Organization is the Missing Link to Supply Chains

Grower Distribution Difficult

By Mikenzi Meyers, Contributing Editor

Creating a link between growers and the distributions of their commodities is becoming increasingly difficult. Aaron Magenheim with AgTech Insight based out of Salinas is helping to create a more efficient communication system to bring supply chains together.

Magenheim described a situation last year where Walmart required IBM technology in order to sell leafy greens, but when growers asked how to implement the technology, they could not get a clear answer. “We need to help move this industry forward and have the right people that work together and understand the right direction,” he said.

Another issue Magenheim has seen is the lack of data on failed trials. This is especially a problem in California, where there is a constant push to test new products. Whether it be hiring an analytics team or making sure growers record their ROI (return on investment), Magenheim said organization is the key to moving forward.

California Growers Confront Labor Issues

Labor Issues—Costs and Farmworker Shortages—Challenge Growers

By Brian German, Associate Broadcaster

 

This year, farmers grappled with labor issues such as shortages and increased labor costs. Some growers had more than enough workers available, while others experienced difficulty in meeting their labor needs. Dave Phippen, co-owner of Travaille & Phippen Inc., a vertically integrated company that grows, packs and ships their own almonds, described some of their struggles with labor this year. “We employ a little more than 50 people year-round, but for harvest we ramp up an extra 15-20 people. There was a squeeze on the availability of the labor and a challenge with what we thought was an acceptable rate of pay,” said Phippen.

almond assessment increaseAs minimum wage increases incrementally every year, growers will struggle to keep up with the higher wages. “There was a new reality in the typical forklift driver, people working in receiving, people sampling,” Phippen elaborated. “We’re paying a little bit more for all of those tasks this year, and because there were more employment [opportunities], it was harder to find people who were available and willing to work.” Phippen also noted that employees “were requiring a greater compensation rate than last year for the same job.”

Travaille & Phippen’s operation has had to reevaluate employee compensation. Phippen explained the principle that as minimum wage increases, compensation rates compress, such that a person who was earning $15 used to be $5 above minimum wage, but is now is only $4 above minimum wage,” Phippen said.

The current federal minimum wage, established in 2009, is $7.25 per hour, up from $5.85 just two years prior. Of the top 10 agricultural producing states in the country, only 4 have minimum wage rates higher than the federal level. California and Massachusetts have the highest minimum wage levels of any other states.

Travaille & Phippen was already compensating a great deal of their labor force above minimum wage; however, to stay competitive and retain their workers, they increased their compensation rates, which caused a ripple effect throughout the supply chain. As their labor costs increased, they had to charge growers more for processing. “It had a big impact on them,” said Phippen, “particularly because those growers are receiving less revenue for their crop this year than they did last year. It was quite a squeeze for our growers and we were caught in the middle of that squeeze,” Phippen explained.

almond-tree-shaking-harvestingLabor issues have also been a significant concern for Mark Van Klaveren, a diversified farmer in Madera who grows almonds, watermelons and Thompson seedless grapes. Van Klaveren noted that timing plays a big role in their labor situation. “Since we tend to pick our Thompson seedless late, when there is a lot of sugar, we were able to get plenty of labor because most of the other vineyards were finished. Their farmworkers were looking for someplace to work.”

Van Klaveren reported that labor proved more challenging for their other crops. “I have a steady crew for watermelons, although with the new laws coming into effect, we are going to have to make some changes and mechanize a lot more of that harvest,” Van Klaveren noted.

Labor costs will become further complicated in the years ahead as overtime limitations established in AB 1066 phase in, beginning in 2019, with all agricultural operations expected to be in compliance by 2025. The combination of increased wages and the limitation of hours will change the way many farms operate. Some growers will increase mechanization. Others growers of labor-intensive crops may replace their crops with commodities that require fewer hours to harvest.

Van Klavern noted, “The only options we have are to mechanize or get out—one of the two. We can’t afford to produce at the same prices we’re getting right now with much higher labor costs. Some machinery out there can do what we need to do and we will look real hard to get some of that in our operation,” said Van Klavern.

An economic analysis conducted by the Highland Economics firm, shows AB 1066 having significant consequences for California agriculture. The study found the policy would reduce farm production as well as farmworker income, and the new time constraints on farmworkers would negatively impact California’s overall economy.

