Lynn Hamilton and Michael McCullough, two agribusiness professors at Cal Poly, San Luis Obispo, recently published a study titled “A Decade of Change: A Case Study of Regulatory Compliance Costs in the Produce Industry”. Working with Poly students, they updated a similar study that had been done in 2006 and used the decade between 2007 and 2017 as their base. Bottom line – through their research it was determined that in a 10-year period, lettuce growers in the Salinas Valley realized a 795% increase in the costs associated with regulatory compliance. I want to emphasize this increase is only associated with meeting requirements imposed on these farmers through federal, state and local regulations – it does not include the rise in production costs (which, by the way, was stated at 24.8%).
I know that lettuce production is not a mainstay in Sonoma County’s agriculture industry, and granted the green leaf commodity group was under the microscope after the E. coli outbreak over 12 years ago; but I would venture to say that if a similar study was done on the dairy, wine grape or nursery product industry, we would see similar results. California farmers are reaching a tipping point where their cost of doing business and their inability to spike their product prices is making it hard to stay in business.
To put this in perspective, the 2007 twelvemonth average price for California farm milk paid to dairymen was $18.04 per hundred weight. This number DECREASED in 2017 to $16.50 per hundred weight. This represents roughly a 9% fall in the price of milk.
So, how do other food-related industries deal with increase in costs, regulatory or otherwise? In 2006 the average hamburger at fast food restaurants cost $1.19. Today, that burger will cost you $2.64 – and I would guess there is less meat on that patty. In a CNN Business article published in October 2018, Hershey announced that they were raising their prices on most of their candy bars, citing rising operational costs as the reason for the increase. Wouldn’t it be nice if farmers could pass their rising costs on to their buyers? (By the way, in 2007 a Hershey bar put you out around $1.10, but today it is hitting close to $1.50 per bar.)
Hamilton and McCullough’s report does an excellent job of breaking down the categorical increases in regulatory costs and lists all the specific assembly bills, mandates and policy changes that caused this abhorrent regulatory creep. The categories that hit closest to home for our local farmers are Air Quality requirements, Water Quality requirements, Department of Pesticide regulations, Workers Compensation, Affordable Care Act and requirements related to Labor Health & Safety.
For the Salinas Valley lettuce growers, and probably for all of California agriculture, the regulatory cost that takes home the trophy for having increased the most during the decade studied is Worker’s Compensation expenses. On a per acre basis, Workers Compensation costs increased by $59 per acre, which was followed by pesticide regulations at a rise of $23 per acre. Their study also showed that with the Affordable Care Act of 2010, a new category of regulatory costs was added to the expense ledger for our farmers. This penciled out to be $141.19 per acre for those producers interviewed as part of this study.
As you might guess, the minimum wage increases in California have contributed to the rise in regulatory costs to all employers, and agriculture was not spared from feeling the pain from the spike in payroll.
One aspect of the report that I had not considered before is the significant increase in staff resources required to complete reports, track results and mange paperwork that comes with regulatory compliance. Totally mindboggling!
What does the future hold? Well, rarely do you see a regulatory agency determine that the requirements put on producers is overreach and that they are going to discontinue or dial down a
regulation imposed on agriculture. And with regulations being developed around SGMA, a targeted interest in food safety requirements and the continued interest in enhancing employee health and welfare, the cost for regulatory compliance can only be expected to continue to rise.
I am starting to think that the Endangered Species Act needs to add a new species on their “Watch List” – and that would be the California Farmer.
To read the full Cal Poly study visit www.SonomaFB.org/resources