Industry Experts Comment on Biggest Challenges

Well, no matter what you thought about 2008, no one can say it was uneventful. From the incredibly high gas prices to the presidential election to the current economic situation, it was quite a year. But what does 2009 hold for the vegetable growing industry?

We asked growers and others in the industry to comment on the recent economic upheaval and the biggest challenges that may be coming down the pike. Here’s what people had to say:

Karen Bonaudi

Assistant Executive Director
Washington State Potato Commission

The economic turmoil of 2008 hit growers on a number of fronts, as it did everyone else. The increase in energy prices also drove up fertilizers, as an example, and the decline in the cost of crude oil at the end of the year finally brought down costs as well, but not to where they had been before, of course.

Attraction to grain crops increased competition and doubled costs of some land leases, adding to economic pressures on growers who lease property for potato crops. While banks aren’t leveraging as much, farming tends to be behind the economic curve in terms of feeling the impacts. As a result, contracts for 2009 were in place before the finance failures at the end of the year reverberated through the nation’s economy.

Two other things work in farmers’ favor: food is not only valued, but necessary and not as speculative as the stocks and bundled mortgages that drove the Wall Street feeding frenzy. Additionally, annual farm loans have always been heavily collateralized, meaning growers have carried the risk rather than the banks. If banks have money at all to lend, food production is still a good bet.

In the area of challenges, new ones can dramatically change the environment and the old ones sometimes don’t go away. Transportation efficiencies — getting time- and temperature-sensitive potatoes to domestic and foreign markets — are concerns each year, as are proposed tightening regulations covering crop protection chemicals.

This coming year, proposed re-registration of soil fumigants and the implementation of those rules threaten to cause major disruption to potato farming. The chemicals under review protect potatoes from more than one pest, and there are currently no alternatives to take their place. The wide buffer zones proposed to protect people in adjacent properties would impose very restrictive rules for a product that has been used safely for years. Additionally, those restrictions would take so much land out of production that forced shortening of crop rotations would devastate integrated pest management strategies, resulting in the greater use of chemicals, or acreage would be lost to potato production altogether.

Reggie Brown

Manager
Florida Tomato Committee

The recent down-turn in the economy will have some impact on the tomato industry. The market for tomatoes will experience some decline due to reduction in expenditures for eating away from home. Consumers are likely to pull back on these expenditures and it will have the effect of reducing market demand for tomatoes. On the other side of the equation, the rise in the unemployment levels will tend to ease the pressure on the industry worker shortage. Declining oil prices will provide some relief from spiraling cost for petroleum-related inputs as these get factored in to the marketplace. The ultimate question is whether these factors will contribute to the profitability or the survivability of the industry.

The continued impact of the summer Salmonella scare on consumer demand will be the largest challenge of the new year. While Florida tomato growers
are the only state food safety regulated providers of tomatoes, the added burden of the program will need to be translated into consumer confidence in the future to grow the market. Public confidence in tomatoes is essential to maintain a viable tomato industry in Florida. The Florida Tomato Committee has embarked on an effort to expand the retail market for field grown Florida Tomatoes in the Eastern half of the country.

Mike Bush

Extension Agent
Washington State University 

The extent of the impact to the economy is yet to be seen, but there will be impact as both local and overseas consumers see a decline in their ability to purchase agricultural produce from North American sources. Concurrently, as producers face an increase in key production costs, such as labor and fuel, that may not only erode immediate profitability but the future sustainability of farming operations.

In Washington state agriculture, the biggest challenge could be marketing a potential overabundance of fruit/vegetables at a fair price that allows growers to recoup their production and harvest costs. Given the ideal growing conditions, especially here in Eastern Washington, the question is not whether our growers can produce a quality crop but whether they can market that crop at a price to turn a profit. Washington State University Extension, in collaboration with commodity commissions, will continue to explore and provide our industry with strategies to improve crop quality and farming efficiencies. We will also focus many educational efforts on the economic impacts of grower production and pest management decisions.

