WENATCHEE, Wash. — As Washington’s apple industry wraps up another harvest, growers and packers are becoming increasingly concerned about rising labor costs and many other issues that threaten their competitiveness.
Chief among the challenges is a chronic shortage of workers that has pushed the cost of labor skyward. But costs could increase even more if the state Supreme Court sides with farmworker advocates in a lawsuit that could eliminate piece-rate pay in agriculture. Another lawsuit, against a Yakima Valley dairy, seeks to overturn the state law exempting farm work from overtime pay.
“If piece-rate and our overtime exemption go away and harvest costs take another 50 percent jump, where does it all lead?” asks one company executive. The whole industry has a commodity-driven pricing model and it will take “huge capital investment” in mechanization and robotics to remain competitive, said the executive, who requested anonymity.
“The piece-rate case is one factor in a whole constellation of potential changes and issues and long-term trends that’s convinced growers that labor cost and supply are one of the biggest challenges we face as tree fruit producers,” said Jon DeVaney, president of the Washington State Tree Fruit Association.
At stake is Washington’s biggest agricultural sector. The state’s apple industry alone is a $2.4 billion per year business. When cherries and pears are added, the state’s tree fruit industry tops $3 billion.
The array of challenges includes a whiff of unionization efforts in orchards. The Food Safety Modernization Act requires costly testing of irrigation water in orchards and greater sanitation in packing houses. Growers incur added costs dealing with surprise audits by the U.S. Department of Labor and occasional Immigration and Customs Enforcement raids looking for illegal immigrants. Congress has made little progress toward immigration reform to address the labor shortage, which is only expected to worsen. And there’s uncertainty about renegotiations of the North American Free Trade Agreement between the U.S. and Washington’s top apple export markets of Mexico and Canada.
Small companies and growers already find it more difficult to survive, and larger companies are combining efforts to find more volume and efficiencies.
Gold Digger Apples Inc., a small tree fruit cooperative in Oroville on the U.S.-Canadian border, filed for bankruptcy in 2016. Its packing and storage facilities were bought and are now operated by Gebbers Farms of Brewster and Chelan Fruit Cooperative of Chelan.
Earlier this year, Smith & Nelson, the last packing house in Tonasket, 17 miles south of Oroville, ceased packing but is still growing and storing fruit. The packing line needed sanitation upgrades to comply with new FSMA requirements. Owner Scott Smith said several factors went into the decision, including the lack of a next generation able to carry on.
Auvil Fruit Co. in Orondo and McDougall & Sons in Wenatchee have both expanded in recent years, saying “it’s go bigger or get out,” and that they need more volume to survive.
Washington Fruit & Produce Co., Yakima, and several other large companies also have been expanding acreage and replanting old orchards in higher densities for more volume.
Chelan Fresh Marketing, in Chelan, earlier this year announced the addition of Borton Fruit, of Yakima, and Columbia Valley Fruit, of Union Gap, to its already large marketing portfolio. It gives the company greater volume, particularly in organic fruit, to stay competitive and provide retailers with the service they expect, said Tom Riggan, general manager.
He foresees more tree planting and more marketing consolidation among independent companies.
“Cost concerns are a big deal all right,” said Bob Mast, president of Columbia Marketing International in Wenatchee.
“It cost $30,000 an acre to plant a new orchard a few years ago, now it’s $60,000. We’re watching all the regulations coming at us. We want to be compliant, but if they don’t make improvements and make sense, we definitely will challenge those,” Mast said.
Perhaps the biggest challenge is to piece-rate pay, a cornerstone of agricultural labor economics. The piece-rate pay lawsuit implies workers were not being given due wages when they actually were, DeVaney said.
“The implication that someone is doing something wrong was alarming and offensive to a lot of growers,” he said.
Growers like piece-rate pay, which is based on the amount of fruit picked versus hourly pay because it provides an incentive for pickers to work quickly. It’s a useful tool when a grower needs to get fruit picked in a hurry because of weather, fruit maturity or some other variable, DeVaney said. Pickers also like it because they can make a lot more money, he said.
