Many small farmers are struggling with low commodity prices in California, eroding their ability to absorb rising regulatory costs and weather market uncertainties.
“When we're talking about losing 10-plus percent of our farmers in a very short window, that's significant, and that was before the commodity prices are what they are now,” said Shannon Douglass, president of the California Farm Bureau, in a presentation to the State Board of Food and Agriculture at its recent monthly meeting. “Frankly, we're dealing with an increased regulatory burden all the time.”
Douglass described a recent economic analysis the farm bureau performed in partnership with its national counterpart that showed the state is steadily losing farmers. She pointed to a 2018 paper from an agribusiness professor at Cal Poly San Luis Obispo revealing an 800% increase in regulatory costs over the past decade—before the implementation of landmark new regulations on groundwater management and agricultural overtime pay, among many other policy impacts.
“We then can't be surprised the same farmers we lost are the small and socially disadvantaged farmers,” said Douglass.
California’s wine industry—which boasts $170 billion in indirect economic benefits to the nation and represents the third most planted crop in the state—has experienced dramatic market volatility in recent years. A surge in consumer spending during the pandemic led to a false sense of hope in curbing a years-long trend of declining sales as the primary demographic, baby boomers, continues to shrink in size, according to Jeff Bitter, president of Allied Grape Growers.
Jeff Bitter, Allied Grape GrowersWhile inflation, labor and input prices have driven up operational expenses for winegrape growers, commodity prices have not kept pace, remaining relatively flat for the last two decades, explained Bitter.
With consumers buying less wine, inventory has backed up at the distributor and warehouse level. Retailers and wholesalers are reluctant to carry the inventory, switching to just-in-time modeling, since inflation has pushed the cost to store wine from 6% of their operating profits a few years ago to about 16% today.
“We're on the defense in this industry. Folks are making decisions that are very conservative in nature,” said Bitter. “That all rolls down to the grower and the production level.”
With no market for the wine, an estimated 400,000 tons of winegrapes went unharvested last year, and Bitter expects a significant amount again this year. Shipments have declined about 8% each of the last two years, creating a long-term oversupply issue and pressure to cut as much as 50,000 bearing acres to rebalance the market, which Bitter anticipates will happen by 2026.
“Unfortunately, the reason those removals are going to be happening is because growers are going to be going out of business,” he said. “They're not going to be able to pay bills. They're not going to be able to sustainably farm their winegrape vineyards.”
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Neill Callis, who manages the Turlock Fruit Co. and serves on the board of directors at the Western Growers Association, was just as apprehensive about the future for melon farmers.
“We are all very anxious,” he said. “What is next season going to be like, given that not a lot of specialty crops are making money right now?”
Callis was relieved to see the Legislature enact new reforms last month to the Private Attorneys General Act to curb a decades-long trend of so-called frivolous lawsuits. Yet other labor issues persist. The minimum wage has increased 60% since Bitter entered the industry 12 years ago, and he projects the trend will accelerate consolidation over the next 10 years.
“A lot of smaller farms will not be able to make it,” he said. “You'll have a lot of medium-sized farms, 3,000 acres and up, that are going to look at it and go, ‘You know, that private equity buyout looks like it makes sense. Let somebody else deal with the headache’.”
He called it a tremendous concern for the health of the industry and a lost opportunity for young, motivated farmers to start their own operation.
Bitter also lamented that water has become too expensive. While raising B.F. Sisk Dam to store more water in the San Luis Reservoir should be a “slam dunk” for farmers looking to invest in storage, Callis’ district voted not to participate in the project due to the steep price of water that would result.
“That's troubling,” he said. “The spiraling cost of that sort of infrastructure is driving farmers out of the equation.”
Positive news, however, can be found in the ranching community, which struggled under low cattle prices at the height of the last drought as feed prices soared and operations raced to reduce herd sizes.
“Our industry is doing fairly well right now,” said Steve Arnold, president of the California Cattlemen’s Association. “We've had two really good years of rainfall back-to-back, which rarely happens. So we have a grass crop, and we have a market that we haven't seen in history.”
Yet policy hurdles remain. Like wineries, ranches have faced a wave of insurance cancelations due to wildfire risk while shouldering new water fees and cringing over clean energy costs, he said.
Arnold worried that grazing lands are “getting mixed up in” new basin designations, leading groundwater sustainability agencies to assess fees on extracting water for cattle.
“Those fees can go pretty high, because, obviously, they're controlling a pretty big amount of acreage,” he said.
The issue has come to a head in Butte County, where a local rancher has filed an adjudication lawsuit with CCA’s backing. The claim argues GSAs should only levy fees on extractors and not such de minimis uses.
Arnold was also apprehensive about the California Air Resources Board’s new Advanced Clean Fleets Rule and its sales ban on diesel trucks.
“That is never going to work with the technology we have now,” he said, reasoning that electric trucks hauling cattle are unable to crest the high passes of the Sierra Nevada. “Almost all our industry has absolutely depended on trucking.”
While high cattle prices have benefited ranchers, aging dairy farmers are seizing on that opportunity, selling off their herds to retire and exit the industry, according to Geoffrey Vanden Heuvel, director of regulatory and economic affairs at the Milk Producers Council. Volatile milk prices, compressed margins and negative returns have significantly deteriorated the financial health of dairy farmers and led to further consolidation, he explained.
Yet Vanden Heuvel looked back on the decades of regulatory and market pressures and recognized that they have propelled California’s farmers to “do more with less,” creating efficiencies that maintain milk production as the overall herd size steadily shrinks and that reinforce the state’s climate and environmental goals. Unlike other farms, dairies also supply reliable, year-round jobs, acting as an “economic engine” for local economies—which has not gone unnoticed, as other dairy states try to recruit California’s dairy experts.
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