Economic Issues for Raisins January 10, 2018 Fresno, California Prepared by Daniel A. Sumner William A. Matthews and Donald Stewart University of California Agricultural Issues Center Presented by William Matthews and Donald Stewart
UC Agricultural Issues Center AIC is a UC ANR statewide program, based at UC Davis for 30 years Website: www.http://aic.ucdavis.edu/ Areas of Research: International markets Pests and diseases Research and innovation Resource, including water pressures Environmental concerns Climate change adaptation and policy Farm and rural incomes Commodity and food demand and markets Farm supply and costs Food security
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SAMPLE COSTS TO ESTABLISH A VINEYARD AND PRODUCE DRY-ON-VINE RAISINS OPEN GABLE TRELLIS SYSTEM Main Authors Matthew Fidelibus UCCE Viticulture Specialist, Kearney Agricultural Center, Parlier, CA. Allison Ferry UCCE Farm Advisor, Viticulture, Tulare County Lindsay Jordan UCCE Farm Advisor, Viticulture, Madera, Merced and Mariposa Counties George Zhuang UCCE Farm Advisor, Viticulture, Fresno County
Users of Cost Studies Growers, Farm Management Companies Crop Commissions/Associations/Cooperatives Industry Representatives (Chemical Companies, Manufacturers) Lending Agencies University Staff and Students Government Agencies Worldwide Interest Cost Studies Website: 1.3 Million downloads in 2016
Contributing Cooperators UC Cooperative Extension Advisors and Specialists (main authors) Growers and Processors Industry Representatives Agricultural Lenders Chemical Companies Equipment Manufacturers Labor Contractors, Farm Management Companies Custom Services Providers (i.e. Harvesting Companies)
DOV-Raisin Cost Comparison Overhead Trellis System Across Years 2003 2016 Operations-Non-Machine Labor $/acre Hrs/acre $/acre Hrs/acre Prune 193 17.5 400 24.0 Tie Canes 88 8.0 234 14.0 Shoot Thin/Trunk Sucker 99 9.0 200 12.0 Shoot Positioning 77 7.0 167 10.0 Total Labor Non-Machine 586 53.2 1,240 74.3 Non-machine labor $/hour-2003 11.02 Yield tons/acre 5.0 Non-machine labor $/hour-2016 16.68 Yield tons/acre 5.0
DOV-Raisin Comparison Vineyard Establishment Costs Per Acre Annual Capital Recovery Total for 80 Acres Vineyard Establishment-OHTS 13,994 833 1,119,520 Vineyard Establishment-OGTS 13,412 798 1,072,960
DOV-Raisin Cost Comparison Vineyard Yield Across Trellis Systems Yield (tons/acre) Yield ($/acre) Vineyard-OHTS 5.00 8,000 Vineyard-OGTS 4.00 6,400
DOV-Raisin Ranging Analysis Range of Returns per Acre in San Joaquin Valley- Using Open Gable Trellis System-2016 YIELD (tons/acre) PRICE ($/ton) 3 3.5 4 4.5 5 1,150.00-1,121-590 -57 476* 1,008 1,300.00-671 -65 543 1,151 1,758 1,450.00-221 460 1,143 1,826 2,508 1,600.00 229 985 1,743 2,501 3,258 1,750.00 679* 1,510 2,343 3,176 4,008 1,900.00 1,129* 2,035 2,943 3,851 4,758 *2017 Announced RBA Field Price ($/ton) 1,800
Future Regulated California Minimum Wage Rate and Overtime Rate Minimum Wage Overtime Phase-In Year Wage (% Increase) Per Week Per Week± 2017 10.5 5.0 60 na 2018 11 4.8 60 na 2019 12 9.0 55 5 2020 13 8.3 50 10 2021 14 7.7 45 15 2022 15 7.1 40 20 Ref: Laura Tourte, (Lettuce, 2017) For employers with 26 or more employees. Increase in minimum wage from 2016 to 2017. ± Assuming a 60-hour work week and no other adjustments.
