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Commentary: Costly regulations stress farms trying to stay afloat

Issue Date: December 15, 2021
By Norm Groot
Norm Groot

It's no secret that the bottom line for farms and ranches is getting thinner.

These past two years have brought increased financial challenges related to COVID-19 workplace requirements and disruption in the marketplace. Production costs will continue to increase for labor, supplies and services, while farm revenues will remain flat or continue declining.

Farmers know what it takes to grow and sell a crop and are price-takers generally. Few people outside farming understand the risks involved, including weather and pests. Yet consumers are quick to criticize the price of food by placing blame on the farmer, and public perception seems to be that food production doesn't require any profit.

That's a big threat to our farms and ranches. If operations are unable to maintain financial stability, there will be changes in farm ownership and land use. That will alter food production, destabilizing many farm and ranch operations.

A major peril for our business and way of life continues to be the dramatically increasing costs of compliance with regulations. For farms and ranches in California, that means nearly annual increases in regulatory burdens for air, water, logistics and workplace rules.

For example, here on the Central Coast, a new iteration of the Irrigated Lands Regulatory Program was recently adopted. It didn't seem to matter that a coalition of agricultural organizations, including county Farm Bureaus, funded an advance study to determine the economic impacts of this new regulatory program.

What the study projected is that financial impacts would exceed 5% to 6% of the costs of production, which the Central Coast Regional Water Quality Control Board characterized as "small." But that small amount could very well be farmers' margin per acre of crops produced.

Regrettably, the study was ignored during the adoption process for irrigated-lands regulations, under which farms are now facing significant increases in water quality monitoring and reporting.

All water users are additionally challenged to determine how to balance their resources under requirements of the Sustainable Groundwater Management Act. Plans will be submitted in January that have cost millions of dollars to develop and include management practices and potential water resource projects that will cost hundreds of millions.

Farms and ranches will be paying for plan implementation for the next 20 years, adding significant costs per acre or per acre-foot of water used. For the Salinas Valley landowners of small farms, this could be unsustainable.

Other regulations challenge farms and ranches each day. For instance, the constant need to retire and replace on-farm and on-road equipment that isn't even considered too old to operate is requiring significant capital. Small farms and ranches are being pushed into expensive investments that yield few benefits for their bottom lines—or for protecting our air quality.

Meanwhile, transportation costs continue to climb. As farmers depend on trucking for primary movement of goods, lowering driving hours creates artificial price increases. Much of these added costs, on top of fuel price hikes, are wiping out the margins for leafy greens and vegetable crops.

Workplace requirements for new paid-time-off benefits, increased costs due to COVID-19 worker safety and health claims, high worker-compensation rates, overtime rule changes and minimum-wage increases all add up to substantial overhead costs. Since many specialty crops are dependent on hand harvesting, increasing labor costs further hurt the bottom line.

Add in other costs of doing business—energy, trash hauling, water recycling, business permits and fees, fire emergency plans, hazardous waste disposal and more—and this becomes an untenable financial situation for many farms and ranches.

The Monterey County Farm Bureau commissioned an additional study on the regulatory cost burdens of lettuce producers on the Central Coast. What came back was an alarming 795% increase in regulatory costs from 2006-2017, while actual costs of production increased by 25%.

These spiraling costs underscore how California's business economics is hostile towards farm and ranch operations. Yet elected officials and activist groups continue to push more costs onto agriculture, forcing farms and ranches to make hard decisions to maintain financial viability.

While consumers surely prefer that small farms and ranches survive, the reality is driving agriculture in the opposite direction due to regulatory hurdles farms and ranches must clear to stay in business.

Small farms are giving up and leasing their land. Multigenerational farms are simply no longer sustainable, as cumulative regulatory costs help push more farm families into financial ruin.

If we truly desire a domestic food-supply system that produces the cheapest and safest products for our nation's dinner tables, our focus should be on public policies that support farmers and ranchers with the understanding that they must be profitable to survive.

Amid the pandemic, California declared farmworkers as "essential." Let's make sure that the farms and ranches that employ them and produce our agricultural bounty are also essential—and still in business.

(Norm Groot is executive director of the Monterey County Farm Bureau. He may be contacted at norm@montereycfb.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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