Economic analysis expects losses between $5.9 and $8.6 billion for farms, ranches and ag businesses
CALIFORNIA – Pandemic-related losses to California farms, ranches and agricultural businesses will range between $5.9 billion and $8.6 billion this year, according to an economic study released last week. The analysis says the state’s agricultural sector has already suffered $2 billion in losses so far, from disrupted markets and rising production costs related to the COVID-19 outbreak.
Financial impacts of the pandemic vary widely among different parts of the agricultural economy, the study says, depending in part on how much a particular crop or commodity relies on sales to food service and how much it has been affected by shifts in retail demand and changes in costs of production and processing.
Produced by Davis-based ERA Economics, the study was commissioned by a coalition led by the California Farm Bureau Federation and including UnitedAg, Ag Association Management Services Inc., the California Fresh Fruit Association, California Strawberry Commission, California Tomato Growers Association and Western Plant Health Association.
CFBF President Jamie Johansson said the study illustrates the scope of the pandemic’s impact.
“California farmers, ranchers and their employees have continued the essential work needed to keep American families fed, but that work has come with sacrifice,” Johansson said. “The impact is being felt in rural communities throughout the state that rely on agriculture for their residents’ livelihoods. We want legislators and regulators to bear that in mind and avoid making farming even more costly and difficult in California.”
Analysts looked specifically at 15 different agricultural sectors, using data on production, exports and prices through early May, plus interviews and surveys of people and businesses. The study showed the greatest dollar-loss impact to dairy, $1.4 billion to $2.3 billion; grapes, $1.5 billion to $1.7 billion; and flowers and nurseries, $660 million to $740 million.
In addition, the report says farms, ranches and related businesses have incurred higher operating costs for measures intended to increase employee health and safety, and in the logistics required to move crops and commodities to market.
“Along with the loss of key markets due to food service disappearing overnight or flower shops and garden centers not being allowed to operate in certain areas, we now are adapting to significant increased operational costs that many California farmers will never recoup,” said Chris Zanobini, president/CEO of Ag Association Management Services.
Some crops have seen increased business activity during the pandemic, the report says, citing shelf-stable items such as rice, processed tomato products and canned fruit. But in aggregate, the study says, “the losses far outweigh the isolated benefits.”
Abrupt shifts in purchasing patterns in export and domestic markets—prompted by the constriction in restaurant and other food-service sales and a swing to retail purchases for at-home use—have affected farmers, ranchers and agricultural businesses at various points in the supply chain, the study says, ultimately resulting in farm-gate crop price impacts.
“Observing how agriculture is affected will help us orient and decisively act to create a stronger future,” UnitedAg President and CEO Kirti Mutatkar said. “The agricultural industry is not only one of the most necessary industries, but one of the most resilient.”
The full report, titled Economic Impacts of the COVID-19 Pandemic on California Agriculture, may be found at www.cfbf.com/covid-19-study.
The dairy industry has been hit hard by the COVID-19 pandemic. Food service demand from institutions and restaurants dropped rapidly and is projected to remain low into the future. The export market has also been disrupted as importers reduced demand and freight industries adjust to travel restrictions. Domestic retail demand (e.g., grocery stores) initially spiked as more consumers shifted to purchasing milk and other dairy products at the store but has since settled back toward long-run averages. California fluid milk purchases are a small share of California dairy industry sales. Sumner (2020) provides a broad overview of industry impacts and changes. California dairies produce around $9.3 billion in output value per year (CDFA 2020). Most of this value is attributable to dairy products, with the remainder coming from livestock sales. Dairies generate more than 15,000 full time equivalent (FTE) jobs, many of which provide incomes for residents in economically disadvantaged communities in the San Joaquin Valley.
Favorable market conditions boosted sales through early 2020. Industry representatives interviewed for this study noted that 2020 was shaping up to be a good year. The Phase 1 trade deal with China was about to be signed which would reduce some non-tariff export market barriers and allow exporters to apply for retaliatory tariff exemptions. Some businesses specializing in the export market were focused on increasing customers and sales in China, but that market rapidly deteriorated with the spread of the virus in Wuhan and subsequently the world. In addition to the pandemic, the dairy industry has faced other pressures including water supply (sustainable groundwater management and water delivery cutbacks), tariffs, and labor supply.
Gross value dropped by around 20 percent in April and could fall up to 40 percent based on futures market prices. This drop in prices would trigger price loss coverage payments for dairy farmers at all federally offered coverage levels. Initial payments should be substantial due to high prices at the end of 2019. This means that dairies might not experience their lowest prices until mid-fall. With price loss coverage, estimated total direct year-over-year loss under the COVID-19 pandemic at the producer level would be $1.1 billion through the end of 2020. A sensitivity range is developed and described below to bracket the potential future losses.
Given these uncertainties, a range of impacts were developed over a projected recovery pattern based on dairy futures prices. Current year-to-date prices and quantities are used through May 2020. Futures prices are used through the end of the year, and output is varied based on the change in YOY production in a high and low scenario designed to represent the range of potential impacts. Applying this approach, the direct impact to producers and processors is estimated between $1.37 and $2.32 billion this year.
Citrus is storable on the tree, which allows for picking-to-order to smooth shocks in supply chain logistics or a drop in purchases from key food service partners. This flexibility has helped the industry manage the pandemic so far. Industry feedback on the effect of COVID-19 pandemic on the citrus industry indicated that impacts were relatively limited, except for lemons which are importantly linked to the restaurant industry.
The export market volume may increase with the removal of the Section 301 tariffs under the Phase 1 trade agreement with China. These developments should provide an export stimulus for the California citrus industry, which has been dealing with a retaliatory tariff rate around 70%. Industry movement data were used to estimate the impact of the COVID-19 pandemic. Since March, citrus movement (in aggregate) appears to be down, though complete information on the movement of citrus products is typically delayed so these data will be refined and revised.
Applying the change in production quantity and price, the total impact to citrus producers would range between $106 and $221 million. The proportion attributable to lemon producers is approximately $48 million. As noted above, it is likely that impacts to other citrus will be less than the upper range of $221 million because the industry is experiencing an uptick in retail demand that is not reflected in industry statistics used for the story.
Total farm jobs are down by 23 percent, or approximately 94,800. Food manufacturing jobs are down by 13,900. The majority of job losses are in the retail and restaurant industry, accounting for more than 650,000 jobs lost. Tulare County farm employment is down 28% from April 2019 to April 2020.