Regulations cost citrus industry $203 million per year
New report estimates regulations will increase citrus farming costs by $700/acre
VISALIA – No one ever said citrus farming was easy, and in California, it will be increasingly difficult.
A recent report issued by Bruce Babcock, a professor at the School of Public Policy at the University of California, Riverside, quantifies the impact of regulations on production costs and competitiveness of the California citrus industry.
According to the report, California was the least business friendly state ranking 50 out of 50 for small farmers and small business due to high taxes on gasoline and income, and higher costs for electricity and labor, the latter seeing significant increases in the state minimum wage and the elimination of overtime exemptions. Funded by the Visalia-based Citrus Research Board, the study focuses on costs the industry is set to face over the next few years as new labor, food safety, and environmental regulations are phased in.
The total future increase is expected to be $701/acre or $203 million statewide. This represents about 6% of the total value of citrus produced in California. The biggest piece of that increase will come in labor costs. New labor requirements will increase costs by $112 million or $357/acre once minimum wage increases to $15 per hour in 2023.
“Because growing citrus is more labor-intensive than some other tree crops, future labor cost increases will likely lead to some substitution away from citrus towards other crops,” wrote Babcock, a Fellow of the Agricultural and Applied Economics Association.
California citrus farmers also have the unique cost of controlling ACP/HLB and the ripple effects of the Sustainable Groundwater Management Act of 2014. Efforts to control of ACP/HLB will increase costs by $65 million or $248/acre if area-wide control is extended to all citrus-growing regions. With 264,000 acres of citrus, area-wide control efforts to spray insecticides would amount to $39.5 million per year. To reduce the spread of psyllids, citrus growers are required to tarp their fruit as it is transported from the field to the packinghouse. According to grower estimates, tarping costs growers approximately $9 million per year.
Costs of controlling ACP/HLB puts California citrus at a disadvantage relative to other California crops; however, the cost is an investment in maintaining the competitive advantage that California has over other citrus growing regions that are infected with HLB.
“Cost increases borne by California’s citrus industry but not by other California crops or by other citrus-growing regions decrease the future competitiveness of California’s citrus industry,” stated the award-winning economist.
Compliance with environmental regulations not associated with groundwater sustainability is estimated to increase costs by $17.7 million or $67/acre of citrus. Under the Sustainable Groundwater Management Act (SGMA), groundwater basins in California have until 2040 to ensure they are recharging more water than they are withdrawing. Groundwater basins in the San Joaquin Valley, where most of the state’s citrus is grown, are already severely depleted.
“Without new surface water supplies it seems inevitable that some farmland that currently relies on groundwater will need to be fallowed to balance withdrawals with recharge rates,” Babcock stated.
If forced to fallow land, growers will choose to fallow land planted to their least profitable crops, which may be citrus unless HLB can be contained so that the fatal tree disease does not affect profitability.
In addition to labor, disease, and water concerns citrus farmers face additional regulations in the form of compliance training, estimated to total $7.5 million or $29/acre. The new training is part of the Food Safety Modernization Act (FSMA). Passed in 2011, the law requires mandatory record keeping, management and worker training about health and hygiene for fruit handlers, and testing of water. This means employers must pay $2,500 for them to become food safety certified, which represents a one-time cost of $7.5 million.