Grant Funded Report October 17, 2006.
Regulatory pressure is a source of increasing concern for California producers. Though regulations have a positive impact on society in terms of cleaner air and water, as well as increased worker safety; they impose multiple costs to farmers in the state. Growers must comply with a tangle of rules from the local, state and federal levels. Many regional differences arise in California environmental regulations, and regulatory pressure is unevenly applied throughout the state.
Previous studies regarding the regulatory environment in California have quantified the total cost of regulation on the state’s agricultural producers. The goal of this study was to conduct a case study analysis of regulatory costs on important specialty crops in the state, and to compare those costs with commercial-scale operations in other states where specialty crops are prevalent. Citrus and lettuce were chosen, as they are commonly among the top ten products in value of production in California, and like-sized operations could be identified in other states. Citrus and lettuce were also appealing because they represent two important production regions in the state that have very different environmental regulatory requirements. Dairy was intended to be part of the study, but cooperating producers were not identified in time to collect data.
The citrus case study provided compelling evidence that the regulatory pressure is much more significant in the San Joaquin Valley of California than is evident in the comparison state of Texas. The California grower’s regulatory costs amounted to $356.20 for each acre of citrus produced. When taking into account that the cultural costs of production (not including harvest) were $1,945, this adds 18.31% to the cost of raising oranges in California; if harvest and packing costs are included, it adds 7% to the total cost. On the Texas citrus operation, the regulatory costs were calculated to be $31.71 per acre. In terms of the relative costs of production, this adds 3.29% to the grower’s cost of production of $963 per acre. If harvest costs are included, regulatory costs decrease to .75% of total production costs. The primary regulatory differences between the states include workers’ compensation costs as well as air and water quality regulations.
The evidence provided by the lettuce case study showed similar results, though as Arizona’s regulatory environment is more similar to California’s than is Texas, the cost differences were not as dramatic. The Salinas Valley of California is in a less restrictive region with respect to air quality than is the San Joaquin Valley, although water quality regulations are still costly. The cooperating lettuce grower reported regulatory costs totaling $114.84 per acre, or 4.82% of cultural costs. Workers’ compensation is by far the highest regulatory cost for the California producer, which validates previous regulatory studies on California agriculture. In Yuma, Arizona, the cooperating grower reported a per-acre regulatory cost of $70.10, or 2.5 % of the per-acre cost of production. Prevailing differences between the states are once again, the cost of workers’ compensation, as well as pesticide regulation. However, the Arizona grower did accrue higher costs of air quality compliance, as Yuma is an area of non-attainment with respect to particulate matter, and the Salinas Valley has no air quality requirements that impact lettuce production.
In both crops, the costs of production reported by the growers and production budgets prepared by the university-based extension services in each state were substantially higher in California. The Golden State’s production budgets at both the grower and university level showed expenses ranging from 21% to 57% percent higher than in the comparison states. The average of the cost differences was 44%. The primary differences are the higher labor, land and water charges in California relative to southwest Texas and southwest Arizona.
A review of workers’ compensation and regulations with respect to air quality, water quality and pesticides showed significant differences among the states, particularly between California and Texas. Arizona’s laws were closer to those of California, but for the most part are not as stringent as those in California. Major regulatory differences in each category are outlined below. It should be noted that air and water quality regulations were assessed at the growers’ locations; they could be different in other parts of each state.
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