Five questions: An update on economic conditions in agriculture
| Thursday, Mar 26 2009 07:43 PM
Last Updated Monday, Mar 30 2009 04:22 PM
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Michael Swanson
Michael Swanson, senior economist and agricultural economist for Wells Fargo & Co., visited Bakersfield from Bloomington, Minn., Thursday for an agricultural forecast meeting. We took the opportunity to ask about economic conditions for local growers and ranchers.
Question:If we reduce or halt agriculture production because of the drought and economic downturn, overseas markets will likely step into the void. Will we ever get those customers back?
Answer:California products are not commodities, per se. That’s one of the reasons California agriculture has been successful. California differentiates on quality. So it really won’t be as big a problem as you might think.
Q.:Growers have always said they must use immigrant labor because there are not enough domestic workers willing and able to do the work. Has the recession and the unemployment rate changed that?
A.:The short-term answer is yes. With more people unemployed, more are willing to do agricultural work that maybe they wouldn’t have accepted two years ago in a better economic environment. But those people will leave when the economy improves, and even today, it’s not all about pay. If you have a choice between a $12 an hour job with a lot of stooping in the hot sun and an $8 job where you get to stand behind a counter, many people would prefer that $8 an hour job.
Q.:The prices growers and ranchers get for agricultural products have plummeted, but we still haven’t seen retail prices fall at the supermarket. Just the opposite, in fact, prices are increasing and portion sizes are shrinking. What explains that and when will the average consumer get some relief?
A.:That is probably the biggest heartache that all producers have. The problem is that dairy producers, for instance, are still producing raw milk. But consumers don’t buy raw milk. They buy processed milk in a bottle, or eat Asiago cheese shredded and sold in a Ziplock bag. Consumers shop based on packaging and flavor and variety and convenience. So it’s the food manufacturers and retailers who are taking those profits.
Producers don’t want to hear this, but that leaves them one of two options. Figure out a way to produce more with fewer resources to increase their profit margins, or get into value-added agriculture and start manufacturing.
Q.:Dairymen are proposing a drastic reduction of herds because of low milk prices, but cattlemen are understandably wary. Is there a happy medium?
A.:The reason why we have this overproduction of milk is a lot of cows were added because of an explosion of growth in the export market. There was a weaker dollar, a drought for a major competitor, New Zealand, some changes to E.U. (European Union) policies. But now New Zealand’s coming back with better weather, and the global economic downturn has reduced consumption in overseas markets. We have about 141,000 cows put in place to support exports that are no longer there. Those cows have to exit the market. The question is, whose cows and when?
Q.:The Obama administration and Congress are backing very different federal budgets that will have to be reconciled. What would you like to see in the budget that prevails contain for agriculture?
A.:I would like to see it contain clarity in terms of food safety, trade issues and what kind of subsidy structure they will put in place. One thing that will hold back agriculture is uncertainty. Whoever the winners and losers are, they need to make sure they are certain and consistent so people can plan. Either take advantage of opportunities or adjust to additional constraints.
