of the University of California
AgInfo / March 18, 2020
“You do have to think about it commodity by commodity. Which ones are most sensitive to income? Which ones aren’t? Let me just give you a quick example from the wine industry. […] So you could have the central valley wine industry be better off at the same time, the coastal wine industry is hurt. And we saw that in a recession 10 years ago.”
Public Policy Institute of California / February 18, 2020
It is important to recognize that global markets and climates interact, and so what economists call “comparative advantage” remains crucial to economic success. Let’s say climate change makes table grapes more expensive to grow here or moves the season earlier. But if climate change affects Mexican growing conditions even more, climate change could cause grapes to become more profitable and therefore expand in California. The crucial issue looking forward is what will grow well in California compared to other places and compared to other crops.
Dan Sumner
UC Agriculture and Natural Resources’ Agricultural Issues Center has released four new studies detailing the costs and returns of wine grape production in the southern San Joaquin Valley. All four cost studies illustrate the cost and benefit of nearly full mechanization on wine grape production.
The studies estimate the cost of establishing a vineyard and producing wine grapes, focusing on four wine grape varieties – Cabernet Sauvignon, Chardonnay, Rubired and Colombard.
“Those studies take into consideration mechanical pruning, leafing, shoot thinning, and harvest on a typical wine grape vineyard with the average production level for this region,” said George Zhuang, UC Cooperative Extension viticulture advisor in Fresno County.
“With farming labor becoming more scarce and expensive, growers will opt to transition into more mechanization,” Zhuang said. “These studies provide detailed information about the trellis type, planting density, cost and potential benefit of vineyard mechanization. Based on these studies, fully implemented mechanization reduces the production cost from $3,000 to $2,500 per acre and that represents 17% cost reduction. This information will ultimately help growers to guide their production practices to more profitable and competitive ways under the new era of farming labor.”
Wine grape growers should look at the costs, particularly expenses associated with mechanization, Zhuang said.
“The investment to purchase and own equipment can be high,” Zhuang said. “Fortunately, it is easy to find a contractor in this region to perform certain vineyard tasks, if the initial investment to purchase equipment is prohibitive.”
Numerous studies, including UC studies, have confirmed the benefits of vineyard mechanization to grape and wine quality with lower production costs.
“It is a win-win-win situation,” Zhuang said. “Growers can improve their farming margins, wineries and juice processing plants can get reliable and higher quality grapes and juice from farms, and average consumers can enjoy better wine and more healthy grape products at an affordable price.”
The studies are based on 200-acre farms with the vineyard established on 40 acres using two types of trellis systems – quadrilateral cordon system and bilateral cordon system. In addition to regular grape production expenses – such as irrigation, fertilization and pest control – the researchers broke out the differences between machinery costs and hand labor hours required for thinning, pruning and harvesting for each variety.The prices for labor, materials, equipment and custom services are based on October 2019 figures.
The California minimum wage law will gradually decrease the number of hours employees can work on a daily and weekly basis before overtime wages are required. For more information and to view the California minimum wage and overtime phase-in schedules visit cail.ucdavis.edu.
Input and reviews were provided by UC Cooperative Extension farm advisors, specialists, grower cooperators and other agricultural associates. The authors describe the assumptions used to identify current costs for wine grape establishment and production, material inputs, cash and non-cash overhead. A ranging analysis table shows profits over a range of prices and yields.
The new studies are:
All four winegrape studies can be downloaded from the UC Davis Department of Agricultural and Resource Economics website at https://coststudies.ucdavis.edu/. Sample cost of production studies for many other commodities are also available on the website.
For additional information or an explanation of the calculations used in the studies, contact Donald Stewart at the Agricultural Issues Center at (530) 752-4651 or destewart@ucdavis.edu.
For information about local grape production, contact George Zhuang, UCCE viticulture advisor for Fresno County, at gzhuang@ucanr.edu; UCCE viticulture specialist Matt Fidelibus at mwfidelibus@ucanr.edu; UCCE viticulture specialist Kaan Kurtural at skkurtural@ucdavis.edu; Karl Lund, UCCE viticulture advisor for Madera, Merced and Mariposa counties, at ktlund@ucanr.edu; or Gabriel Torres, UCCE viticulture advisor for Kings and Tulare counties, at gabtorres@ucanr.edu.
UC Agricultural Issues Center has released new studies estimating the cost and returns of establishing an almond orchard and producing almonds for three growing regions of California.
