The Cost of Labor

Last week’s post about infrastructure talked about the greatest competitive advantage that US farms have when competing globally. Farmers in the US are often though to be in favor of free trade because their corn and soybean farms are very competitive with global markets.

However, while the US does run a slight trade surplus for agriculture overall, there is a big difference between commodity crops and fresh produce. The US runs a large surplus in commodity crops and a large deficit in fresh produce. Some of the issues involving the competitiveness of US produce farmers were highlighted last week in a Wall Street Journal article on berry imports from Mexico.

A major difference between growing commodity crops and many fresh produce items is the amount of labor required. Most of the growing and harvesting for commodity crops is mechanized, however for produce there is still a tremendous amount of physical labor involved. The US cannot compete on labor costs, even with guest worker programs.

The Wall Street Journal article highlights berries, however there are many labor intensive crops that are just not competitively grown in the US. Below is a chart of US asparagus production since 1998. The steep drop is not due to consumption patterns, but rather due to competition from imports, mainly from Mexico.

The Silver Lining

As a result, US produce farmers are scrambling to automate more of the picking. This gives a competitive advantage to larger operations who can buy more expensive equipment and chase the growing season by moving equipment around from region to region.

A technological revolution in harvesting fresh produce is going to create a lot of opportunities for US farmland investors. Hopefully, due to better technology, growing fresh produce becomes much more cost effective, and as produce growers become more profitable they will compete against each other to buy or rent out additional land, driving up farmland prices in the long run.