Tension between costs and revenues will change how farms operate. To remain competitive, Slezak says farm consolidation will continue in the West. Smaller to mid-size farm operations will continually be absorbed by larger farms trying to economically compete in the world market. Small citrus operations in the 160-acre range are among the best targets for consolidation.

CDFA reports the total number of California farms has fallen about 2 percent — from 83,100 farms in 2000 to 81,500 farms in 2009. The average farm’s tillable acreage has decreased 10 percent since 2004 — from 347 acres to 312 acres.

To meet the increased demand for U.S.-Western farm products, agriculture must jump several major hurdles to supply more food and fiber: land, water, and fertilizer. Land and water availability will become more limited. Fertilizer is the only component which could expand.

Water supplies are tight and subject to greater regulation. Improved water and land efficiency must occur. Chemical and fertilizer production can grow but are subject to cost constraints including rising energy and phosphorus costs.

“The bottom line is creating greater efficiency in operations and innovation from farmers and the industries which supply agriculture,” Slezak said.

Working through these challenges mandates agricultural creativity — developing innovation and adaptive strategies throughout the food chain.

“Farmers will see their business change and grow in ways they had not anticipated. It will be up to the supporting industries to take advantage of that or not.”

Slezak expanded on particular trends in Western agriculture; particularly the ongoing shift from traditional staple crops to specialty crops.

“If your farm is based on traditional crops, this will change,” Slezak said. “Since the costs of workforce, water, and regulations are going up, margins must increase and specialty crops offer larger margins to help offset those costs.”

Agricultural producers will focus more on the ‘competitive advantage’ — producers finding a production niche to excel in production, lower costs relative to revenues, and better manage margins.

Volatile financial markets will lead lending institutions to expect farmers to better manage margins.

"Instead of having a specific revenue target, one of the prerequisites of good credit worthiness will be maintaining a margin within a safe zone,” Slezak said. “Farms will have to manage revenues and be more cost sensitive in the future.”