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News

California: a study on costs for processing tomato growers - correction

22/08/2023 - Madeleine Royère-Koonings , Sophie Colvine
Article initially published on 12  August 2023, republished on 22 August 2023 as the authors notified us that they found some errors in the calculations of harvest costs. The revised  version is attached to this article. 

Processing tomato growers are facing increasing costs, of which water, labor and fertilizer. That is what researchers from the University of California have reported in a recent study. However, it seems that farmers could offset the costs this season thanks to a better price negotiated with the processors.

 
Researchers at the University of California and UC Cooperative Extension farm advisors have analyzed costs from the past 6 years in a new study released in July. They based the cost analysis on the Sacramento Valley and Northern Delta and found out that production costs have increased substantially for water, labor, fuel and fertilizer.

Since 2017, when the researchers at the UC Davis Department of Agricultural and Resource Economics conducted their last cost analysis, there has been a 76% increase, and costs to plant, grow and harvest processing tomatoes are now close to $6,000 per acre. On those $6,000, the calculation shows more than $1,000 an acre to establish the plants, $500 an acre for irrigation costs, $1,000 an acre for mechanical harvesting and custom transplanting.

The study shows that, although there are multiple factors contributing to the costs increase, the major contributor is the price of water, which has gone up by 85% in the last six years. Fertilizer costs have increased by 72%, diesel fuel by 66%, and arm labor expenses saw a 52% to 63% jump. Labor costs have increased by 34% since the last study.

The weather also brings challenges of its own. Droughts and regulatory restrictions in the San Joaquin Valley prevented growers to grow tomatoes, and processing tomato production has shifted north in the last years. This year, late-winter rains should allow growers to reach a good yield. However, planting was delayed and compacted because of the spring rains, and that might cause difficulties for harvesting, as well as risks of pests and diseases.
In spite of the costs surge, the study concluded that the record prices negotiated this year could allow growers to earn a profit this season, whereas the net returns were negative in the last study.

Comments on the study by Mike Montna, President/CEO of CTGA: 
"The recent 2023 cost study for the Sacramento Valley/Northern Delta areas reflects what we believe is a pattern that we have not only seen in processing tomatoes but, in all areas of business. Specifically, the study illustrates the continued pressures of inflation on all inputs over the last 5 years. While this particular study is based on a theoretical grower in the Northern California area, these costs shouldn’t be considered absolutes in terms of production costs as every grower has different practices. However, it is valuable as a model for growers to compare to their own budgets for continued improvement and cost management. 
 
I also think it’s important to highlight that while the pressures of inflation aren’t distinct to California, some costs are unique to California. These unique costs are driven by changes to our State laws in recent years. For example, our labor costs have increased with State legislation that increased minimum wage from $10 dollars per hour to its current $15.50 per hour over the last six years. Additionally, our Agriculture overtime rules also changed requiring overtime wages to be paid after 40 hours and not the previous 60 hours. Further costs associated uniquely to California include the implementation of the Sustainable Ground Water Management Act (SGMA). With the last few years of drought (which we did receive relief from in 2023), the expense of water for crop irrigation has climbed sharply coupled with the increased regulatory costs from the State’s climate improvement actions. These are just some examples of unique increase in costs to California tomato growers that we have seen over the last few years.  These issues have not only increased the risk but have contributed to the declining return on investment(ROI) as it relates to tomatoes.  The increased raw product prices have been needed to return the ROI to more historical levels compared to the risk.  
 
Furthermore, these distinctive cost increases that California tomato growers have experienced over the last few years have been aligned with field yields that have been flat to declining at best. The increased price received for tomatoes is reflective of the above stated cost pressures driven by inflation and the relative risk of growing tomatoes versus growing other crops. The risk profile for growing tomatoes has increased over the years as the extreme changes in weather have made achieving average yields a little more uncertain than they were in the past. Yet, as I look around the globe, I know everyone has had to deal with instability and risks brought on by the capriciousness of mother nature and the rising costs of all things we purchase in our businesses and personal lives. While some slowing of inflation from the previous year has happened, it has been difficult for everyone to adapt to this “new normal” of price fluctuations. 
 
Finally, our hope for the future is that we see farm inflation inputs decrease from current levels. However, I acquiesce that once something reaches a high price point it doesn’t go back down to what it was prior. As we move forward, we will continue to examine how the costs, yields, and the market place reflect the risk associated with growing tomatoes versus the potential return. "


Sources: California Farm Bureau Federation, CTGA

Full report:
2023processtomatosacramentovalleysdifinal
amended 82123 2023processtomatosacramentovalleysdifinal
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CTGA

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UC Cooperative Extension (UCCE)

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UC Davis

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Dr. Brenna Aegerter

USA

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