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How CA's $15 wage has some farmers feeling under siege

CA employers have six years until 2022 to lift wages to at least $15 an hour

While workers in food preparation and service will benefit from a $15 California minimum wage, those higher labor cost won't necessarily be passed on to you with higher food prices at your local grocery store.

First, let's differentiate from restaurants and agriculture. In restaurants, wages are a big cost component, of course. But the breakdown of labor costs in agricultural production like meat and bread can be unexpectedly low.

And because most Americans eat more protein and carbs that have lower labor costs, compared to fruits and vegetables that have higher labor costs, the coming $15 hourly wage in California is expected to have a small net effect if at all on retail food prices.

"The fact is most of what people spend on food is not the labor intensive parts of food. They spend it on milk and cheese and meat and bread and things like that. And the labor costs there are much less than they are in strawberries, or fresh peaches," said Philip Martin, professor emeritus at the University of California at Davis.

"Most of the spending on food is actually on the less labor intensive parts of food. In something like wheat or for bread, the labor costs are approaching zero," said Martin, an expert in agricultural and resource economics.

A laborer picks strawberries at J.R. Organics Farm in Escondido, California
Sam Hodgson | Bloomberg | Getty Images
A laborer picks strawberries at J.R. Organics Farm in Escondido, California

The bulk of what people spend on food from a grocery store doesn't actually go to farmers.

"It goes to retailers, and transporters and a whole lot of other people in between. Farmers don't give every penny they get to workers," said Martin of UC Davis.

And even at the grocery store, most people are reaching for food with lower labor costs.

The largest food-at-home expenditures were for meat and poultry (with low labor costs) to an average of $900 a year per household. Expenditures per year on fresh fruits (with higher labor costs) was $275, and $240 for fresh vegetables, according to consumer spending figures for 2014.

But what about food prices at restaurants? Business owners against mandated pay argue they will be forced to raise prices to offset higher wages.

Keep in mind a restaurant owner, whether it is a mom-and-pop or burrito chain, must balance many costs including higher pay for waiters and cooks, as well as costs for ingredients.

And even if you're not a restaurant owner, California farmers and food producers will have some exposure to higher mandated pay for their workers.

It's worth noting every business along the food production chain in California, beyond farms and ranches, will need to lift minimum pay, including packing houses. Workers there pack near perfect fruits and vegetables into boxes for shipment, and increasingly for export to places like China.

"If you're looking at this from the point of view of the farmer, this [wages] is another, very difficult issue," said Martin of UC Davis.

The state grows more than a third of the country's vegetables, and two-thirds of the nation's fruits and nuts. And many farmers, especially in the Central Valley, are leaner after coming off four, consecutive years of a severe drought and soaring water prices.

"If you talk to any farmers, they're really feeling under siege," said Martin.

Last year, some farmers' water bills jumped tenfold. They sought loans and dipped into personal savings to keep land alive another year.

This year, California snowpack on the Sierra Nevadas, which eventually melt and fill reservoirs, grew during the first half of March. But long dry spells have left water content still below average. "While for many parts of the state there will be both significant gains in both reservoir storage and stream flow, the effects of previous dry years will remain for now," according to a late March statement from the California Department of Water Resources.

Wages are another potential hit on top of water issues.

"I don't know whether this will be the thing that pushes some people over the edge or not. But, it certainly won't make it easier," Martin said. "Some of them [farmers] might not survive."

In 2015, citrus farmer Lorren Wheaton in Tulare County had received no surface water deliveries for two years. Oranges, pistachios, almonds and wine are among California's top agricultural exports.
Qin Chen | CNBC
In 2015, citrus farmer Lorren Wheaton in Tulare County had received no surface water deliveries for two years. Oranges, pistachios, almonds and wine are among California's top agricultural exports.

In Tulare County in the San Joaquin Valley, Lorren Wheaton farms citrus. In two recent years, he has shelled out $1 million-plus to keep his 300 acres alive during the drought. Lifting wages to a $15 threshold is another higher cost.

The politicians, "they're heaping it on. There's no doubt about it," Wheaton said. "California has gone completely nuts in the employee field."

Wheaton is down to a 2-man crew. And lifting wages to a $15 threshold is just a starting point for many farmers when it comes to worker-related costs. Minimum pay for employees comes with related expenses that can span health care, taxes and worker's compensation.

California employers have six years until 2022 to lift wages to at least $15 an hour from the current hourly, state minimum of $10.

"They've been hit with the Affordable Care Act. There's a new paid family leave bill. There's the drought, the high dollar is hurting exports. There's a whole lot of things going on that are affecting farmer's costs," said Martin of UC Davis.

Other macro agricultural pressures include surplus production and lower prices, and the ongoing stream of regulations.

"They are true challenges," says Vernon Crowder, a senior analyst with a focus on food and agribusiness research for Rabobank. "It's hard to say if one is a tipping point."

Given the many variables in wages and agriculture, how $15 an hour plays out in California is an unwritten script.

All citrus farmer Wheaton can do is work and hope for the best. "We'll live through it," he said. "One way or another."