While trade disputes and labor costs continue to affect Washington agriculture, Wenatchee-based McDougall & Sons, Inc. co-owner Scott McDougall says the situation could get worse. At a Farm Hall hosted by the Washington Policy Center, he said that annual increases in labor costs is making it more difficult to turn a profit.
“We’re still making money only because we have value-added apples,” he said. “If our tree densities weren’t where they were at, if we weren’t hitting target numbers, we would be in big trouble.”
Though their situation is “not nearly a crisis as the orchardists,” he estimates roughly 75 percent of the fruit grower industry is “in real trouble.”
One of the reasons is the disruption in exports due to the trade war with China. Last year, fruit orders were cancelled by Chinese companies after a new tariff took effect. The state Economic and Revenue Forecast Council (ERFC) reported that in the second quarter of the 2019 fiscal year, exports from Washington dropped 27.6 percent compared to the same time in 2018 – the largest drop since the first quarter of the 2000 fiscal year.
At the Farm Hall, Washington State Tree Fruit Association President Jon DeVaney said that the decreased trade activity has been “extremely disruptive” to Washington growers due to the strong focus on international markets which has determined the type of fruit trees that growers have invested millions in planting.
“The days when we grew one or two kinds of apples….is behind us,” he said. “We’re picking varieties and sizes…to target particular international customers. If they can’t get their organic Cosmic Crisp that they want, they’re not necessarily saying: ‘Fine I’ll take a traditional gala instead.’”
It’s not a dilemma that growers can solve simply by selling inside the U.S., he added. Domestic transportation costs compose a significant portion of shipping costs; of the $4,000 it costs to ship a container of fruit to China, a third of that is spent transporting it from Wenatchee to ports in Puget Sound. However, it costs $8,000-$10,000 to ship the same container to the East Coast, according to DeVaney.
“We have a huge transportation and price advantage to exporting product,” he said.
However, DeVaney also told Lens that aside from retaliatory tariffs, growers would also benefit from the elimination of additional custom inspections. “Having those issues resolved within the broader (trade) agreement would facilitate market access.”
The other pressure on farmers is increasing labor costs. Earlier this year the U.S. Department of Labor announced a $.93 increase in the minimum wage for H-2A workers – to $16 an hour. Despite a lack of federal funding for Washington’s program, the number of H2-A workers employed in the state has increased to roughly 25,000 workers: a 1,000 percent jump from 2007. DeVaney says that is “the only reason more growers have not completely lost crops.”
Yet, the program requires that employers pay for worker housing and transportation to and from their country. McDougall said that they see a 6.5-percent increase in labor costs each year, a rate “we can’t keep absorbing.”
“If you’re making a good widget, you just pass that cost along,” he said. “There’s no way, at least on the farmer level, that we can pass those costs along.”
To lower costs, they’ve recently explored robotic harvesting. However, McDougall said it’s not going to solve the labor issue anytime soon.
“We’ve been able to eliminate jobs much easier on the packing side,” he said. “(But) we’re (still) spending more time figuring out how to make labor efficient.”
“By public policy decisions, we have stacked the deck in favor of the large grower, and the smaller growers are being pushed out,” DeVaney said.