May 6, 2016

Minimum wage brings headaches for growers

Gov. Andrew Cuomo wanted New York to become the first state in the nation to increase its minimum wage to $15 an hour.

The measure eventually passed, but California beat him to the mark – and other states have passed, or are considering, minimum wage hikes this year – all of which promise to impact agricultural wages and grower bottom lines.

California lawmakers voted in early April on a deal to gradually raise California’s minimum wage from $10 to $15 an hour by 2022. Under the deal, the wage would increase to $10.50 at the beginning of 2017, and escalate steadily over the next five years.

On March 2, Oregon Gov. Kate Brown signed a minimum wage hike that, at least temporarily, made Oregon’s minimum wage the highest in the country. The bill increased the state’s minimum wage to $14.75 inside Portland’s urban growth boundary, $13.50 in midsize counties and $12.50 in rural areas by 2022.

Thirty states and Washington, D.C., have set new levels higher than the federal minimum of $7.25 an hour, in place since 2009.

The California law is the most dramatic. New York will hike the minimum wage to $15 in New York City almost immediately, while doing the same thing for prosperous suburbs by 2020. The rest of the state will go to $12.50, with the possibility that it could go to $15 if and when certain economic benchmarks are met.

Frank Gasperini, executive vice president of the National Council of Agricultural Employers (NCAE), said he was surprised at the fairly tepid response from a lot of employer organizations regarding the passage of the steep minimum wage increases in California and New York, in particular.

“I was shocked that so many people did not have a written position,” Gasperini said. “There was lots of blanket opposition in places like the Chamber of Commerce and other places, but nothing on paper.

“For agriculture, one of our real differences if the country goes that way is that exemptions really don’t do us much good because we’re competing in the marketplace with jobs that will be paying $15 an hour,” Gasperini said.

He said U.S. agriculture operations compete directly with suppliers elsewhere who pay much less for workers, and “farmers can’t pass prices along when they’re competing with produce from Canada, Mexico and a lot of other countries. Mexico has a minimum of about $4.25 an hour and can produce tomatoes like ours. The major market chain participants buy and decide on the price for most produce.”

“This will put much more of our food and production offshore,” Gasperini said. “We can mechanize and keep up some. It’s already common to pay people more than they earn for you.”

He said costs for locally grown, organic and small-farm operators would go up even more than for conventional growers because of the hands-on nature of such production.

“The smaller you are, the bigger the percentage of your expenses labor tends to be,” he said.

He said the reason box stores and other business operations are not opposing the $15 levels is because “customers are saying it’s a good idea. They want more local and organic produce, but those kind of productions, facing higher minimum wages, suffer faster than somebody that’s really big.

“The big thing for us is the fact we compete in a global marketplace. (Some countries) have huge tariffs and are protectionists. We’re not a protectionist country. Producers all over the world don’t pay $9, let alone $15, an hour.”

Gasperini said the cost for participation in the H-2A program has in many cases already driven agricultural wages past the $15 mark, when adverse wage formulas are considered.

“And you have to provide free housing, too. By the time you take into consideration housing and recruitment costs, you’re over $15 an hour. H-2A employment is close to 10 percent of the workforce market and it’s continuing to grow.

“I don’t see it being sustainable for a lot of our food production,” Gasperini said. “Mechanization will cost people jobs. But our biggest concern is whether farms can survive. At $15 an hour many specialty crops just can’t adjust. They’re going to go more and more to corn and soybeans.”

California agriculture could also face significant consequences should a bill passed out of the California Assembly’s Labor and Employment Committee in early April find more traction.

According to Ian Wieland of the law firm Sagaser, Watkins & Wieland, the measure seeks to repeal the longstanding law allowing agriculture entities in the state to pay overtime after 10 hours of work in a day.

Presently, agriculture employees are exempted from labor code provisions regarding wage, hour, meal break and other working conditions. Known as the Phase-In Overtime for Agricultural Works Act of 2016, the new bill would remove this exemption and would create a schedule that would phase in overtime requirements for agricultural workers over the course of four years, beginning in 2017.

Under the proposed legislation, beginning July 1, 2017, agricultural workers would receive overtime for all work after nine and one-half hours daily, or in excess of 55 hours in one work week. The thresholds for daily and weekly overtime would be further reduced each subsequent year until January 2020, at which point agricultural employees would receive overtime for work beyond eight hours a day or 40 hours weekly.

“Obviously, California agriculture should do everything it can to oppose this ill-thought legislation,” Wieland said.

But it’s the impact of the minimum wage hike that has California growers the most riled up.

Butch Goehring, district director for the California Association of Wine Grape Growers, said the effects of paying minimum wage workers $15 per hour “is going to really hurt the demand for our products.”