“These cost studies are valuable for agricultural producers all along the continuum – growers considering entering into a new crop production business, less experienced growers, and those with decades of experience,” said Emily Symmes, UC Cooperative Extension integrated pest management advisor for the Sacramento Valley. “The information in these cost studies allows growers to evaluate their production practices and associated costs relative to an exemplary hypothetical orchard specific to their geographic region, and can help with development of business models, crop insurance and lending.”
In 2018, almonds ranked third among California commodities with almond growers receiving nearly $5.5 billion in cash receipts.
The cost analyses are based on hypothetical farming operations of well-managed almond orchards, using cultural practices common to the region. Local growers, UC Cooperative Extension farm advisors and supporting agricultural representatives provided input and reviewed the methods and findings of the studies.
“The recent almond updates for the Sacramento and San Joaquin valleys reflect costs associated with the continually evolving conditions facing agriculture,” said Symmes, who co-authored the almond cost studies. “Some of the notable updates include labor, irrigation and pest management costs – all integral to producing and delivering a high-quality crop.”
The researchers based one study in the Sacramento Valley, one in the northern San Joaquin Valley and the other in the southern San Joaquin Valley.
The southern SJV study is based on an orchard that uses double-line drip irrigation, whereas the other two locations use microsprinkler irrigation. All are multi-year studies, estimating costs from removal of the previous orchard, through almond orchard re-establishment and the production years. The economic life of the orchards used in these analyses is 23 to 25 years.
Navel orangeworm (NOW) is a major pest in almond production; Symmes and her co-authors describe in detail the pesticide applications and winter sanitation methods for each location for NOW control and include the costs.
The authors describe the assumptions used to identify current costs for orchard establishment, almond production, material inputs, cash and non-cash overhead. A ranging analysis table shows net returns over a range of prices and yields.
The new studies are titled:
The studies are available for free download at the UC Davis Department of Agricultural and Resource Economics website at https://coststudies.ucdavis.edu/. Sample cost of production studies for many other commodities are also available on the website.
For additional information or an explanation of the calculations used in the studies, contact Donald Stewart at the UC Agricultural Issues Center at (530) 752-4651 or destewart@ucdavis.edu. To contact a local UC Cooperative Extension advisor, find the UCCE office in your county at https://ucanr.edu/About/Locations/. The Agricultural Issues Center is a statewide program of UC Agriculture and Natural Resources.
The California State Board of Food and Agriculture will hear a presentation from the UC Agricultural Issues Center on California’s Agricultural Future and have updates on CDFA’s CalCannabis and Farmer Equity programs at its upcoming meeting on Tuesday, November 5, 2019. The Board will also hear from the U.S. Farmers and Ranchers Alliance. The meeting will be held from 10:00 a.m. to 2:30 p.m. at the California Department of Food and Agriculture, 1220 N Street – Main Auditorium, Sacramento, CA 95814.
AIC Project Scientist William A. Matthews and Director Daniel A. Sumner and have released a new study, “Contributions of the California Dairy Industry to the California Economy in 2018.”
Sumner followed remarks of Lt. Gov. Eleni Kounalakis, and was joined bu UC Davis Economics professor Katheryn Russ, who focused on macroeconomic impacts.
Click here for a video of the full assembly committee session.
California agriculture has faced particular challenges from the trade turmoil over the past two and a half years. Open access and stable relationships are important because California agriculture relies heavily on exports. About 25% of what we grow in California exported. The ratio is much higher for some products such as tree nuts. Moreover, imports on which new tariffs have been placed, whether steel and aluminum or other goods, are used as imports on farms and food processing and higher costs, such as for canners, translate directly into lower prices for processing tomatoes and other fruits and vegetables and for other farm raw materials.
Some of this turmoil has been caused by US tariffs and international responses to US tariffs. However, it is important to realize that concerns have been caused as well by responses to threats and counter threats that cause market responses and instability even if the threatened actions do not materialize. For example, when the threat that NAFTA might be revoked was first raised by the new administration, buyers in Mexico and Canada of California dairy and other products began considering diversifying their import sources of supply in case imports from the United States might be disrupted.
The UC Agricultural Issues Center (AIC) produces data on exports of farm products from California. Those data document export value of more than $20 billion in recent years. The most recent full year of data is 2017. The three charts on the next page provide basic facts. California farm exports span a large range of products led by almonds, dairy products, pistachios, wine and walnuts. California farm exports are shipped to dozens of significant destinations led by the EU and Canada, with China/Hong Kong now well ahead of Japan. Important industries differ on their export reliance. The tree nuts and rice all have export value more than 50% of farm value of production. For dairy, processing tomatoes, grapes (wine, raisins and table grapes) and oranges, exports are in the 20% to 30% range. Produce items, such as strawberries, and including the other fresh fruits and vegetables, have smaller export shares and export mostly to Canada.
