They need to raise their wages, pay what it really costs for labor.
And as a bonus, the increased costs will provide an incentive for future automation.
Even if you multiply the cost by 5 to cover markup as it goes through the chain (of distribution), you have... $2.50 going to $2.75, or ten percent more at retail. Not shocking.
For full disclosure: I've worked about 15 years in hospitality industry and have quite a few work acquaintances in supply chain, as well as chefs and restauranteurs.
Most folks that are commenting here are living in la-la land with some of the absolutely absurd math and opinion that do not tie into reality.
Lets get some baselines going before I unpack the horse shit being said here.
1. Which agricultural concentration has the most migrant/day laborers? Citrus[0] and other labor intensive crops (sugar cane, corn, cotton, etc.) hire the majority of migrant labor. Majority (78%)[1] of seasonal agricultural jobs are performed by folks who are not from the Unite States.
2. What is the average profit margin, per acre, for agricultural farms (that sells for human consumption)? It's shit [2] - like most freaking farms are barely making it...Farms that have a GCFI (Gross Cash Farm Income) of 5,000,000+ should be doing well, however, about 25% of them are in the critical zone of going out of business. Farms with a GCFI less then 500,000. But hey, maybe that government agency has their head up their ass and don't know shit. Lets take a look at studies by Purdue University and Department of Agriculture and Consumer Economics University of Illinois[4]. To make life easier, heres a summary: according to Purdue estimates, on average, farmland has $114 to $227 return per acre. University of Illinois project returns from $200 to $100 per acre.
3. What is the general wage for Migrant Worker? From [5] this study on an orange farm,workeers can expect $16.92/hr that operate machinery and $13.75/hr for general purpose.
4. What percent of overhead is labor? [5] Page 9. Labor accounts for 41% of overhead for an orange farm. This is a industry standard for all labor intensive agriculture production [6], which are listed as: fruits, vegetables, and nursery products.
Great, now that we have some baselines. Lets dig into some math.
According to a previously mentioned study [5], an orange farm that has been established for 10+ years can expect 550 packed cartons of oranges, that weight 37.5 pounds. This represents 80% of the annual crop. The rest of the crop is used for juices and fillers. That 20% accounts for an astronomic $0 return. In most cases, breaking even is considered a win.
Focusing on the 80% of the crop that does bring in money, what are the economics? (this is taken from Ref Doc #5, page 22) It's shit! How shit? well, if the average cost of a carton of oranges is $12 and you gather 700 cartons per acre, your NET RETURN PER ACRO ABOVE TOTAL COST is -1,156...huh? Wait, you just lost money...
How about if we take that number up a notch and sell our beautiful oranges at $15/carton? Well, on 700 cartons gathered per acre you have now achieved profitability of 944 per acre.
But how does this affect the consumer? Well, my curious conversant, a 5lb bag of Navel Oranges is currently selling for $6.48 at Walmart[7]. For comparison, a store in Illinois is selling 4lb bags of oranges for $3/per[8].
So a carton of oranges is being sold, at the highest range of the study [5] is $15/carton. A carton is 37.5 pounds, which means I can get a bit more then 9 bags of 4lb orange bags, that I will sell for $3/per. Which means I will generate a gross of $27/carton.
After reading this, please, do tell me again, how raising wages to $20/hr is going to cause lettuce to go from 2.50 to 2.75?
[0] https://www.reuters.com/article/us-usa-immigration-farms/agr...
[1] http://nfwm.org/education-center/farm-worker-issues/farm-wor...
[2] https://www.ers.usda.gov/amber-waves/2015/januaryfebruary/pr...
[3] http://agribusiness.purdue.edu/blog/understanding-the-margin...
[4] http://www.farmdoc.illinois.edu/manage/2015_crop_budgets.pdf
[5] https://coststudyfiles.ucdavis.edu/uploads/cs_public/19/d4/1...
