Although California is the leading agricultural state in the nation and one of the top six ag economies in the world, its onerous regulatory climate makes you wonder why anyone would want to get into the business of agriculture in the Golden State.

Location, location, location are not just the keys to successful real estate marketing, but are also why Bank of America senior vice president and agribusiness executive Cornelius (Corny) Gallagher says his bank is managing a pair of $100 million investment funds for people who want to invest in California agriculture.

Gallagher told the recent 24th annual Agribusiness Management Conference in Fresno that California is one of very few locations in the world where a Mediterranean climate allows farmers to grow just about anything and ship economically anywhere in the world.

“California has a strategic advantage in a number of crops; almonds, dairy, cotton, carrots and the list goes on and on,” said Gallagher.

Those strategic advantages are the future of California agriculture despite the fact the regulatory climate, particularly air and water quality regulators, targets agriculture.

“State air regulators cannot regulate cars” in a state of 36 million people that is growing at a rate of 600,000 people each year “so they try to regulate cows,” said Gallagher. One of the biggest air quality debates going on now is how much dairy cows contribute to poor air quality at the same time roads through the Central Valley are clogged daily with thousands of trucks and cars.

And regulators are basically ignoring the documented fact that at least some if not a major part of the central valley’s air quality problems are blown into the air-locked valley from the Bay Area.

Air quality regulators also are targeting farming with air quality regulations despite the fact that over the past 25 years, tillage operations have been reduced on valley farms as agriculture transitions from field crops to more permanent crops like micro-irrigated orchards and vineyards which require less tillage.

“I now spend 30 percent of my time on air and water quality regulations,” said Gallagher.

Opportunities abound

Regardless, Gallagher said California remains a land of ag opportunities with its specialty crops; growing awareness of the health benefits of many of the crops grown in the central valley; news products for changing demographics; the drive for more fresh products for food service and potential new revenue from generating energy from dairy and farm waste.

The world has long been California’s marketplace with 25 percent of the agriculture’s cash receipts ($8.2 billion) moving offshore. Fifty percent of its so-called specialty crops are exported and 18 percent for its field crops, according to Mechel Paggi, director at the Center for Agricultural Business at California State University, Fresno, one of the conference sponsors.

Paggi said the world will continue to be California’s marketplace, especially in developing countries where the demand for more and better food will play into California’s hands.

However, it will be more challenging in the future partly because of trade issues and growing food imports into the U.S.

“We used to brag that agriculture has a positive trade balance with more exports than imports. However, that is narrowing,” said Paggi. This is due to a lower U.S. dollar value and strong global food demand. The biggest increase in food imports to the U.S. have been in processed products like snack foods, wine and beer and processed fruits and vegetables. These imports are coming primarily from Mexico, Canada, China, Indonesia, Brazil and Australia.

The World Trade Organization already has had dramatic impact on food imports and exports, and WTO influence will only grow, said Paggi.

U.S. tariffs lowest

While the U.S. has been portrayed as an unfair world trader due to the recent Brazilian cotton case, the U.S. has the lowest tariffs for imported products (12 percent) compared to the world (62 percent).

The U.S. is calling for the rest of world to reduce its export subsidies by 53 percent and that is creating controversy in the Doha round of WTO negotiations, which Paggi said will have “very profound implications” for American agriculture.

WTO rulings are already having a chilling affect on California agriculture. As part of the WTO ruling in favor of Brazil, the WTO has called for abandoning the provision in the federal farm program, which forbids planting of fruits and vegetables on federal farm program crop ground in the U.S.

This is being worked out in Congress and USDA now, but Paggi said it will have a significant, direct impact on California agriculture.

Food security

Since Sept. 11, 2001, American and California agriculture have had a new set of worries.

While food safety has always been concern, the word security is now mentioned in the same breath.

Jerry Gillespie, director of the Western Institute for Food Safety at the University of California, Davis offered a chilling overview of the threat to America’s food supply.

Weapons of Mass Destruction (WMD). Al Qaeda and agro-terrorism are terms you’d never hear at agribusiness forum before 9/11, but they were sprinkled liberally in Gillespie’s presentation as he talked about the steps being taken in California to protect its agriculture and water supply.

WMDs in agriculture are pathogens and toxin that can disrupt the food and water supply in America or the infrastructure that delivers food products.

Teams are being set up in all 58 California counties to respond to agro terrorism incidents, and the California program is now being taken nationwide.

“We know Al Qaeda has laid plans to attack America’s food and ag sector,” said Gillespie.

“We also know there are international groups not associated with Al Qaeda that want to bring down certain sectors of agriculture -- like biotech — and they have very sophisticated plans to do that,” he said.

And then there are the home-grown terrorist varieties.

“The FBI tells us there is far more danger from home-grown terrorists than Al Qaeda,” added Gillespie.

Gillespie said his program offers reality-based planning for groups to alert them to potential attacks and what to do if an attack occurs. It also includes vulnerability assessments like the one done at Grimmway Enterprises in Bakersfield, Calif.

Patrick Kelly is director of quality assurance and food safety for Grimmway and he told the conference his firm evaluated its security system in the wake of 9/11.

Food safety has long been a part of food processors like Grimmway, but this has been stepped up.

Grimmway has identified seven area of importance to security:

-- Control and limit access of people and vehicles. People must have identification cards to get it and get out of Grimmway’s property.

-- The company has beefed up hiring practices to identify potential antagonists or questionable applications. People who are caught lying on applications through background checks are not hired.

-- Conduct mock product recalls daily.

-- Physical security of servers tightened. Kelly would not identify what those new procedures were.

-- Enlisted all 1,400 Grimmway employees to be “security agents” to report any problems or suspicious activity.

-- Identification of vulnerable areas using a risk assessment formula.

-- Improved security in high risk areas like driveways.

Kelly noted in the wake of 9/11 there was a flood with literally hundreds of recommendations for food security system.

“Identifying the critical few areas can be a daunting task. The important concept to remember; whatever the organization decides to do; do it well.

“An organization cannot do it all well. Attempting to do it all well will dilute what needs to be done well,” Kelly said.

e-mail:hcline@primediabusiness.com