As is evident from these charts, many California agricultural products are vulnerable to export turmoil. This is especially true for products with large export shares and those that tend to go to markets have face new impediments or are likely face new trade impediments. Such concerns are broader than just exports to China. For example, just last week, after concerns about termination of NAFTA had largely faded, the President renewed treats of tariffs on imports from Mexico, which would invite retaliation. Mexico is a major buyer of California milk powder and other products. Again, buyers in Mexico are stimulated to source their dairy imports from New Zealand or other places, even if they have highly-valued suppliers in California.
Last summer and fall our group at AIC, prepared some calculations of potential losses to some California commodities based on estimates of lower prices that would be caused by export disruption in markets that had implemented tariff and other trade restrictions in response to US tariffs. These trade disruptions has been broader than China and include important destinations such as Turkey, India and Mexico. We have monitored events that have played out over the course of the marketing year in subsequent months.
Several basic facts and notions are needed to interpret the impact on farm commodities. First, much of what we export from California is commodities from trees and vines that continue to produce even if markets are in turmoil. A farmer cannot layoff an almond tree and turn off a milk cow when market prices decline. Second, it is complicated to rearrange export destinations and that means exporters face lower prices when some markets are removed from effective demand. These two points are well illustrated by the walnut trade situation. Exports to markets for which new import barriers are in place have fallen substantially. As a result, export prices were about 60% higher in 2017/18 than they have been this year (see the chart on the next page).
Different commodities have been affected differently. California hay exports to China have fallen from about 30% of the total export to about 20% for the year from April 1 to March 31, with average monthly export quantities well below the pace of 2016 through early 2018. California wine exports this year are also well below recent years by both volume and value.
Finally, let me use the case of pistachios to illustrate some complexity in the interpretation of agricultural trade data. In the fall of 2018, California had a large pistachio crop with more bearing acreage and good yields. With new tariffs and trade impediments for a crop that relies on exports, and especially exports to China (mostly via Hong Kong and Vietnam), we anticipated low pistachio prices. What was not in those calculations was the subsequent information that Iran, the only other significant exporter, had by far its smallest pistachio crop in many years. Iranian exports have dropped to about zero for this marketing year. The result has been that pistachio prices have been relatively stable.
However, stable prices does not mean that the California pistachio industry has not suffered a loss from trade disruption. In fact, the 2018-19 marketing year would have been far better, but for the government-caused trade disruption. The industry would have been able to recover from the low yields of recent crops and build reserves by capitalizing on the low Iranian exports. Agricultural production and price variability means farm industries must make the most of every good opportunity. The trade turmoil has lowered the revenue of the pistachio industry relative to what it would have otherwise been able to achieve.
The bottom line is that across
California agriculture farm industries face higher cost inputs and diminished
export demand for their products and prices lower than would have prevailed.
The marketing year still have many months to go, so we do not have final
estimates yet, but much damage has already been done.
Many had hoped that the trade turmoil just summarized would be history by now. But, problems have continued and by some measures have gotten worse. The recent announcement of new U.S. tariffs on Mexican imports into the United States reignited concerns about that crucial market.
The USDA has announced assistance for farm industries that have documented losses and many California industries are in line to receive some benefits. For the industries with losses something is better than nothing, but all the industries from whom I have heard say clearly they prefer trade to aid. Government assistance is no substitute for lost trade opportunities and the loss of their reputations as reliable suppliers.
The basic principle is that prosperity for agriculture is best stimulated by the opportunity to compete for markets with as few barriers and as little disruption as possible. Agricultural in California is innovative and resilient. It can and will adjust to the economic situation, but there are plenty of other issues and adapting to this trade turmoil adds an unnecessary burden.
The United States has legitimate complaints about China’s policies. But, governments can be most effective by using dispute settle processes in now well-established institutions (such as NAFTA and the WTO) that provide frameworks for stability. The United States has had much success in the WTO as in two recent agricultural cases brought against China. The WTO would be a natural forum for the U.S. and its many potential allies to pursue their claims against China.
The Assembly Select Committee on International and Regional Agreements and the Standing Committees on Agriculture and on Jobs and Economic Development are convening a joint informational hearing from 1:30 to 4:00 p.m. on June 4, 2019, to provide insights the impact of the U.S. trade dispute with the People’s Republic of China on California and key economic sectors in the state.