Utilization Share of California Raisin Type Grape Production Share of Raisin Production 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1980 1990 2000 2016 Crushed for Wine Sold as Fresh Grapes Canned Dried
Yield per Acre and Total Production of California Raisins (Dry Basis) Raisin Production (1,000 Tons) 450 400 350 300 250 200 150 100 50 Volume of Production Yields tons/acre (dry basis) 2.50 2.00 1.50 1.00 0.50 Raisin Yield (Tons per Acre) 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.00
Raisin Price per Ton (Dry Basis) $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 Price and Yield per Acre for California Raisins (Dry Basis) ($ per ton) Yields tons/acre (dry basis) 2.50 2.00 1.50 1.00 0.50 $0 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Raisin Yield (Tons per Acre dry basis)
Total Raisin Revenue (in $million) $160 $150 $140 $130 $120 $110 $100 $90 $80 Total Revenue and Bearing Acres for California Raisins Total Revenue Bearing Acres 240 230 220 210 200 190 180 170 Total Bearing Acres (in 1,000 acres) $70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 160
Share of Production of California Raisins to Domestic and Export Markets Exports Domestic Use 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
Value of Exports (in $million) $425 $375 $325 $275 $225 $175 $125 Value and Volume of California Raisin Exports Value Volume 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 170 160 150 140 130 120 110 100 90 Volume of Exports (in 1,000 MTs)
Volume of Exports (1,000 MTs) 80 70 60 50 40 30 20 10 Volume of Exports by Global Region 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 EU Asia Canada and Mexico Rest of World
Volume of Exports (1,000 MTs) 25 20 15 10 5 Volume of Exports to Top Destination Countries in Asia Japan China/HK Taiwan Korea Singapore 0 2000 2006 2012 2016
Demand in Asia depends on economic growth driving markets, but markets are only useful for California crops if the markets are open Consider the Korean-U.S. Free Trade Agreement that improved access to the worlds 11 th largest economy The agreement came into force just in 2012 and is allowing US products to compete with those from the many other places that have FTAs with Korea.
KORUS-FTA access improvement for grapes Grape Product Base Rate FTA Terms Fresh Grapes 45% Straight line decline to duty free at year 17 (2028) Raisins 21% Wine 15% Duty free year 1 (Jan 1, 2012) Duty free year 1 (Jan 1, 2012)
Interest Rates, Credit and Labor Low interest rates and more credit availability, means lower capital for establishment Our cost and returns studies have documented declines in interest rates for both operating capital and capital recovery (land prep, trees, irrigation etc. ) The rate of return required for a good investment is lower as cost of capital is lower. At the same time labor costs have risen, but raisins have lower shares of hired labor costs compared to other tree and vine crops and capital intensive vegetables and labor regulations in California are driving cost higher over the next 5 years. Year Operating Cost Interest Rate Capital Recovery Rate 2011 5.75 5.75 2016 4.75 3.75 Source: UC AIC Cost and Returns Studies, Almond Orchard Establishment Studies
Interest Rates Have Declined Substantially Over Past 20 Years Lows in the past two years. It is hard to see rates lower, leaving only up side risk for the cost of capital. This reminds us of Paul Rhode s explanation of the expansion of California trees and vines in the early 20 th Century 8 7 Interest Rate (Percent) 6 5 4 3 2 1 10-Year Treasury Moody's AAA Corporate Bond 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Farm Bill, Commodity Subsidies and Raisin Grapes Leaders of Agriculture Committees in Congress say the new farm bill is coming in early 2018. Crop insurance and insurance-style programs have emerged as central 1. Subsidies help crops compete for land and water (still some upland cotton and lots of rice in California) 2. Crop insurance subsidy makes eligible crops more attractive to bankers 3. Subsidy By increasing supply of feed crops, insurance and other subsidy causes a bit more use in feeding rations 4. Dairy does have a subsidy program that may encourage more cows, but more for small farms in the east than big farms in the west.
60% Federal Farm Commodity Subsidy as a Percent of Value (Grapes less than 1% from crop insurance) 50% 40% 30% 20% 10% 0% Cotton Peanuts Rice
Vine crops used to claim little federal farm subsidy Trade and domestic promotion paid with taxpayer support and checkoff funds R&D programs Nutrition programs, including school lunch provide demand support Environmental cost share programs are available But these are small in relation to size of the industry But now vine crops also use crop insurance subsidy extensively. These programs are much more like a production subsidy like the program grains, oilseeds and cotton
Does crop insurance subsidy affect what is grown, where and by how much? Yes, but no data yet for grapes. The premium subsidy has two potential impacts on area planted to a specific crop: 1. Crop insurance subsidy much like any production subsidy. This production impact occurs even with risk neutral farmers. 2. Also, crop insurance subsidy stimulates more insurance and even more of the crop with subsidized insurance. Econometric estimation using acreage and insurance data for national field crops shows large and significant impacts of crop insurance subsidy on cropping patterns and choice across crop. (Yu, Smith Sumner (2107) Research on trees, vines, vegetables and other specialty crops is underway
Crop Insurance in California: Acres Insured, Liabilities, and Premium Subsidy, 2016 Net Acres Insured (Thousands) Liability Premium Subsidy CAT Total ($ Millions) ($ Millions) Almonds 257 749 3,578 81 Grapes 217 466 1,242 24 Rice 51 496 507 9 Tomatoes 10 246 580 7 Calif. total 6,653 9,982 290 CA share of U.S. 2.3% 9.9% 5.0% Source: Risk Management Agency, USDA
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