Washington state’s minimum wage is $11 per hour. But a grower has to pay all of his workers a minimum of $13.38 per hour, the Adverse Effect Wage Rate, if he hires H-2A-visa foreign guestworkers. He can also pay them piece-rate, which usually equates to about $20 per hour for good pickers. The fastest pickers are highly skilled and have been known to make the equivalent of $50 per hour on piece-rate in apples and $70 per hour in cherries.
In 2015, the state Supreme Court ruled in Demetrio v. Sakuma Bros. Farms that piece-rate workers had to be paid separately for rest breaks. Growers had considered rest breaks to be part of piece-rate pay and many pickers worked right through rest breaks.
Farmworker advocates and attorneys involved in that case took the next step by finding workers to sue Dovex Fruit Co., of Wenatchee, over the practice of not paying piece-rate workers separately for meetings and for travel time between orchards. The advocates call that “down time” or “nonproductive time.” Dovex contends those activities are included in piece-rate pay because they are supportive of the work and that the law allows growers and workers to agree to those terms.
Plaintiffs not only want it paid separately, but calculated hourly instead of weekly. That, DeVaney said, becomes a “logistical impossibility.” Administrative rules and previous court decisions have approved weekly calculations, but if hourly calculations are imposed it very likely will end piece-rate pay, he said.
That, in turn, increases costs because workers paid hourly will likely work slower, and a grower will have to hire more workers to get the same amount of work done, he said.
“The solution is not to add more workers but maximize productivity. Slowing down and adding people is not a good longterm solution, especially when workers are not found able and willing to do it,” DeVaney said.
He and others fear that if piece-rate pay goes south so will the fast pickers — to California, Florida or other states with fruits and vegetables where piece-rate pay still exists.
Grower costs will also increase if they have to start paying overtime, but the case against the state’s agricultural overtime exemption does not appear to be very strong legally, he said.
Many agricultural functions are exempt from state-required overtime pay because the work is seasonal and temporary and may require longer workdays but for short periods, DeVaney said. It allows flexibility for a grower caught by unexpected variables such as weather.
Growers and packers worry unionization will increase costs and reduce their flexibility in handling labor needs. Years ago, attempts were made at unionizing packing houses but they were unsuccessful because workers decided they might be giving up opportunities to make more money at the cost of paying union dues, DeVaney said.
More recently, Washington Fruit & Produce, in Yakima, and Douglas Fruit Co., in Pasco, staved off unionization efforts by listening to workers, Brendan Monahan, a Yakima labor attorney, said at a labor conference last winter.
“Why would employees want to pay a portion of their paychecks to a union when they can get things addressed with you?” Timothy Bernasek, a Portland agricultural attorney, asked a couple hundred agricultural employers at the conference.
Developments at Sakuma Bros. berry farm, in Burlington, led to the unionization of the farm’s 500 workers by Familias Unidas por la Justicia in 2016, a local independent farmworker union formed in 2013.
Familias Unidas and Columbia Legal Services were both involved this year in labor disputes at Sarbanand blueberry farm in Sumas following the death of an H-2A worker, apparently from pre-existing conditions, and later complaints about an abusive supervisor at W&L Orchards, in Quincy, owned by Larson Fruit Co., in Selah.
Keith Larson, president of Larson Fruit, declined comment on the validity of the complaints but said he was happy to address concerns and get people working again. A supervisor was reassigned, he said.
Familias Unidas “certainly is trying to organize the workforce and informally represent a lot of workers,” DeVaney said. It’s something the tree fruit industry is watching, he said.
“Most employers know you want to treat workers well to retain them. No one thinks they can successfully recruit if they abuse them,” DeVaney said.
The bigger problem, he said, is no one wants to be short workers when labor is scarce.
Unions often bargain for fixed hourly wages, eliminating piece-rate pay that many growers and workers like, he said.