Dale Coke

Owner
Coke Farms
San Juan Baustista, California

California vegetable growers have already been impacted this year by higher fuel, fertilizer, irrigation, transport costs, and the increasing interest in locally produced food. Vegetable growers in other parts of the country close to the major population centers should be benefiting from this. It’s difficult to predict what the actual effects of the federal bailout or recession/depression will be on vegetable growers. For California growers, the price of oil and availability of credit may have the biggest impacts.

The biggest challenges for next year are to accurately estimate demand level for the crops we grow and get sufficient irrigation water to grow them. We will try to get some customer feedback and hope for decent winter precipitation.

Wendy Fink-Weber

Director of Communications
Western Growers

The financial crisis facing the country, and the world, is bound to have an effect on the specialty crop industry and every industry. While people will continue to buy food, the business of agriculture will be faced with obstacles. Borrowing money for financing business expansion will be challenging, standards of credit-worthiness are tightening, and competition may increase. There will probably be fewer labor shortages as unemployment keeps creeping up and the construction industry remains depressed. None of us have experienced a situation like this in our lifetime.

Consumer purchasing habits are already starting to change, as well. As household budgets tighten, shoppers may weigh the perceived value of the foods they buy with the price tag. Value awareness will drive consumer selections. Sales of higher-priced organic products may decline. People are already eating out less often and cooking at home. This trend could increase purchases of raw foodstuffs including fresh produce. It’s a brave new world developing.

In the area of challenges, if the drought in California persists, that will be a serious one and have serious negative consequences for many of our growers, especially those in the Central Valley. Farmers have already experienced at least $260 million in losses this year as they struggle with water delivery cutbacks ordered by the federal court under the Endangered Species Act to protect the Delta Smelt. Water is a political problem and Western Growers’ top priority. The state is operating on a water system that is more than 40 years old. We need a long-term solution that includes new water conveyance and storage infrastructure. We need short-term solutions that may include economic relief for impacted growers and, lots of prayers for rain this winter in the valley and snow in the Sierras.

Scott Horsfall

Chief Executive Officer
California Leafy Greens Marketing Agreement

The shaky economy is going to have an impact on the marketing of leafy greens, as it will for all of agriculture. It has already had some impact … some of it has to do with a loss of demand for specialty items, as people stick more to the basics. Price pressure is being felt throughout the system, and suppliers are looking to squeeze costs out of the business. Obtaining credit could also cause hardships for some companies.

As a result of the tight economy, the main challenge will be to continue selling products at a profit; if demand declines due to the economy, some companies could have a hard time surviving. Maintaining prices in the face of buyer pressures will be tough. Also, water availability is growing as an issue and it will be a challenge for some growers, depending on where they are located.

Brent Jackson

Owner
Jackson Farming Co. Autryville, North Carolina

Unless something changes in the short term, our input costs are going to be up substantially as compared to the start of 2008, and with the current economy, it is going to be difficult to pass these additional costs on to the end consumers. As a result, cost — and labor — will be the biggest challenges this year. Even though fuel costs have come down recently, a lot of the fertilizers, chemicals, and fungicides have already been made with extremely expensive fuel, and it appears this is going to be passed along to the farmer.

Over the last 10 years, however, we have incorporated such things as land leveling, GPS soil sampling, and Auto Steer tractors to assist in lowering our cost in water management, fertilizer requirements, and more accurate placement of our plastic and drip beds. All these efforts are done in an attempt to lower our fuel consumption, along with better overall management of our fruit and vegetable crops.

Labor is always a concern. We use a legal workforce through the H-2A program and our wages have continued to escalate over the years — far above and beyond the normal U.S. wage rates paid to American workers in other industries. We will continue to lobby Congress for some type of legal guestworker program that is less burdensome than our current H-2A program and in tune with the current economy.

Lisa Lochridge

Director, Public Affairs
Florida Fruit & Vegetable Association

Even before the economic downturn, producers and handlers of Florida’s fresh market fruits and vegetables already were experiencing huge pressures on their bottom lines because of steep increases in costs such as fuel and fertilizer, food safety, and more. Given those pressures, producers must continually re-evaluate their business plans and processes and make tough decisions in order to remain competitive. Clearly, with the nosedive the country’s economy is experiencing, Americans are taking a closer look at their spending habits, and that includes food purchases. It’s difficult to say how those changes might affect our industry, although fresh produce continues to be a high-value, convenient, and healthy choice for consumers.

