What will California agriculture look like five years from now? Just like it has looked for the past five seasons.
Hardly heartening news from respected Bank of America agricultural economist Vernon Crowder.
Nevertheless there will be producers making a profit in the future just like — surprisingly — some are today.
Crowder told the 20th annual Agribusiness Management Conference in Fresno, Calif., recently that some of his customers are turning a profit, but they are not the topic of coffee shop conversations where it's mostly doom and gloom. The conference was co-sponsored by California State University, Fresno and Bank of America.
Depressed commodity prices and rising costs are here to stay for a while, and farmers should not pin their hopes for better times on a disaster elsewhere in the world. Crowder, Bank of America senior vice president and California agribusiness executive, said agriculture has become too globally productive to expect one farmer's woes to be another's blessing. The world has proven it can cover any shortfall in a hurry.
Even with his admitted second straight year of a dismal outlook at the conference that drew more than 400 to a downtown Fresno hotel, Crowder said California agriculture is a mature industry that will weather a prolonged economic downside.
The survivors will be those who strive for the highest yields possible while accounting for every dime spent. They will invest in technology to achieve those goals.
They will be diversified.
“Let go of things (crops) that are not working. That is a key factor with successful growers today,” he said.
Improve marketing power by becoming vertically integrated, like the poultry industry and more recently like the Western high value vegetable industry.
Vegetable processors and growers have realized they need each other and that has created more partnerships to share risks, he said, adding this vertical integration is beginning to occur also in the dairy industry.
These partnerships are extending beyond the processor to the retailer, he added. Margins are getting tighter and forcing this vertical integration and partnershipping.
Cash management will also bode well for the future. “Tax management is OK for the good times. Knowing where losses are occurring” today is more important.
No questions times are tough in agriculture, but Crowder said there is no crisis — no disastrous free fall.
Some crops did well in 2001. Dairy, hay, orange and other fruit prices improved in 2001. Most, however, were flat or down. California is less dependent on government payments than other major agricultural states. The state's farmers received only $670 million in 2001 for an industry grossing about $24 billion. Seven states received more than $1 billion in direct payments. Subsidies will continue to be needed. The only question is will the feds have the stomach to push them to record levels.
About the only cost that is going down is the cost of money. Some are fearful that that will attract unwanted over expansion. Crowder was optimistic that bankers and lenders are “more disciplined” now than they were in the 1970s and '80s when expansion turned disastrous for many crops. Many producers are still suffering from those days with debt loads today that are jeopardizing their future.
Lending levels fall
Crowder based his outlook on the fact banks' agricultural lending levels are declining, and he predicted that trend will continue.
America is in a recession, according to several speakers. It just has not been declared. Crowder said food expenditure is typically not affected by a recession.
A recession may improve ag labor availability with job losses in food service and construction. Nevertheless, labor will continue to be a cost-increasing factor not only with increasing wages, but also with chronic shortages raising the costs.