“That’s a main concern. Farms have to be flexible given changing weather and perishable crops. An employer can lose flexibility with a union contract. Agriculture is a highly uncertain environment, not a shift-based manufacturing environment,” he said.
“Unions use political and legal means to get rules and regulations put in that meet their goals. They don’t have the interest of an industry at heart,” said Desmond O’Rourke, a retired Washington State University agricultural economist and apple analyst.
Familias Unidas could not be reached for comment.
An unintended consequence of unionization and more government regulations is they push employers to seek greater mechanization at the expense of jobs, DeVaney said.
“If you drive the cost of labor up too fast, you provide incentive for automation,” he said. “It’s not a threat but a rational response.”
Tree fruit cultivation and harvest is labor-intensive, but more growers are turning to pruning machines called hedgers run off the sides of tractors to reduce the hand pruning of fruit trees.
Automated Ag Systems, in Moses Lake, builds hedgers. Its pruning and harvest assist platform, called Bandit Xpress, also replaces ladders for 35 percent more efficiency in picking apples. The company sold 450 Bandit Xpress platforms from 2013 through 2016 and is building 275 this year. The company will double its manufacturing capacity next year. The self-propelled platforms sell for $63,000 apiece.
Companies in California and Israel are working toward the commercialization of robotic apple pickers within the next year or two. Neither has set suggested retail prices.
Improvements in computerized, optical fruit defect sorters and sizers and robotic palletizers are eliminating more packing house jobs in new packing lines that cost tens of millions of dollars each.
Stemilt Growers, of Wenatchee, is building what will likely be the largest and most advanced automated packed fruit storage and shipping centers in the state. The 479,000-square-foot facility will be able to store almost 1 million packed boxes of fruit. The Automated Storage and Retrieval System — known by the initials ASRS — involves movement, storage and retrieval for shipping of packed boxes of tree fruit with robotic cranes and automated dollies and computerized tracking for efficient flow.
In 2013, several cold storage industry organizations estimated an ASRS system saves $2.7 million per year for a plant with 18 workers for each of three shifts and each employee costing about $50,000 in wages, benefits and training.
New conventional storage costs about $115 per square foot and ASRS systems about $170 per square foot, according to cold storage organizations. Stemilt won’t say how much it’s spending on the system, but using those estimates it’s likely to be $80 million or more.
From orchard replacement to robotic pickers to more automated packing and distribution, it all takes money and DeVaney said not everyone has that kind of capital.
Chelan Fruit Cooperative did not go with ASRS when rebuilding its main plant destroyed by a 2015 wildfire because managers decided the cost outweighed the labor savings.
Such costs mean smaller companies and growers will be squeezed out, O’Rourke said, while adding there may be limits.
“In picking a premium club variety apple you may not want to risk mechanical harvest,” he said. “If you have a $60 per box SweeTango you don’t want to have any bruising on it.”
Washington growers have long dominated U.S. apple production and are increasingly recognized worldwide for their high-quality apples. But they’re not the lowest-cost producers, DeVaney said.
“We’ve always produced quality and people pay for quality but they won’t necessarily pay an unlimited amount,” he said.
“We can’t have a price shock that puts us out of the running. The industry is very concerned about a sudden policy change or court decision that drastically changes the landscape,” he said.
The industry is giving a $32 million endowment to Washington State University over eight years for research to remain a high-quality and efficient tree fruit producer, DeVaney said.
“We’re told if growers paid more, workers would appear, but unemployment in Yakima and Wenatchee is the lowest in 27 years,” he said. “So there’s not a reserve of people to be enticed by paying more per hour.”
That along with the piece-rate and overtime issues and uncertainty over longterm immigration policy is intensifying growers’ worries, DeVaney said.
“It’s why so many growers are looking for game-changing solutions, a substantial fix in immigration supply of labor or automation,” he said. “People are under a lot of pressure so they’re looking for longterm solutions for a better foreign guestworker program and immigration reform or automation, or both.”