Pandemic, Water Costs, Consumer Behavior Lead to $2 Billion in Ag Losses Thus Far

The impact of the COVID-19 pandemic on California agriculture was severe, unprecedented, and will continue to affect the industry in the coming months and years.

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That’s the sobering news from an economic study released last week by Davis-based ERA Economics.

The pandemic’s direct negative economic impact on California ag is predicted to be between $5.9 and $8.6 billion in 2020. The estimated year-to-date losses are more than $2 billion.

Supply Chain Disruption

Abrupt shifts in purchasing patterns in export and domestic markets — prompted by the constriction in restaurant and other foodservice sales and a swing to retail purchases for at-home use — have affected ag businesses at various points in the supply chain, the study says, ultimately resulting in price impacts.

The timing of impacts varies by commodity and region. Areas like the Imperial Valley and central Coast that were in the middle of harvest and planting decisions incurred proportionally higher impacts than other regions.

Other crops that were not yet planted, such as processing tomatoes, saw impacts as contracts were canceled or revised down. Yet other industries, such as export nuts realized impacts as shipments were delayed, transportation costs increased, and foreign ports such as India were shut down.

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Greater Impacts on Rural Counties

Kern, Tulare, Imperial, and Monterey counties incurred ag-related job losses of 27% to 81%.

EDD data show job losses of more than 94,000 in crop farming sectors compared to April 2020.

Including foodservice and retail sectors, total April jobs were down by more than 800,000 across the state.

“The impact is being felt in rural communities throughout the state that rely on agriculture for their residents’ livelihoods,” says California Farm Bureau Federation President Jamie Johansson in a news release. “We want legislators and regulators to bear that in mind and avoid making farming even more costly and difficult in California.”

Change in Consumer Habits

At the consumer level, an initial run on grocery stores for consumer staples was followed by increasing purchases of nonperishable goods, as the foodservice industry shut down and consumers shifted to cooking and eating at home.

Restaurants, schools, sports, entertainment, and retail outlets were closed. The export market for fresh and processed produce was impacted by a lack of freight movement, port closures, and shelter-in-place orders around the world.

The net effect: an increase in retail sales for nonperishable items, evaporation of foodservice demand, and a drop in exports.

Some Increases in Business Activity

Some markets have seen increased business activity amid the pandemic.

For example, consumer retail purchases of shelf-stable items resulted in an increase in demand for rice and processed tomato products.

Some citrus purchases, like oranges, have reportedly increased due to its perceived safety and vitamin-C immune system benefits.

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Industry Pressures

The pandemic’s impact should be viewed in the context of other pressures on ag in the state, the report said.

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Groundwater Sustainability Plan implementation started earlier this year for critically overdrafted groundwater sub-basins across the state and 2020 water supply deliveries for ag are reduced, resulting in higher water costs.

AB 1066 and SB 3 are being implemented and workforce scarcity continues, resulting in increased labor costs for many producers.

Disclosure: The study by ERA Economics was commissioned by a coalition led by the California Farm Bureau Federation. The coalition also included UnitedAg, Ag Association Management Services Inc., the California Fresh Fruit Association, California Strawberry Commission, California Tomato Growers Association, and Western Plant Health Association.)