Nov 27, 2013

Minimum wage hike will hurt California growers

On top of all the other pressures California fruit growers are facing – rising input costs, labor shortages and tightening water supplies – they are now looking at a $2-per-hour hike in the state’s minimum wage within the next two-and-a-half years.

The wage increase, which was signed into law in September, is set to take place in two phases. The first phase starts in July 2014, when the minimum wage will increase from $8 to $9 per hour. The second hike will take place in January 2016, when it will go up to $10 per hour.

“There’s a lot of concern over this, especially when we hit the $10 per hour rate in 2016,” said Barry Bedwell, president of the California Grape and Tree Fruit League.

Most people in the grape industry are already paying more than the minimum wage, often paying their workers anywhere from $9 to $12 per hour, Bedwell said. However, every time the minimum wage gets pushed up, workers always want an incremental wage increase.

“We always have to keep in mind that the labor supply remains tight already, so we’ve already been paying higher than minimum wage rates to keep our workers, but when the actual minimum wage goes up, there’s an inflationary aspect to it and everything tends to go up,” Bedwell said.

When the minimum wage goes from $8 to $10 per hour, that’s going to hit many growers hard, since that’s a 25 percent total increase in labor costs, Bedwell said.

“I’m not sure how many businesses can take that kind of increase, but in the table grape business about 75 to 80 percent of our expenses are labor, which is going to make it very tough on growers,” Bedwell said.

Growers of other fruits and vegetables have done their best to minimize hand labor by mechanizing as much as possible. However, this is hard to do in the fresh table grape industry.

“We have so much intensive labor with grapes, which involves pruning, thinning, suckering and harvesting – all of which have to be done by hand. It’s a lot different in table grapes versus a guy who grows almonds,” Bedwell said.

When it comes to paying laborers who work with fresh table grapes, there’s another complication that arises. Many of them are earning $8.50 per hour right now, which is already above minimum wage. However, they also get a piece rate for the number of boxes they pack, which can add up to $10 per hour. While some growers might think they can leave their pay rates as is, since technically the $10 per hour rate would meet the criteria of the minimum wage hikes, that’s not how the workers will look at it, Bedwell said.

“Workers are used to getting paid above minimum wage as a base and then taking home the piece rates as a bonus. So, now they’re going to be expecting to get that $10 per hour as a base rate plus the bonus,” Bedwell said.

According to the law, growers will have to pay the minimum wage as a base and won’t be allowed to factor in bonuses, Bedwell said.

“No one is saying that the workers don’t deserve these rates. We need all the skilled labor we can get,” Bedwell said. “But at the same time the growers’ margins are going to get tighter, and there’s no guarantee on the other side that buyers will pay more for our product.”

Over the past few years, fresh table grapes have been doing well, so initially they might be able to absorb some of the extra costs, said Ryan Zaninovich, farm manager for Vincent B. Zaninovich & Sons in Delano, Calif. Ten years ago, for example, grape growers were getting $9 to $10 per box. Now they’re getting $15 to $16 per box.

“There’s been inflation and input costs have gone up, but we’re doing pretty well. We seem to be riding a wave of popularity with all the new varieties and a good market. But you never know when it’s all going to change,” Zaninovich said. “When you have a really good market, you have more people planting more grapes.”

If supplies go up – which they most likely will – and prices drop, there’s not much growers can do to absorb the extra costs.

“We can’t cut back on labor. We’ve already honed our business to make it as cost effective as we can,” Zaninovich said. “And it’s not like if we have a big crop we can go to our buyers and say we need an extra dollar just because minimum wage went up.”

Ultimately, when input prices go up, bigger, more vertically integrated growers will have a better advantage because they don’t have to pay packers and marketers to pack and sell their fruit.

“I wouldn’t be surprised, when the minimum wage hike hits along with Obamacare, if a lot of smaller growers go out of business,” Zaninovich said.

Zaninovich said that there’s some research being done to try to mechanize fresh table grape harvest to bring costs down.

“However, if you’re trying to come up with a machine that will pick a bunch of grapes and (differentiate) between various colors and sizes and (determine) how clean the fruit is, it’s going to be really difficult. It’s probably going to be a long time before they can get a robot to do that stuff,” Zaninovich said.

There’s not much chance in the near term of mechanizing the fresh-market blueberry industry either, said Will Gerry of Costal California Blueberry Farms in Santa Rosa Valley. Growers will undoubtedly take a hit when the minimum wage hikes take effect.

“The minimum wage hike hasn’t sunk in yet for us, because at this point we’re not using much labor at this time of the year. Most of our labor comes in late May, when we have more of a consistent need for a lot of workers over a short period of time,” Gerry said.

The increase in minimum wage will definitely hurt the blueberry industry, although most growers have had to pay their workers more than minimum wage anyway due to limited labor supplies, Gerry said.

“Right now, we’re paying nothing less than $9 per hour,” Gerry said.

One of Gerry’s big concerns, though, is if the government will allow workers to continue working more than 40 hours a week without growers having to pay overtime. Right now, laborers can work 60 hours a week as long as they don’t go over 10 hours at a time.

The extra hours blueberry growers can provide for workers during harvest is one of the things that make them so attractive to their labor force.

“If this system gets challenged, that could be a problem for us,” Gerry said.

One thing Gerry is hoping to do to counter rising costs is to look for good varieties for September, October and November, which could help fill a much-needed niche for fresh blueberries during that time period.

“That’s when almost no one has fruit, and that could be a big help for us,” Gerry said.

– Lisa Lieberman