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Phony Farm Labor Shortage: We Need to Talk About It

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A couple of weeks ago, I pointed out that despite all the talk of a farm labor shortage last summer, American farms had an amazingly profitable year.

Net cash income rose from the record high in 2010 of $99.4 billion to a new record high of $134.7 billion. That’s an eye-popping 35.5 percent profit growth! (Read more: More Data on The Phony Farm Labor Crisis)

I pointed out that in some of the states that had been repeatedly said to be facing a labor shortage—California and Washington, for example—profit growth was even higher. Washington farms saw profits grow by 58 percent, for goodness' sakes.

Yet somehow the myth of a farm labor shortage persists.

I received countless emails arguing that in one way or another, I had missed the orchard for the trees. Folks insist that despite record profitability, there remains a labor shortage.

And, of course, there are now dire predictions that the farm labor shortage of 2011 (which never happened) will be even worse in 2012. My colleague Jane Wells recently reported that the Western Growers Association claims its members are reporting a 20 percent drop in laborers this year. (Read more: California Farm Labor Shortage 'Worst It's Ever Been')

Let’s begin by conceding the idea that the members of the WGA are facing a sharp drop in laborers. Does this imply there is a “labor shortage"?

It certainly implies a labor reduction, but in order for it to count as a “shortage” shouldn’t that mean that work isn’t getting done or is becoming too expensive? Alternatively, shouldn’t it mean that it is creating food shortages of some sort or damaging the financial health of farmers?

To put it differently, if fruit is rotting on the vine, how do we explain these outsize farm profits? Are the farmers merely complaining that they could have been even more profitable if they had more laborers?

Let’s say that’s the case. Suppose California farmers, who saw a 45 percent profit rise last year, would have been even more profitable if they had more laborers available to them. It’s impossible to see why this should be a public policy concern.

One way to test if there is a labor shortage on farms would be to look at the labor cost. If farms were truly struggling to find enough workers, their labor costs would be skyrocketing. But that isn’t what’s happening.

The costs of workers hired directly by the farms didn’t grow at all between 2010 and 2011, according to the latest data from the Department of Agriculture. It contracted 3.8 percent, from $23.5 billion to $22.6 billion. Next year it is forecast by the Department of Agriculture to shrink by another 2.1 percent. In light of the rising revenues and profits of farms, this is not a labor market experiencing a worker shortage.

What’s more, the total cost of hired labor on farms nationwide is still below pre-crisis levels, while farm profits are well above pre-crisis levels. This implies that far from farms seeing a labor shortage, there’s something of a farm labor glut going on.

In California last year, despite all the talk of a farm labor shortage, hired labor costs dropped from $6.2 billion to $5.4 billion—a 12 percent fall. This isn’t what happens in a labor shortage.

There has been some wage inflation in a far smaller segment of the farm labor market: the contract labor market. This is the market for workers employed by third-party operators who supply labor to farmers, mostly for seasonal work such as harvesting.

Farms nationwide saw contract labor costs rise from 3.9 billion in 2010 to 4.5 billion in 2011, a rise of 15 percent. That might put some farmers off a bit, having to pay the guy supplying workers 15 percent more. But revenues were rising even faster, which is why profits grew so explosively.

In California, contract labor costs grew 19 percent. While that seems astounding, it growth pales in comparison with the growth of profits at California farms. There may be fewer laborers than farmers would like, but this isn’t a crisis by any means. The farm owners are doing quite well for themselves and shouldn't be shocked that the migrant laborers are also demanding to share in the bounty.

It’s just basic economics. The overall cost of labor on farms is falling. The cost of seasonal labor is rising but at a rate far less than revenues. That implies that supply of labor is outstripping demand. Which is to say, farmers may be screaming about labor shortages but their checkbooks are telling a very different story.

- by CNBC.com senior editor John Carney

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