California agriculture is falling behind in the race to adopt new technologies to remain ahead of its competition. While the state’s agtech funding has dropped over the last two years, Arizona, Peru and other farming regions are investing heavily in expanding their specialty crop exports.
With the Western Growers Association taking the lead, the industry has sought to energize venture capital spending on startups attempting to tackle the industry’s labor crisis.
Many of the state’s commodities remain difficult to automate, particularly with harvesting delicate berries and stone fruits — a hurdle that is evident in the lack of startups scaling up to produce commercially viable products.
“All of these startups who raised money in the land of milk and honey in 2021 are now looking around and facing nuclear winter in real time,” said Walt Duflock, WGA vice president of innovation. “It is rough.”
Presenting his findings to the State Board of Food and Agriculture at the annual FIRA USA robotics conference last week in Woodland, Duflock painted an ominous portrait of Silicon Valley.
The number of IPOs in 2023 dropped 85%, leading venture capital firms to cut spending in half. Companies had found clever ways to avoid initial public offerings and the associated compliance requirements, shareholder equity and “a lot of folks you’d rather not deal with.” Having more private million-dollar companies than public is “not a good thing” for the innovation ecosystem and has led to fewer checks written for startups, according to Duflock. The only bright spot was a surge in artificial intelligence startups, pulling in $50 billion last year.
Food and agriculture technology has seen a 69% drop in funding over the last two years, which was mostly a rebalancing in the “overhyped” segments of alternative proteins and closed-environment agriculture. Duflock said fake meats have failed to sway consumers on taste while the energy bills for technologies like vertical farming have eroded profits in expensive states like California. Investment has plummeted from a 2021 peak of $53 billion to just $7 billion in the first half of this year.
Walt Duflock, Western GrowersThe outlook for farm labor costs was just as daunting. Duflock punched up the numbers and found agricultural employers spend, on average, $16.3 billion on wages for California’s 425,000 farmworkers every year, accounting for 850 million hours of work at $19 per hour.
“But it’s worse than that,” he said, pointing to research from Lynn Hamilton, an agribusiness professor at Cal Poly San Luis Obispo, who demonstrated an eightfold increase in regulatory costs over a 12-year span. “That's 2017 numbers.”
Hamilton found costs had risen from $109 per acre to $977, and Duflock estimated it’s likely closer to $1,200 today. Farmers are also leaning more heavily on H-2A guest workers, which drives up the hourly wage rate for the program by about 6% every year. Add in the required costs for housing and transportation and “you've got a rate with H-2A that is fast approaching $30 an hour” — and reliance on foreign workers is increasing.
Those costs, he concluded, have contributed to the loss of more than 4.6 million acres of farmland over the last 25 years. If that trend continues, it will amount to a loss of 9 million acres by 2050. That does not include a million acres of farmland taken out of production under the Sustainable Groundwater Management Act or the steep financial impact of transitioning to zero-emission equipment and clean energy sources under state mandates.
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If California “can’t automate its way out of this,” it faces a serious threat from Peru, he explained. Latin America and the Caribbean have had “a really good three-year stretch,” contributing 17% of global exports from 2022 to 2023. In 2022 South America hit $107 billion, while the U.S. was at $176 billion and down 11%.
Peru’s exports have skyrocketed from $465 million in 2000 to $10.6 billion in 2022. Over that time, California’s exports dropped 42% to land at $13.7 billion last year.
“Peru is doing very, very well,” he said. “We're going the wrong way.”
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The country “wants every single acre we are drop kicking out of the state with SGMA regulations.” They are doing that through a new $3.5 billion port, while California’s union-dominated ports have fought against automation and are “among the most inefficient in the world.” On a recent tour of Peru, one local grower told Duflock the port will significantly reduce the transit time for avocados to reach China and other export markets. The country is also investing heavily in public and private water storage facilities. And labor costs are just a fraction of California’s, with farmworkers receiving $4 an hour, a generous sum that drives a 99% retention rate.
Food and Ag Board President Don Cameron agreed, describing Peru’s growth as absolutely phenomenal and the agriculture as extremely productive.
A similar scenario has played out in Yuma. Nearly all of the Imperial Valley’s 60,000 acres of asparagus “went bye-bye,” with those companies shifting operations to Arizona, said Duflock.
Despite the pressure on markets and the downward trend with capital, he found glimmers of hope for California innovating its way out of the problem.
Automation sales for specialty crops are forecast to reach as much as $200 million this year and look to exceed $600 million over the next three years.
“We’re seeing the sales, we’re seeing the machines in the fields and we’re seeing the impact with numbers that work for grower economics,” he said.
John Deere has been active, acquiring Bear Flag Robotics and the precision spraying company Smart Apply Inc., while partnering on a joint venture with GUSS Automation on its unmanned spray system. Kubota Corp. has bought Bloomfield Robotics, which has developed imaging and artificial intelligence software for specialty crops. Carbon Robotics, known for its laser weeder, has raised $70 million in venture capital funding from NVIDIA.
“There are data points that are positive and there are segments that are good,” said Duflock. “But again, we need more capital.”
He pointed to a worrying sign with the “founders and builders” who drive the tech sector leaving California to pursue states with more business-friendly policies. Colorado has a third of the cryptocurrency banking companies, Virginia leads in data centers per square footage, and Arizona has welcomed autonomous car and truck companies. At the macro level, 352 companies with more than 100 employees have left California over the last decade.
In a separate panel discussion at the FIRA conference, Gabe Youtsey, chief innovation officer at the University of California Division of Agriculture and Natural Resources, was optimistic venture funds could rebound and describied the investments as cyclical in nature.
"But they're getting smarter," said Youtsey. "There was a lot of dumb money thrown at things in the earlier days."
He added that growers are also more tech savvy and adopting new technologies, noting the popularity of FIRA as well as the Salinas Biological Summit.
To Michael Miiller, director of government relations at the California Association of Winegrape Growers, Duflock’s points were a rallying cry for easing regulations on new automation technologies. He stressed that they are safer for workers and better for the environment, reducing inputs like water and pesticides.
Miiller said the European Union has been paying producers to dump wine to balance demand, while California winemakers are getting little help as the cost of doing business increases every year.
California Farm Bureau Labor Affairs Director Bryan Little singled out a 50-year-old Cal/OSHA regulation blocking the use of autonomous tractors and chastised policymakers for setting the state back by not fostering innovation.
“1974 called,” said Little. “They want their porkchop sideburns, bellbottom jeans and California’s driverless tractor regulation back, because it just doesn’t work in 2024.”
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