Van Klaveren is skeptical the new legislation will create any positive outcomes. “Workers want to put in the hours. They want to work. If we’ve got to pay them higher wages to start with, and then overtime on top of that after eight hours? There are certain jobs that won’t sustain the higher wages,” Van Klavern said.

In addition to increased costs for employers, increased minimum wage negatively affects workers who are trying to get their foot in the door of a farming operation. When the government raises the entry-level wage so high that people really have to produce a lot per hour, Van Klavern clarified, inexperienced applicants will suffer. “If you cannot produce a volume of work that is worth $15 an hour or more, you cannot work because nobody is going to hire you to lose money,” noted Van Klaveren.

Collectively, farmers are looking at overall labor cost increases between 5 and 15% over the next few years, depending on the crop. Van Klavern expressed a widely-held view that continued government intervention, particularly in the area of wages, is making farming in California unnecessarily difficult. “The whole issue of employment is a private agreement between an employee and employer, as in, ‘I will work for you for so much an hour and try to produce to your expectations.’ In other words, if somebody is willing to work for $8 an hour, why not let them work for $8 an hour? If it is fine with them and fine with the employer, then why not?” said Van Klavern.

The costs of labor and limitations on farmworker hours, combined with the costs of water and increasing environmental regulations, may prove insurmountable for California agriculture. “The economics is all simple, but the government steps in and complicates everything. I guess that leaves it to us to have to figure out how to swerve between all the regulations and stay in business,” noted Van Klavern.

Climate change’s impact on restaurants

By Patrick Mulvaney, chef and restaurateur; The Sacramento Bee

When I read about climate change, I learn about rising sea levels and shrinking polar ice caps – problems for 100 years in the future. But when I talk to my friends and customers about climate change, the focus is on what is happening today. It seems little things are already adding up.

As a chef, I have always believed that the completed dish will only be as good as the ingredients used. The bounty of the 12-month growing season is the main reason we decided to open our restaurant here in Sacramento. Because of our close relationships with local farmers, our “supply chain” is basically a truck and the farmer’s market. We can see how the drought has affected their crops.

Three years of drought have taken a toll on the ranchers and farmers we depend on. Lack of rain to refill the state’s reservoirs has reduced water levels to historic lows. Some water allocations have been cut entirely, and most farmers have been forced to scale back on planting. Forty-five percent of rice land went unplanted this year; farmers were forced to sell off cattle this spring. Researchers at UC Davis estimate that drought will prevent farmers from planting nearly 430,000 acres and cost the state $2.2 billion.

This isn’t just a Sacramento problem; it will affect the whole country. California grows nearly half of the nation’s fruits and vegetables, including 70 percent of the lettuce, 76 percent of the avocados, 90 percent of the grapes and virtually all of the almonds. Unfavorable conditions in California mean higher prices for restaurants across the country.

The U.S. Department of Agriculture said produce prices could increase 5 to 6 percent this year. Even though beef prices are at historically high levels, the drought has raised the prices of feed even higher, forcing ranchers to sell the majority of their herds. A few years ago, the U.S. had 102 million head of cattle. That number is now under 88 million and dropping. It’s the smallest herd since 1951, so prices keep rising.

In addition to drought, climate change is causing other kinds of severe weather swings. Last winter was unusually brutal in the Midwest, causing an almost complete failure of the cherry crop and raising doubts about harvests for the rest of the tree fruits this summer.

In some ways, we are lucky at my restaurant; our daily-changing menus have allowed us to respond to climate disruptions. And while we continue to serve the best of what’s coming out of the nearby land, some items have become harder to find at a reasonable price. During the past year, restaurants have changed their menus to reflect higher meat prices, sudden collapses in citrus yields and the lack of products as farmers are forced to let their land lie fallow.

I worry that extreme weather, like California’s drought, may become the new normal. Our agricultural partners face the greatest risks. Many businesses will experience climate change through limited supply and poor supply-chain quality.

There’s something we can do about this. California has long been a national leader on clean-energy policies. Gov. Jerry Brown is supportive of the Environmental Protection Agency’s new regulations that will reduce carbon pollution. He said, “Clean-energy policies are already working in California, generating billions of dollars in energy savings and more than a million jobs. Bold, sustained action will be required at every level, and this is a major step forward.”

Now is the time to continue California’s clean-energy leadership tradition by implementing changes that encourage business leaders to use resources more efficiently. This will help prevent more extreme weather events and make our economy more resilient.