Until just a few years ago, most Americans had no real concept of inflation. Since the 1970s, prices for goods and services here had been relatively stable and predictable. In 2020 the Covid pandemic threw a wrench into the engine of our economy. After briefly dropping, prices for just about everything began an upward spiral that took on a life of its own. Wages spiralled with them as employers struggled to find staff and workers demanded raises. For the first time in decades, the income of lower wage workers increased faster than those of high income earners.
Inflation in California was higher than in any other state after the pandemic, and remains higher than the national rate. Much of that difference is “self-inflicted”: we have enacted higher costs on ourselves through taxes and regulations that raise the prices of things like housing, electricity and fuel. Wages in California are higher than anywhere else in the country, at least partially due to the highest state-regulated minimum wage in the U.S.
Like many people — and most farms — in California, Terra Firma is struggling under the burden of the increased expenses that have resulted from inflation. Just about everything we need to farm has dramatically increased in price since 2020. Incredibly, prices for electricity and packaging (boxes) have doubled.
Payroll is our single largest cost, by far. Since 2020, the minimum wage has been increased by 30%. On our farm, we have given that same percentage wage increase to all our employees. In order to help cover those increased costs, we increased the price of our CSA boxes twice, and we very much appreciate your continued support.
As I have detailed in a past newsletter, prices paid to farmers for fresh produce have not risen to cover their costs. While you have likely seen prices increase in supermarkets, the retailers are pocketing all of that — to help cover their own increased expenses. But they have also shifted more of their purchasing to lower-price imported produce to help boost their profits. Historically, TFF has sold 50% or more of our crops to retailers and distributors, but we are doing so less and less because the prices they are paying are below the cost of production.
There is a vicious cycle going on in farming right now: as farmers reduce plantings in response to lower prices, it creates more of a market for imported crops. We have no leverage to push for higher prices. And any crops that still pencil out get overplanted as growers pile into them in search of ways to stay in business, causing prices to drop. As we move into a new crop season, we are seeing prices paid by distributors that are lower than they were last year — not even adjusted for inflation.
Prior to 2020, Terra Firma had “good years” and “bad years”. Over time, they usually balanced out. But since then, it’s been a struggle just to break even. Over the long term, that is not sustainable. Farms need “profits” to invest in things like tractors, trucks and other capital expenses that wear out.
Enter Proposition 32 on the November ballot that would increase the minimum wage again in 2026, to $18/hour. That is a 12.5% increase from the current minimum wage.
I understand the idea behind these mandatory wage increases is to try to enable the lowest income earners to better afford the expenses of living in an expensive state. I am not going to address whether or not this strategy is likely to work any better than it has in the past; you can do your own research on that. But I feel that it’s important to note that if and when it passes, it will definitely push more of our food production out of state and out of the country. It will put more small farms in California out of business, reduce the income of any farms that manage to stay in business and further the trend of consolidation in the farming industry. Organic farms, which for various reasons have higher labor costs, will be especially impacted. You can’t even call this an “unintended consequence”, since it’s already been proven that recent wage inflation has this effect.
If you are still reading this post, I very much appreciate your having given me the opportunity to present an angle on this issue that you may not have been aware of or have considered. I am not telling anyone how to vote on this proposition; just letting you know how your vote may impact our farm and California agriculture in general.
Thanks,