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July 2016, Volume 22, Number 3

US Ag, Supply Chains

Net farm income was a record $123 billion in 2012, and is projected to drop to $55 billion in 2016 because of low prices for milk, corn and soybeans. US farmers are expected to produce a record 211 billion pounds of milk in 2016, and much of it will be made into 40-pound blocks of cheddar and frozen until prices rise from about $1.25 a pound; there were 1.2 billion pounds of cheese in storage in spring 2016. Americans eat an average 36 pounds of cheese a year.

Many meats are in oversupply, including beef, chicken and pork. Farmers began to expand their herds and flocks in 2014 when exports were strong, but now face lower prices because of the strong dollar and slow growth abroad.

Four crops, corn, soybeans, cotton and canola, account for most GMO commodities, and over three-fourths of the acreage of GMO crops is in the US (175 million), Brazil (109 million) and Argentina (60 million). Most GMO seeds are tolerant of Roundup and other herbicides or resist pests. There are only about 300,000 acres of GMO crops in the EU, mostly corn grown in Spain.

The US had 3.2 million farm operators on 2.1 million farms in 2012, including 2.1 million principal operators, 928,000 second operators and 143,000 third operators. Over 85 percent of the principal operators were male, but two-thirds of the second operators were female, often the spouses of the principal operator.

There were 67,000 US farms whose principal operators were Hispanic in 2012, including 40,000 with only a principal farm operator and 17,000 with two, three, or more operators. Most were very small. Almost 60 percent had less than 50 acres, and two-thirds had sales of less than $10,000.

Hispanics dominate among hired farm workers, but relatively few have become farmers. The number of Hispanic farmers is likely to increase, but many farm workers who have learned to farm the crops in which they work lack the capital to buy farms and the marketing expertise to sell crops. California strawberries highlight the challenges. Most strawberry growers (but not most strawberry acreage) are Hispanic, in part because marketing companies provide capital to grow berries and market them. Growers receive the residual for providing the labor to grow and harvest berries from plants that are usually provided by marketers.

In 2013, some 1.8 million individual tax filers reported farm income or losses: 613,000 reported $19.4 billion in net farm income, while 1.2 million reported almost $26 billion in farm losses. This means that two-thirds of US farmers report losses that averaged $16,000 a year over the past decade, while a third who report profits reported an average $18,000 a year (these data exclude 300,000 farm corporations and partnerships).

Most individual tax filers with farm income also have nonfarm income. Farming losses can be deducted from nonfarm income, allowing many Americans with nonfarm earnings or other income to choose money-losing farming as a hobby or lifestyle.

Supply Chains. The Produce Marketing and the United Fresh Produce Associations in May 2016 announced plans to improve compliance with labor laws in the fresh-produce supply chain. The Joint Committee on Responsible Labor Practices aims to "evaluate appropriate labor practices across the produce and floral supply chain, potentially leading to an industry-wide, global approach to responsible labor practices and consistent expectations among trading partners and the public."

Federal and state governments have enacted a range of laws and regulations governing how food is produced and handled from farm-to-fork. These laws deal with farming, including how fertilizers and pesticides are applied, employment, such as setting minimum wages and working conditions for hired workers, and food handling and safety measures ranging from the integrity of the cold storage chain to allowable residue levels on produce.

Growers are expected to abide by these laws and regulations, and federal and state agencies have investigators and inspectors to respond to complaints of violations and initiate inspections on their own. Many buyers and shippers or handlers go further, requiring growers to implement compliance systems and to undergo audits conducted by third parties to ensure that the grower obeys applicable laws. Some auditing firms employ and train their own auditors, while others sub-contract audits of particular farming operations to third parties.

Audits are snapshots of a farming operation, verifying compliance against a checklist at a particular time. What both regulators and buyers want is consistent compliance, a motion picture rather than a snapshot, which requires systems and a culture to ensure that food safety or adherence to labor laws is a key management objective that becomes an everyday goal of everyone in the production process.

