Farmland Investors Better Pay Attention to Farm Labor Trends

By Tom Schenk

If farmers and other agricultural operations from across the US thought it was hard finding farm labor, the task is about to get more difficult in the years ahead.  Harvesting crops like citrus, apples, pears, tomatoes, blueberries, vegetables, grapes, and other produce have always depended on a seemingly endless supply of labor from Mexico.  That has quietly been changing over the last several years and there are multiple forces aligning that may make this situation worse.

  • A new report by the nonpartisan Pew Hispanic Center highlights a sharp drop in Mexico’s fertility rate further decreased the number of young men crossing into the U.S. to work in the fields.
  • Increased border security and drug cartel violence made crossings more dangerous and expensive, deterring workers.
  • A California Farm Bureau Federation member survey being conducted in 2013 has found about half of farmers are experiencing shortages.
  • The Labor Department’s H-2A visa program is a bureaucratic nightmare.  Typical of government bureaucracy, they are slow to process applications which results in harvest losses.

And perhaps one of the largest reasons for the shortages of immigrant workers from Mexico is free market capitalism.  For much of the last decade Brazil has been in the news as an economic juggernaut in stark contrast to Mexico who appeared bogged down in cartel drug violence.  ImageHowever, in the past two years, Mexico’s president Enrique Pena Nieto has turned that country’s economy around to the point where per capita GDP income now exceeds Brazil, according to the IMF.  Mexican stock market returns have had almost three times the returns of Brazil’s market over the past five years. Since 2010, Mexico has created over 2,000,000 jobs!  Laws were passed to allow new entrants to Mexico’s closely held telecom industry. The Nieto administration introduced strong structural reforms in the education system that was bogged down by the teachers union, as well as other antitrust laws.    Mexico’s greatest progress, however, will be from the ongoing reform in the country’s state-owned oil industry that was nationalized 75 years ago.  They have begun to actively encourage outside capital and technology to enter the country to exploit its vast shale, and deep-water oil and natural gas industry.  Mexico now has lower labor costs than China. This is attracting more manufacturing jobs.  Along with ample, low cost energy supplies, t is expected to accelerate the growth of a new middle class.   The implications of all of the above suggest a tougher time ahead for US agricultural operations that depend on a once generous supply of migrant labor to harvest fruit and vegetable crops from Washington State to Florida.  A study conducted by the American Farm Bureau could theoretically have to raise $14.04 to $18.25 an hour to fill the labor shortage with domestic workers.  This would cause a 7%-14% drop in farm income and lead to a 2%-3% rise in food prices.  In the case of California where growers are already fighting years of drought and irrigation cutbacks, or in Florida where growers are fighting citrus greening and other diseases, the times ahead may become more difficult.   My crystal ball says smart ag investors should focus on farmland investments where the crops can be mechanically harvested and irrigation and or rainfall is plentiful.

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