Minimum Wage Increase Could Create Serious Challenges for Agricultural Businesses

- Lynne Hayes, Growing America

The $15 minimum wage is already headed to population-dense California and New York, and at least seven other Democratic-led states are actively campaigning for the raise.

While fast-food employees and other “Fight for $15” supporters are psyched at the gaining momentum, others are far less receptive to the idea.

In Southern and Midwestern states, where agriculture and conservatism dominate, farmers, especially, know that paying higher labor costs is not an expense that can ever be recouped by raising prices on their products. They’ll have to get creative with their expenses.

“To make ends meet,” says Cesar Escalante, an Agricultural and Applied Economics Professor at the University of Georgia, “small farms will likely resort to cost-cutting strategies like maximizing family labor engagement in farm work, switching crop choices, changing over production systems from labor-intensive to capital-intensive operations, and downsizing their operations.”

In any state where the $15 minimum wage is adopted, farmers, ranchers and packing houses will surely feel the pinch. 

Escalante, however, has an interesting take how the “pinch” might turn into a positive.

“When the immigration policies drove away undocumented foreign workers,” says Escalante, “one of the issues was how domestic workers could match the productivity of those evicted or deported workers.  Evidence shows their labor productivity levels are incomparable.”

He says the $15 minimum wage may actually be less than what employers would have to pay under the H2A program (the special visa that allows foreign nationals to enter the US for seasonal agricultural work).

Ag employers are already required to pay the AEWR (Adverse Effect Wage Rate) of about $9 to H2A participants,” explains Escalante. “Farm businesses hiring foreign workers under the H2A program would have to incur additional expenses on top of the AEWR that would likely be significantly more than the proposed $15/hour wage rate. That increase may actually become attractive and more affordable.”

Escalante adds that the $15 minimum wage might even entice more domestic residents to consider working in the farms, relieving the need for farm businesses to hire foreign farm workers.

Even so, there are regional factors and challenges that will surely come into play for farmers trying to make ends meet while they meet new state wage regulations.

Bryan Tolar, Executive Director, Georgia Agribusiness Council, says even though energy prices for irrigation and farm equipment have been coming down, so have commodity prices.

“Farms, like other businesses, cannot be sustainable if they don’t have the opportunity to manage input costs,” observes Tolar. “The increased minimum wage would certainly lead to more mechanization, thus eliminating jobs, or would force growers to change their cropping systems to reduce labor hours, thus expenses.”

Tolar says, in his home state of Georgia, there is “huge opposition” to the increase.

“Several bills were introduced on this subject at the State Capitol. They each had a long list of business interests stating opposition,” says Tolar, “but the bills never made it out of committee.”

In New York, the wage increase is being pushed on the State Legislature by Gov. Andrew Cuomo, who, reportedly, “hopes to adopt it with the budget due for completion at the end of this month.”

According to an article in the Press Republican, New York’s Clinton County Farm Bureau President, Tony LaPierre, told an area Chamber of Commerce that, "the $15 minimum wage is one of the biggest issues facing small businesses and family farms in the state in years.” LaPierre added that, “"it's going to have a profound effect on our operations in many ways."

In California, where the increase is slated to take effect in stages, (starting with a raise to $10.50 an hour on Jan. 1, 2017, then increases to the next whole dollar amount in each of the subsequent five years to the $15 high in 2022), farmers are already deeply concerned about the effect on their businesses. 

The state grows more than a third of the country's vegetables, and two-thirds of the nation's fruits and nuts, all labor-intensive items.

Add to that, the severe California drought and soaring water prices (some increasing tenfold) of the last four years, and it’s no surprise that growers there are losing sleep—and worse, having to dip into personal savings just to stay afloat this year.

"If you talk to any farmers, they're really feeling under siege," said Philip Martin, professor emeritus at the University of California at Davis. “Increasing wages will be another huge hit to them.”

Many who oppose the increase are calling for a federal solution, saying that at least this would put all states on a level playing field—and would discourage employees from crossing into higher wage states for jobs.

Bryan Tolar believes those advocating for a mandated pay increase are failing to recognizer one important principle—that pay must be tied to performance.

“Good, productive employees are an investment for the company, otherwise it is just an expense.”

Source: Growing America