Compliance with labor laws can arise in bottom-up fashion, as when workers refuse to work for farmers who do not pay at least minimum wages, or top-down, as when buyers develop and require growers to implement them to achieve preferred market access or premium prices. In tight labor markets, bottom-up worker behavior can encourage farmers to comply with labor laws in order to obtain workers, since workers with other job options reject substandard jobs.

Workers can quit jobs at poor farms, feel empowered to complain to enforcement authorities, or form unions to negotiate wage increases and improve working conditions. For example, the slowdown in new (unauthorized) workers since the 2008-09 recession has forced "better" growers to stop refusing to rehire within a season any worker who quit temporarily for a better paying job, an example of a tight labor market improving worker bargaining power.

Top-down compliance refers to programs that encourage employers to comply with labor laws to avoid a penalty or to receive a benefit. Sticks or penalties include fines for violations, and carrots or benefits include premium prices, preferred access to buyers, or certification that makes a particular commodity more desirable to consumers. Top-down compliance can involve individual growers, as with labor law enforcement, or many growers, as with voluntary agreements negotiated by worker advocates with buyers that provide benefits to all growers who are certified as in compliance.

The Fair Food Program of the Coalition of Immokalee Workers began in bottom-up fashion, as the CIW pressed major Florida tomato growers to double piece-rate wages from $0.35 for picking a 32-pound bucket of mature-green tomatoes to $0.70 a bucket, the so-called penny-a-pound campaign.

The CIW in 2001 switched to a top-down strategy that pressured tomato buyers to require growers to comply with the CIW-developed Fair Food Program in order to sell their tomatoes to these buyers. The CIW picketed Taco Bell outlets on college campuses until Taco Bell in 2005 became the first major tomato buyer to join the FFP.

The FFP requires growers to obey all applicable labor laws but goes beyond labor law compliance to require that farm workers on participating farms be educated about their rights and that health and safety committees be established that include worker representatives on participating farms to monitor compliance

The FFP also requires tomato buyers to pay growers an extra 1.5 cents a pound for the Florida mature-green tomatoes they buy. Growers keep 0.2 cents or 13 percent of the premium to cover administrative costs and to pass 1.3 cents or 87 percent of the extra funds to tomato pickers. When workers are picking tomatoes, they do not know if they will be earning the extra pay, which is received only for tomatoes that are sold to FFP buyers.

The FFP covers 17 major tomato growers who may employ a peak 30,000 workers. The Quarterly Census of Employment and Wages reports an annual average 15,000 workers on 300 Florida vegetable farms who paid total wages of $372 million in 2015, an average of almost $500 a week; FFP premiums often add $30 to $60 to weekly pay. Under the FFP, growers are not permitted to require workers to cup or overfill their buckets, which the CIW estimates adds 10 percent to worker earnings because workers can fill more buckets that are level-full.

The CIW reported that $5.2 million in extra payments were made to tomato pickers in 2010-11, reflecting funds that had been held in escrow from previous years, an average $3.1 million in 2011-12 and 2012-13, and almost $4.1 million in 2014-15. Florida growers shipped an average 35 million 25-pound cartons of tomatoes a year recently or about 875 million pounds. The $4.1 million in FFP premiums could apply to about 315 million pounds or 36 percent of the crop. (Some tomatoes, such as cherry and grape tomatoes, generate higher per-pound premiums for workers).

Hops. The US has 51,275 acres of hops, more than number two Germany with 45,470 acres. The US and Germany have three-fourths of the world's 124,580 acres of hops, which are expected to produce 230 million pounds of hops in 2016, including 97 million pounds in the US. Within the US, 60 million pounds are aroma varieties used by craft brewers and 37 million pounds are alpha varieties used by large brewers.

Trade. The EU-US Transatlantic Trade and Investment Partnership (TTIP) is under attack, especially in Europe, where critics denounce the secrecy surrounding the negotiations. Greenpeace in May 2016 leaked negotiating documents, setting off a discussion of EU leaders giving in to the US on sensitive issues such as geographical indicators, as when Parma ham can come only from Italy or champagne from France.

In TTIP and Trans-Pacific Partnership negotiations, the US allows members of Congress and 600 stakeholders to review US negotiating positions.

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