[6] https://www.ers.usda.gov/topics/farm-economy/farm-labor/
[7] https://www.walmart.com/ip/Navel-Oranges-5-lbs-Bag/44391069
[8] http://waynesmarket.net/shop/247-4-lb-bag-navel-oranges.html
Variables: original cost of labor $8/hour, new cost $20/hour.
As well, trucking is a big industry and I haven't considered paying the truckers more, either.
Look at this video: https://www.youtube.com/watch?v=oxbJVqfIK1U and time the total handling time of 1 head of iceberg lettuce (the round head kind).
Worst case scenario: each head is handled total for about 15 seconds, from cutting or pulling it off its stalk on the ground, quickly removing loose leaves, placing in bag, then sealing the bag and putting into boxes placed on skids.
Thus we have (rounding up, allowing for breaks, turns etc.) 20 seconds per head, 3 per minute, 180 per hour.
$8 / 180 = 4.4 cents of labor per head. $20 / 180 = 11.11
OK, I am off in what I remember ... about 7 extra cents per head of lettuce vs. my remembered 5 cents.
A ten percent increase across an entire grocery bill might be more noticeable though. Likewise with the cost of eating at a restaurant if all workers are paid more (i.e. the $15/hour movement).
Personally I am not opposed to paying the actual costs instead using immigration and government subsidies of crops like soybeans and corn to lower the costs for some farmers.
I think everyone would prefer that.. but this is a problem the farmers created themselves. They've been using migrants for so long, that they've created a substantial difference in pay between themselves and the rest of the labor market. And with a sudden change in the supply of migrants, they're now trying to figure out what that difference is--what the true cost of labor is for their industry.
If they never relied on migrants, they would already know the answer to this question.
How do you explain why its so much cheaper to buy quality food in European countries?
When I am in France or Austria, quality butter, eggs, fresh egg pasta, salami, and milk are all very inexpensive. Quality cultured butter in the US is especially expensive. (Mache in the US is also extremely expensive compared to France but that's a demand thing afaik. I don't remember the price diff of spinach.) Even Switzerland had better prices than the US when I was there for quality animal products.
In 2014 the US was spending ~ 6.5% of household expenditure on food, on the lower end compared to the listed European nations (Germany, France, Italy, and Greece in particular).
There are many other links with a similar premise.
My own travels have taken me to Spain, Denmark, France, Germany, England, Australia, New Zealand, Vietnam, and Canada - other than Vietnam I've always found prices to be comparable or greater than in the US. Obviously the cost is influenced by what you are buying, what is in season, and where you are a shopping. YMMV though!
If you buy products that normal Americans do not wish to buy, they will of course be expensive. I think your definition of "quality" is something like "as sold in Europe" or possibly "organic".
Stores seek to offer both affordable products and aspirational products. If there is no legitimate way to offer a better product than the standard one, some nonsense will be created. You'll get a fancy wrapper, arbitrary restrictions on how the product is made, and so on.
For this reason, you can get specially marked non-GMO salt. It's salt. Of course it doesn't contain genetically modified organisms! You are still welcome to pay extra for it.
(It has probably been a few years, but the point stands: the cost of labor is a small portion of the cost of food.)
Well, clearly you can pay them better with an even smaller increase, it's just a question of how much better; without quantifying that, commenting about how much the cost increase would be to achieve it is meaningless.
Of course, in any case, farm workers aren't the whole cost of labor in the farm-to-shelf pipeline, either.
Some of smaller organic farms don't hire external workers for labor. They are more expensive, but not that much more expensive.
That being said, due to the currency leveraging, many central American economies, cultures, and peoples have suffered from the illegal immigration as well.
In addition, higher prices might make us less wasteful. What is it, 30% of food ends up in the rubbish bin?
Slow rises are fine, the economy will adjust, fast rises, say from eliminating a large portion of the workforce at once, will cause much more disturbances in the economy.
It's also hard to recruit workers to a gig that's temporary and seasonal. That can maybe be made up for in wages though.
