NFAPP's Newsletter April 1996

Featured Articles :

"Guest Workers: The Economic Choices. Bill Nears Death", by Timothy Richards
Topic: Guest Worker Program

"Market Watch.....Broccoli and Cauliflower Market Update", by Richard Adu-Asamoah
Topic: Understanding Broccoli and Cauliflower Grower-Price Movements: Experiences in the Desert May Offer Insight

Growers fear that immigration reform, if effective, may deprive them of a valuable source of labor. However, on March 21, the House rejected an amendment to the proposed immigration bill [sponsored by Rep. Richard Pombo (R-CA)] that sought to allow 250,000 foreign farm workers annually into the U.S. under temporary work visas. While the Senate considers this issue further, efforts to obtain ultimate approval for guest workers may go for naught as the Clinton administration has promised to veto any provision that may "...increase illegal immigration, reduce job opportunities for US workers, and depress wage and work standards..." (Rural Migration News (RMN), April, 1996). Were the economic consequences of legalizing the employment of a quarter million farm workers this simple, the President's intentions would be admirable. Unfortunately, testimony by groups on both sides of the issue suggest that the choices facing legislators are far more complex.

As expected, farm labor groups echo President Clinton's concerns. Citing anecdotal evidence from worker experiences, these groups argue that growers prefer undocumented workers because of their vulnerability. These groups also claim that growers are able to pay illegal workers lower wages, deny them benefits, and provide them sub-standard working conditions. Academic testimony provides support for the worker position, but using a different line of reasoning.

Economists argue that fears of losing an estimated 20-30% of the work force to more stringent immigration control are overblown as many workers will remain in the country. Even if they do leave, labor costs represent a relatively small part of the retail price, so U.S. competitiveness will not suffer unduly.

On the other side, grower groups maintain that "illegal aliens are 50 to 70 percent of some harvest crews" (RMN). Given the typical reluctance of U.S. workers to move in and fill these jobs, farm wages will likely rise sharply - as they did upon the termination of the Bracero program. In fact, NFAPP estimates that a 50% reduction in the farm work forces of California, Arizona, Florida, and Texas will result in wage increases of $0.54, $0.68, $1.06, and $0.36, respectively. While it may be true that these changes will have little impact on retail prices, it is likely that growers will be saddled with this increase in costs. Although the current legislation allows for guest workers if they obtain H2-A visa status, growers feel that the requirements of the H2-A program are too inflexible to be a long-term solution. After proving that U.S. workers are not available, providing housing at no cost, and guaranteeing employment for 75% of the expected work period, growers are likely to look for alternatives.

Historically, the alternative has been not to find new sources of labor, but to substitute technology and machines. In fact, wage increases that lead to the development of labor saving technology can cause costs to fall - an effect Dr. Andrew Schmitz of the University of California at Berkeley refers to as an "innovation response" to regulation. Although the remaining workers may be better off, workers as a whole will be worse off as the industry prospers.

Beyond anticipating the future impacts of their decision, legislators also need to recognize the implications of trade legislation they committed to in the past. Supporters of free trade argue that if growers are to thrive under NAFTA and the WTO, they must have access to the same labor pool as their trade competitors. With only free trade in goods, economic theory says that producers will move to where the low cost inputs are. However, similar logic implies that free trade in inputs will allow the competitive advantage to stay in the U.S.

It is clear that the economics of immigration reform are not as straight-forward as some believe. To get a better picture about the true economic consequences of reform, legislators need a better understanding of whether U.S. workers are willing to replace illegal immigrants, the degree to which growers can substitute machinery for labor, and the extent to which growers can match the labor costs of trade rivals. While these issues have entered the public debate, they seem to have had little impact on the outcome.

Grower-price movements in the vegetable industry are difficult to predict because of shortcomings in anticipating the major factors that influence such prices. The unpredictable nature of factors that influence vegetable yield, and hence production and supply, prevent reliable short-term forecasting of trends in grower and/or grower-shipper prices determined by vegetable abundance or unexpected shortfall in supply.

For broccoli and cauliflower producers in Arizona and California, the historical conditions existing during the transition from Yuma, AZ, and desert growing areas of California to non-desert areas of California (Huron and Salinas) may provide some insight. Barring natural disasters, grower-shippers in this production region may have a better understanding of production trends and hence price movements during the first four to five months of the year. Price levels (as influenced by production levels, normal or otherwise) relative to previous years' levels seem to be established in the first three months of the year. Average monthly price movements for January through June for the years 1992-95, and January through March 1996, may provide reasonable information for predicting short-term movements in grower prices for April through June, 1996, under conditions of normal and sustained demand.

For any year, if January average prices are relatively high (compared to previous years), then higher than average prices will be maintained through June, otherwise average monthly prices will be relatively low. Cool temperatures enable grower-shippers to continue harvesting from desert areas longer (January-February through April) than the expected harvesting period, and may delay harvesting in non-desert areas. Higher than normal temperatures shorten the desert season, and may accelerate non-desert harvesting. Quality may also be affected by unreasonable fluctuations in temperatures, or a general bad weather. From Figures 1 and 2, higher than average grower prices are observed in months where weather problems lead to less than expected supply. Lower prices occur in months that have near-normal weather (and therefore higher production) in the respective years. For January through March 1996, broccoli production followed the 1995 (and the 1992-95 average) trend except that production was a little larger in March, and therefore prices a little lower in that month than 1995. Cauliflower registered higher prices through the first three months of 1996 than 1995 because of lower supply for those months. Through the April transition from desert production to non-desert production, supply is expected to be low (but higher than 1995 levels) and average grower price (broccoli - $35/cwt; cauliflower - $55/cwt) should be high (but lower than 1995 levels).

An expected decline in broccoli supply in May and June should push average grower prices above the "1995 normal trend" price of ($27/cwt, and $27.3/cwt) for the two months to $28/cwt and $30/cwt, respectively (Figure 1). Cauliflower supply is expected to be higher in May and June than last year. Average grower prices will remain higher than the "1995 normal trend" levels ($36/cwt, and $37.6/cwt) at $46/cwt and $38/cwt, respectively (Figure 2).

In the future, factors that the grower can control may help prevent price swings that have become a feature of the incidence of bad weather. Expectations are that broccoli and cauliflower will be easily grown year-round as a result of the increasing use of transplants. If more broccoli and cauliflower growers produce their own transplanting materials, or order them in advance as part of their business strategy, they may be able to take advantage of the convenience, timeliness and uniform crop heights that transplanting offers. Transplants may help growers fill shortfalls much more easily, and abate price swings caused by storms and other disasters.

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