leaving fewer people with agricultural backgrounds who would be interested in U.S. farm work.
The concern he sees for agriculture is if employers can’t compete on wages with other industries, the U.S. would have to look to imports from other areas, he said.
“It’s hard to put a date to it, But depending on the industry (commodity), some are getting close,” he said.
There is also the possibility that some agricultural producers, like those in California’s Central Valley, could move production to Mexico. That could be feasible for some but certainly not for all, he said.
“And it really comes down to what consumers will bear,” he said.
Employers would be willing to pay higher wages as long as their revenue keeps pace, he said.
“The trouble is if they have relatively low income from production and costs keep going up, that’s where you start running into trouble,” he said.
Producers might change crops, do things differently or find other efficiencies. Automation might be one of those efficiencies, and the dairy industry is starting to see more automation being used in milking. Automation is more difficult in harvesting softer fruits and berries, he said.
As technology evolves and labor costs get higher, it will be easier to make those decisions to automate, he said.