In Florida, there continues to be challenges on numerous fronts for producers of fruits and vegetables. Chief among them are several very important developments related to the agricultural workforce. The Department of Homeland Security’s No-Match rule is likely to become effective soon. Employers must be prepared to deal with No-Match letters should they receive them by having best practices in place.
It will be a disruptive and time-consuming process for employers, who face the possibility of losing valuable workers in cases where no-match conflicts can’t be resolved. In addition, the U.S. Department of Labor has proposed far-reaching changes for the H-2A guestworker program. Some of the changes would bring much-needed improvements, but others — such as significant increases in fees — would make the program unworkable.
Although the next administration will be focused in the short term on the serious economic issues at hand, our industry will continue to push for critically needed comprehensive immigration reform, including reform of the guestworker program.

Chris Pawelski

Owner
Pawelski Farms, Goshen, New York

The effects of the recent economic upheaval on the vegetable sector of the agricultural industry, is, in my opinion, a two-edged sword. On one hand, it is potentially quite negative. I would be shocked if we don’t face a very serious credit crisis in 2009. I also would not be surprised if some growers will not have the credit available to plant a crop next year or, at the very least, put great pressure on a grower’s ability to effectively cash-flow expenses during the season.

On the other hand, the recent economic upheaval has produced some very positive effects on our industry. The dollar has weakened, which has led to a more favorable situation regarding imports and exports. Further, eating out at restaurants has become more expensive, leading people to eat at home more, thereby increasing demand for fresh vegetable purchases for home food preparation.

In the area of challenges, I would have to say that there is a tie for our two biggest challenges: labor and rising costs of inputs. Regarding labor, hopefully it will be addressed by the incoming administration and the next Congress. Part of the problem is that a vocal portion of the agricultural industry has developed an almost religious devotion to the AgJOBS legislative proposal.

Regarding input costs, our production costs, especially in the last two or three years, have skyrocketed, especially fertilizer. Seed costs, fuel, land rent rates, pesticides, and labor rates, have all been rising, too. To deal with it I’ll have to be extremely judicious in my production decisions.

Judith Redmond

Partner
Full Belly Farm, Guinda, California

There is uncertainty regarding the current economic upheaval and how it will affect organic farmers that sell into regional markets. If retailers and wholesale distributors that sell into these markets experience declining sales, the impact of the recession could be significant on farms like mine. Our current customers are aware that fresh, organic produce is a smart purchase in terms of achieving the best quality and nutrition per food dollar spent. However, reaching new customers could be more challenging because of the perception that organic produce may be more expensive. Increased outreach to consumers regarding the nutritional and economic benefits of cooking their meals at home from fresh, seasonal products could help to continue the expansion of the local, fresh produce market.

Maintaining a price to the farmer that keeps up with rapid increases in the price of production is always a challenge, but with increasing energy costs, disruptions in critical resources like water, new regulatory challenges, and uncertainties in labor markets that are likely to take place in the coming year, it will be very important for farmers to explain to buyers why farm gate prices may need to rise. Note that the price to farmers is generally a very small portion of the cost of food.

Jon Vessey

Owner
Vessey and Company, Inc., Holtville, California

The current economic situation will have an impact on agriculture but not to the degree of other industries. Certainly the food service segment of agriculture will feel the effects. People will not be eating out as much as they have in the past, but they will still be eating! Our cost of production (fuel and fertilizer) spiked in October, but we are now getting back to prices from a year ago. All in all, the fresh produce industry has a bright future. We offer a relatively cheap product that is healthy, fresh, and safe.

To increase the consumption of fresh produce, we need to do a better job of telling the consumer the benefits of fresh produce. Country of origin labeling has helped. Consumers want to know where their produce originated. With leafy greens, we have given the consumer what they have wanted — confidence.
It’s just not that easy to do what we do; put a seed in the ground and harvest it a couple of months later. We have to deal with water, food safety, labor shortage, shrinking margins, dust control, sustainability, recalls, urban sprawl, globalization, wildlife, weather, credit, AgJOBS, transportation, workman’s comp, product liability, health insurance, retail consolidation, and much more.