Nov 14, 2013

California wage hikes will hurt growers

On top of all the other pressures California vegetable growers are facing – rising input costs, labor shortages and tightening water supplies – they are now looking at a $2-per-hour hike in the state’s minimum wage within the next two-and-a-half years.

The wage increase, which was signed into law in September, is set to take place in two phases. The first phase starts in July 2014, when the minimum wage will increase from $8 to $9 per hour. The second hike will take place in January 2016, when it will go up to $10 per hour.

Vegetable growers, especially leafy greens producers, will probably take a big hit, since total labor can represent a large portion of a grower’s costs, said Eric Schwartz, CEO of the United Vegetable Growers Cooperative in Salinas, which represents about 70 percent of leafy greens growers in California’s central coast.

Right now, most growers in Salinas are already paying their workers above minimum wage ­– averaging $8.50 to $9.50 an hour, Schwartz said. But if the minimum wage goes up to $9 an hour, farm workers are going to want an increase in their rates to maintain at least a $1 to $2 spread between their wages and minimum wage.

“It’s a tough job harvesting heads of lettuce, so if someone can get a job at McDonald’s for minimum wage and it’s close to what they’re making in the fields, it’s going to seem more appealing,” Schwartz said.

Most growers spend about 30 percent of their total input costs on labor, Schwartz said.

“So, the first minimum wage increase will cause labor costs to go up by 12.5 percent. That means that total growing costs will go up by almost 4 percent,” Schwartz said.

But the $1 per hour increase in the minimum wage doesn’t stop there. For every dollar growers spend on wages, they have to spend an extra 35 cents for workers’ compensation and unemployment insurance, said Rod Braga of Braga Ranch, who farms 12,000 acres in Salinas and 4,000 acres in Imperial Valley and Yuma, Ariz.

Right now, Braga has his own minimum wage set at $9.25 per hour for farm workers. His tractor drivers make anywhere from $10 to $12 per hour, while his truckers make $14 to $15 an hour.

It’s especially important to pay truck drivers a good wage, Braga said.

“Driving a truck here is the same as driving a truck anywhere,” Braga said. “We have truck drivers who could just pick up and leave and make $70,000 to $80,000 a year driving a truck somewhere else.”

For most of the rest of his workers who do hand labor in the field, it doesn’t matter that Braga already pays more than minimum wage.

“We’ve always seen in the past that when minimum wage goes up, the workers want an increase, too. So, if we pay $10 an hour and minimum wage goes from $8 to $9 an hour, our workers will want $11 an hour,” Braga said.

Growers in the Salinas Valley are especially hard pressed to pay a higher-than-minimum wage to their workers, because of the shortage of labor and the high cost of living in Salinas. In the San Joaquin Valley, where the cost of living is cheaper, growers tend to pay their workers rates much closer to the actual minimum wage.

“This will make it tougher for them, because the day the minimum-wage hike hits, they’ll have to pay it. There will be no easing into it,” Braga said.

Braga plans to ease into the pay increases early on, and will most likely start paying his workers an extra $1 an hour in January instead of July.

“We’ve always believed our employees deserve to be paid more than minimum wage anyway, because it’s a hard job and it’s very expensive to live in the Salinas Valley,” Braga said.

Braga also has a 401(k) plan to incentivize his workers.

These incentives became more important when the housing market began surging 10 years ago and growers began losing laborers to the construction industry. Even though the housing market has died down over the past few years, other industries, like hospitality, have stayed strong, continuing to suck up some of the farm labor force. The fact that border controls have gotten tighter has added to the shortage of farm workers.

To make matters worse, Dirk Giannini of Christensen & Giannini Farms, who grows leafy greens in Salinas, said that the recent government shutdown held up the H-2A guest-worker program, which has been an important source of labor for Yuma, Ariz., growers.

“For the Yuma season, the contracts could be behind three to four weeks, which could be detrimental to the winter vegetable harvest,” Giannini said.

In terms of the minimum wage hike, growers in all commodities are going to take a hit, Giannini said. However, growers in the leafy greens and vegetable industries will probably be hit hardest, since the majority of labor has to be done by hand instead of machines.

“If we could have mechanized our (farming) more, we would have done it years ago,” Giannini said.

There are a few processors and shippers who are investing in more mechanization to try to take harvesting to the next level. However, there are some glitches with that. Machines have to be able to get into the fields when it’s wet and muddy and somehow remove blemishes from the crops.

“We can (with hand labor) ensure that blemishes are picked off the heads of lettuce or not put into commerce at all,” Giannini said.

But if machines start doing the harvesting, Giannini said he can envision scenarios where there are more rejections by produce buyers.

For the most part, increased mechanization is not an option in the short-term, Schwartz said. The reality of the situation is that growers are not only going to have to pay more for labor, but they’re also going to have to continue paying more for water, fuel and fertilizer costs. Water, he said, is just as big of an issue as minimum wage. Three years ago, for example, growers in the San Joaquin Valley were paying $200 per acre-foot of water. Now, some are paying $1,400 per acre-foot.

“Some growers can’t even get water, period. If you drive up and down the interstate, it’s shocking to see how many crops and orchards are just plain dead,” Schwartz said.

With rising costs all around, vegetable growers over the past couple of years have been able to offset high input prices by getting record yields due to almost perfect weather.

“However, we can’t count on perfect weather every year, and the yields can’t keep going up year after year,” Schwartz said. “They’re going to start flat-lining, and growers aren’t going to be able to bury their rising input costs.”

Schwartz said he’s hopeful that growers might be able to start passing some of their costs onto retailers. Over the past three years, average retail prices for vegetables have gone up over 35 percent.

“Growers haven’t seen any of that,” Schwartz said. “But the ranch is where it all starts. And it gets to the point where you just can’t get any more out of the goose.”

Schwartz said that more retail stores, such as Walmart, are showing greater interest in buying direct from growers instead of through shippers or brokers. When this happens, Schwartz said he’s hopeful that retailers will be willing to pay more for vegetable crops in order to help keep the industry alive.

– Lisa Lieberman