I'm also curious about where the labor is required. Corn/wheat is mostly a machine based harvest, I assume there are few migrant workers there but I don't know. Is there analysis on where migrants end up on the value chain of farm products?
Also, while there's some talk of undocumented immigrants, I think there's also a legal seasonal-labor system in the US. Trump famously uses it to staff Mar-a-lago. How many migrant farm workers are under that system?
If you consider the existence of human labor undesirable then automation is always good.
If you consider jobs the end-goal of human existence then automation is always bad.
In all likelihood you're somewhere in between those, and whether automation is good or not depends on external factors. GP seems to lean more towards the "human labor is bad" side.
Actually no. But farmers have created a special problem for themselves:
In a normal industry, wages increase and over a period of time, technology and techniques are developed to reduce the use of labor.. increasing labor productivity and controlling costs. This increased productivity is what allows firms to pay high wages.
In the farm industry, this hasn't occurred. Instead of increasing wages (and stimulating demand for new technology in their industry), they would simply hire more migrants to do the work instead. And so farmworkers are now almost entirely migrants. They've been doing this so long, that they've lost decades of small increases in labor productivity that would have normally occurred (and has occurred in virtually every other industry.. which they are competing with for labor).
So while part of the answer is to increase wages to attract US workers... increasing labor productivity is also required. I think farms would find it quite difficult to compete in the US labor market, while depending on practices that have not been modernized.
We know farm productivity can be increased.. where there's a real cost (the farmers themselves), plenty of tools have been created. But in the specific area of picking, migrants have been used instead.
They can try to soak up the shrinking pool of human laborers as new entrants avoid entering the field, because they don't want to compete with robots.
Or they can start building the robots.
If they don't seek productivity gains, a well-capitalized startup can eat their lunch by shoving productivity gains from other industries down the throats of agribusinesses. We already have robots that can differentiate between weeds and crops in a flat in the lab and kill the weeds by pounding them into the dirt.
It's going to start with rail-bound robots tending to niche specialty vegetables and pharmaceutical feedstock plants in hydroponic containers. It's going to end with cereal crop farmers committing suicide as the capital requirements for operating a competitive farm rise beyond their means.
Do you think cereal crop farmers are paying migrant workers with scythe's to harvest their grain?
"Or they can start building the robots."
What do you think a combine is?
"well-capitalized startup "
Is an angel investor going to compete with government subsidies?
A combine is already well beyond the ability of an individual grain farmer to replicate. The best they can do is buy commoditized combines. And those are only commoditized now because of the vast area devoted to cereal crops. The robots required for more specialized crops will be more expensive at first, until some patents expire, and even then the number of potential competitors will be limited by area under cultivation.
You cannot start a new cereal-crop farm without a hefty investment in capital. You just can't. At best, you would be renting other people's robots, and that might be costly enough to prevent you from ever buying your own.
An onion farmer may yet be able to build a better onion robot. If they do not, someone could invent one, and either eat up existing farmers' margins with rental fees, or simply start a new farm and undercut those existing farmers from lower labor costs. But that startup would need to have the robots.
A trunk-shaker harvester robot might be cheaper than human pickers, but they can damage trees and may cause damage to the harvested fruit. A robot equipped with a camera and a vacuum-assisted hand might outperform it for apples, but be useless for olives. The olive farmer might need a robot with flailing rods. It is still possible for an individual farmer to innovate their own robots specialized to a particular niche crop.
We're already seeing farmers in India committing suicide because they can't keep pace with the gene-edited seeds and robotic combines from industrialized farms. It seems inevitable to me that companies like Monsanto and John Deere will be able to squeeze individual farmers on a technology-yield treadmill such that if they ever miss a step, they fall off. And once they fall off, they can never find a way to get back on. Because they are not the people building the robots. They get left behind just as fast as everyone else not building newer technology.
The migrant workers were that automation. Farmers got the same labor for less cost that return many multiples the value to customers.