He believes the additional $5 an hour might drive prices up and force some wineries to look beyond California for grapes.

“This is going to force mechanization in a lot of industries, including ours, to the next level,” Goehring said.

Concerns

Kristi J. Boswell, director of congressional relations for the American Farm Bureau Federation (AFBF), said generally the organization opposes increases to the federal minimum wage. As a national organization, she said AFBF does not take positions on state increases.

“From our perspective, raising the minimum wage would be detrimental to job creation and low-skilled workers trying to get started on the economic ladder,” Boswell said. “As the minimum wage is increased, workers risk losing hours and employers will have more incentive to invest in technology rather than hiring the low-skilled worker. Additionally, in the agricultural sector, where margins are historically slim, any proposal that escalates labor costs can put growers in a precarious position. It is impossible for growers to pass down this increased cost, and therefore the increase in wages is a direct hit to margins.”

Lauren Williams, assistant director of public policy for New York Farm Bureau, said an increased minimum wage will put New York farmers at a disadvantage, because production costs will increase but the price received for goods and products may not.

“New York Farm Bureau has continually supported keeping our state minimum wage linked with that of the federal minimum wage, as we are competing in a global marketplace and raising the wage separate from the federal level has led to a competitive disadvantage with other agricultural states when selling products throughout the country,” Williams said. “Of the top 12 agricultural states, only California has a higher percentage of sales spent on labor – making an additional wage increase unsustainable in an environment where profit margins are extremely slim.”

Williams listed some things to consider when calculating the impact of a $15 minimum wage: “Employees who are currently making minimum wage, $9 per hour, would see their hourly wages increased by $6 to $15 per hour. Those employees currently earning more than the minimum wage, but under the $15 threshold, would also see an increase. In addition, raising the minimum wage to such a high level puts current workers (at that pay level, who have gained this wage amount through experience on the farm) at an extreme disadvantage as their wages become compressed in comparison to their newly hired counterparts. Would any of your employees making more than $15 an hour request that their wages be increased as well?”

“To calculate your increase in employer payroll tax, you should include the cost
of workers’ compensation insurance, unemployment insurance, FICA and Medicare,” she said. “It’s important to remember that there is no youth wage or separate wage rate for farmers. The majority of the people making the minimum wage on farms and other small businesses are youth and part-time employees who will be largely impacted by this proposal.”

Dean Norton, New York Farm Bureau president, said the organization is “disappointed in the outcome and remains steadfastly opposed to the wage hike, regardless of the inclusion of any programs in the final state budget that are designed to assist agriculture. Farms, especially those on Long Island, will face extremely serious economic challenges as they will be forced to pay the dramatically higher wage rates mandated by this agreement. In turn, their business costs will skyrocket as their products become less competitive, and fresh, locally grown food products will be more expensive and less available. The governor and legislature are playing politics with family farmers and their livelihoods and, as a result, our businesses and rural communities will pay the price.”

Study pegs impact

Farm Credit East conducted a study to estimate the impact of changes in the minimum wage on agricultural wage rates. It reviewed agricultural wages and labor costs since 2005.

Key findings:
“Using both conservative and historically based projections, we estimate the proposed increase in the New York state minimum wage would result in agricultural labor costs increasing between $387 and $622 million by 2021.

“Without minimum wage adjustments, we believe total labor costs would increase by $50 million to $70 million. However, the higher wage costs from minimum wage increases will also drive up other costs, including payroll taxes and workers’ compensation, and we have not projected these increases in this report.

“Because New York farm businesses deal in global and national markets and are generally unable to pass costs to consumers, the increase in labor costs is likely to reduce net farm income between 31.8 percent and 51.1 percent.

“While New York has in excess of 35,000 farms, approximately 10,000 farms actually employ workers and would be impacted by the higher labor cost. We estimate these 10,000 farms generate in excess of 90 percent of New York’s net farm income.

“Farm profitability varies significantly by farm and makes any analysis subject to debate. We anticipate that this increase, without a significant change in farm economic conditions, will place between 1,365 and 1,995 profitable farms in a loss situation.

“The greatest impact of this wage increase will be on New York’s dairy, fruit, vegetable, greenhouse and nursery sectors. Over time, the impact of a significantly higher minimum wage in New York and not in competing states will shift agriculture in two ways: 1. Labor-intensive agriculture operations will consider agricultural enterprises that are less labor intensive, such as fruit production shifting to grain production. 2. Full-time farms will transition to part- time farms to avoid hiring labor. Overall, this will reduce the size of New York’s agricultural industry.

“If we see a significant decline in production from labor intensive agricultural sectors, this will impact food processing and marketing businesses that are located in New York. While these businesses may seek raw product from other states, over time some of these businesses will look to relocate closer to major production areas.”

— Gary Pullano, associate editor