I. Welcome, Introductions, and Opening Statements –
II. Keynote Remarks — Invited: Lt. Gov. Eleni Kounalakis –
III. State Impacts –
Economic Implications for California
IV. Key Sector Impacts –
California Association of Port Authorities – Confirmed: Tim Schott, Executive Director
V. Public Comment –
VI. Closing Remarks –
The Galt FFA Agricultural Issues team, which worked with us at AIC a few weeks ago, recently won the California State Championship! They explored issues related to the Sustainable Ground Water Act.
Team members are Mia Arisman, Gabrielle Martin, Maico Ortiz-Hinojosa, Jose Santos Madison Sweat, and Nathan Villalobos.
They are preparing to represent California at the National FFA Convention in October in Indianapolis.
Congratulations to the team members, their teacher and coach Mr. Dane White and all of Galt High School.
Among California’s agricultural commodities, cattle rank fifth in revenue. The University of California Agriculture and Natural Resources’ Agricultural Issues Center has released a new study showing the cost and returns of a beef cattle operation.
“Ranchers can use UC beef-cattle cost studies to guide their production decisions, estimate their own potential revenue, prepare budgets and evaluate production loans,” said Rebecca Ozeran, UC Cooperative Extension livestock and natural resources advisor for Fresno and Madera counties.
The study estimates costs and returns of a representative owner-operated beef cattle operation located on rangeland in the Central San Joaquin Valley and foothills of Madera and Fresno counties. The study describes a 200-head cow-calf operation and includes pasture costs on the basis of the rental per animal unit month.
The analysis is based upon a hypothetical cow-calf operation, where the cattle producer both owns and leases rangeland. The “typical” ranch in the Central San Joaquin Valley is an owner-operated cow-calf operation, often relying on multiple private leases. The operations described represent production practices and materials considered typical of a well-managed ranch in the region.
Input and reviews were provided by ranch operators, UC Cooperative Extension farm advisors and other agricultural associates. The study describes in detail the assumptions used to identify current costs for the cow-calf herd, material inputs, cash and non-cash overhead. The cost calculations in this study are based on economic principles that include all cash costs and overhead costs. The study also includes a “ranging analysis” to show potential net returns over a range of market prices. Other tables show the average costs and revenues, the distribution of monthly costs and revenues over the year, and the annual equipment, investment and business overhead costs.
“In addition to producing meat, cattle play an important role in California’s landscape and environment by grazing on vegetation that could fuel wildfire,” Ozeran said. “Ranching therefore has ecological and social impact on rural and fire-prone communities. If we can help ranchers remain economically viable, then we help support local stewardship of productive natural landscapes and contribute to fire resiliency and food security.”
The new study, “Sample Costs for Beef Cattle, Cow-Calf Production – 200 Head Operation, Central San Joaquin Valley – 2019” is authored by Ozeran, Donald Stewart, staff research associate of the University of California Agricultural Issues Center; and Daniel A. Sumner, director of UC Agricultural Issues Center.
This study and other sample cost of production studies for many commodities are available for free download at https://coststudies.ucdavis.edu. The program is supported by UC Agriculture and Natural Resources, including both Agricultural Issues Center and UC Cooperative Extension, and the UC Davis Department of Agricultural and Resource Economics.
For more information, contact Stewart at (530) 752-4651 or destewart@ucdavis.edu. To discuss this study with a local UC Cooperative Extension farm advisor, contact your county UC Cooperative Extension office https://ucanr.edu/About/Locations or contact Rebecca Ozeran at (559) 241-6564 or rkozeran@ucanr.edu.
A team of students from the Galt High School FFA recently visited Dan Sumner, Department of Agricultural and Resource Economics (ARE) distinguished professor and director of the UC Agricultural Issues Center (AIC).
The students visited Sumner in the AIC to present their entry for the FFA Agricultural Issues Forum Leadership Development Event, and hear his suggestions. Sumner explained that this annual FFA competition has students pick an agricultural issue, then present all sides. The Galt High School students chose the Sustainable Groundwater Management Act. Sumner relayed that one student took on the role of moderator as the other students took on personas of people on various sides of the issue, such as farmer, environmentalist, rural community leader, etc.
“The students were very articulate, smart and thoughtful,” Dr. Sumner said, adding that UC Davis is a great resource for students interested in pursuing agricultural economics, and he enjoys and encourages such requests for interaction as the Galt High School teacher makes for his FFA students each year.