Economist sees strength for California agriculture
Vexing problems with water, labor and transportation must be addressed

Bob Krauter, Capital Press California Editor 5/15/07

SACRAMENTO - California agriculture is financially sound and poised to capture more market share abroad, but vexing problems at home need to be addressed to secure the industry's long-term sustainability. Ken McCorkle, senior vice president and manager of the Agricultural Industries Group for Wells Fargo Bank in Chicago, delivered that message to an audience at the Great Valley Center's annual conference in Sacramento May 10.

"In aggregate, the California agricultural industry is pretty healthy right now," McCorkle said. "There are many reasons why California agriculture should perform well over the next 25 years, but there's a caveat to that statement; the need to expand on our vision of sustainability and act on that vision going forward."

California agriculture, currently a $34 billion industry with roughly $10 billion in net farm income, is fundamentally strong. Farmland values since 1988 have been strong too. But McCorkle outlined a number of threats to sustainable agriculture: loss of farmland to development, inadequate and unreliable water and labor supplies, and an overloaded transportation infrastructure.

McCorkle said water looms as a major factor for California farmers. He estimated that the water needs of 36 million Californians exceed available supply by 2 million acre-feet. This overdraft is expected to grow to 5 million acre-feet by 2030.

"To achieve sustainable agriculture, we must increase storage capacity and boost water supply by 4 million to 5 million acre-feet to achieve average sustainability," McCorkle said. "We should encourage conservation among all water users, but conservation alone will be insufficient to achieve sustainability."

Just as important to farmers is securing a stable and reliable source of workers, McCorkle said. While agriculture has invested heavily in mechanizing many tasks on farms, he said California is increasingly reliant on a seasonal labor force that includes a rising number of unauthorized foreign workers.

"Many crops are not readily mechanized and there is a continued need for a seasonal workforce," he said. "A guest worker program is essential to California agriculture's sustainability."

The Wells Fargo Bank economist, who grew up in Davis, said California has had a history of developing solid infrastructure to support its agricultural industry. During the 1940s and 1950s the state made significant investments in research and development, transportation, energy and in water projects that propelled California to become the number-one farm state.

Governor Arnold Schwarzenegger has made infrastructure improvements a priority. Last year, he championed passage of $37 billion in bonds to improve levees, roads and schools. This year, he has set his sights on increased water storage and conservation.

McCorkle said a key area for improvement is roads, ports and rail lines that have become clogged with traffic. The nation's aging and overtaxed transportation system is in dire need of help to support increased agricultural freight in the future.

In the next two decades, domestic freight traffic will increase 67 percent, highway traffic will increase 73 percent and rail traffic is expected to rise 85 percent," McCorkle said. "How is cargo going to move?"

He said there is little room to expand highways, and the nation's rail mileage has decreased as former rights of way have been developed. Congestion has already caused billions of hours of lost consumer time in traffic and wasted billions of gallons of fuel. McCorkle, citing the words of warning of a major shipping line executive, said the country's freight transportation system "could reach absolute capacity in three years if billions are not invested to expand ports and intermodal connectors."

If California can successfully address these and other challenges, McCorkle sees a bright future. California agriculture has many unique strengths, including its diverse mix of climates and soils that supports a long list of specialty crops, many produced exclusively in California.

McCorkle said the market opportunities for agriculture will be "truly extraordinary going forward" because of impressive growth in international markets beyond the group of industrialized countries known as the G8, the United States, United Kingdom, France, Germany, Italy, Japan, Russia and the United Kingdom, that account for the major share of world's economy.

"This time around, it is the G25. There are a number of countries that are participating in the great prosperity that is going on and that is really very healthy," he said, noting that the annual growth rate is highest in China at 10 percent on an annual basis, and India's is nearly 8 percent.

Growth in the global marketplace has been bittersweet. The U.S. is running a large trade deficit and has consumed imports from other countries --- what McCorkle called "our gift to the rest of the world," but there is good news in agricultural trade.

"The good news for agriculture is that having the world awash in U.S. dollars creates a very weak dollar. Because you have a very weak dollar and you are export-dependent such as we are in California agriculture that makes our exports very competitive on the world market," he said. "We are close to a 35-year low in terms of the strength of the dollar."



Bob Krauter is based in Sacramento. His e-mail address is bkrauter@capitalpress.com.