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Preaching To The Choir:
Shouldn’t The Industry Seek To Persuade
Constituencies Who Have Other Priorities?

Jim Prevor’s Perishable Pundit, July 25, 2019

The produce industry has many articulate and knowledgeable advocates. Yet, it doesn’t seem we are being particularly effective in advancing our public policy objectives. Think about how many years the industry has been advocating a guest-worker program without effect – this is true under both Democrat and Republican administrations — and it goes back long before President Trump was in office.

President Trump’s negotiating philosophy holds a particular challenge to special interest bargaining groups, because President Trump is unwilling to confine disputes. In fact, he seeks negotiating leverage by broadening the field of dispute. This is why Germany became apoplectic when President Trump threatened to consider Germany’s unwillingness to meet its defense expenditure commitments in his decision on whether to impose higher tariffs on German cars:

“European Budget and Human Resources Commissioner Günther Oettinger argued in a Sunday interview with Germany’s ARD television station that the talks to resolve the dispute should exclude defense spending.   

“This should be only about trade. Defense, NATO or other topics should not get mixed up,” he said.”

Of course, there is no particular validity to Mr. Oettinger’s claim. If a country is depending on the US for defense, it can offer its industry lower tax rates. So, failing to meet defense obligations is a de facto subsidy to the industry of a country. And a country that is subsidizing an industry is a textbook case for compensatory tariffs. 

So why should it be forbidden to consider contributions to collective defense in assessing the appropriateness of tariffs? This is just a problem because it is a kind of three-dimensional chess game that opponents would rather not play.

None of this should be a surprise to anyone who has read President Trump’s book, Trump: The Art of the Deal. In the book, he highlighted his philosophy, which Arjun Reddy of Business Insider caught in a piece titled, Trump is deploying a tactic from “The Art of the Deal” This was published after President Trump had announced tariffs against all Mexican products:

President Donald Trump's sudden announcement of tariffs on Mexico takes a page from his book "The Art of the Deal." In the book, Trump highlights the importance of having leverage in any negotiation.

"The best thing you can do is deal from strength, and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can't do without," Trump wrote.

Tariffs represent a critical threat to Mexico, given the country's heavy dependence on trade with the US. Mexican exports to the US totaled $346 billion in 2018, representing more than 30% of the country's gross domestic product. 

"Mexico, given its high dependence on trade with the US, cannot afford to risk high tariffs causing substantial loss to competitiveness and the economy," the Société Générale research analyst Dev Ashish wrote.

Trump delivered the news in the form of a tweet, saying tariffs would be in place "until such time as illegal migrants coming through Mexico, and into our Country, STOP." The migrants have typically been people fleeing violence in Central America, with these migrants passing through Mexico to reach the US.

Ashish sees few options for Mexico other than agreeing to a deal with the US, which may not back down given the importance of the immigration issue to Trump's base. Immigration was among the most critical issues of the Republican presidential primary, with voters favoring Trump's hard-line positions.

"The Obrador government will negotiate with the leverage it has in terms of trade relations with the US and business leaders' interest in continuity. Nevertheless, in all probability, Mexico would have to offer concrete assurance to the Trump government if the US stands firm," Ashish added.

Ashish said it would take time to put a solution in place. However, the pressure on the peso, which dropped markedly as the tariffs were announced, as well as the tariffs potentially rising to 25% by October, will place intense pressure on Mexico to broker a solution.

Then the Fresh Produce Association of the Americas (FPAA) came out with a statement in response to President Trump’s tweet about his plans to impose these tariffs: 

A New Tariff on Mexican Goods Will Impose A $3 Billion Food Tax on American Consumers, According to U.S. Produce Importers and Distributors 

May 31, 2019 - Nogales, Arizona – Americans will be paying an extra $3 billion for avocados, tomatoes, mangos and other fruits and vegetables if 25% tariffs on Mexican imports into the U.S. take effect in October, according to the Fresh Produce Association of the Americas.

“This is a tax on healthy diets, plain and simple,” said FPAA President Lance Jungmeyer. “With the obesity epidemic, this is completely unacceptable and counterproductive in dealing with the migrant issue at hand.”

Americans consume $12 billion in Mexican fruits and vegetables a year, according to the U.S. Department of Agriculture.

“The latest threat from the President will harm American consumers and U.S. businesses first and foremost,” Jungmeyer added. “This takes us backwards as a country and threatens USMCA passage at a critical time in moving this agreement forward.”

This comes on top of 17.5% duties recently imposed by the Administration in Mexican tomatoes, duties which could raise prices 40 to 85%, according to an analysis from Arizona State University economists.

Additionally, fruit and vegetable growers from Florida and Georgia have convinced their Congressional delegation to withhold votes on USMCA unless Congress passes a Marco Rubio-led bill that would add even more duties or tariffs on Mexican produce.

Not only are these punitive tariffs and duties a tax on American consumers, they must first be paid by American companies.

“This is going to be a drain on Southwest border communities, where employers have already cut jobs due to other moves by the Administration to put pressure on the border,” Jungmeyer added.

It was a perfectly sound statement, emphasizing the cost to American consumers when tariffs are imposed. The issue became moot when Mexico and the US reached an agreement. Perhaps the statement would have ultimately roused some congressional opposition. We don’t think it likely though. President Trump didn’t say that this plan would reduce costs for American consumers or encourage healthy diets; he said it would put pressure on the Mexican government to fulfill its responsibility of not allowing their country to be an illegal transit point for Central Americans to enter the US.

Although President Trump was able to get a deal with Mexico, we still can’t really say if this approach will ultimately work. But the point is that the produce industry is not really responding to the interests that are pushing the policies it doesn’t like. If your main concern is illegal immigration across the Mexican border, then you will hope this works, and then, after Mexico steps up and controls the immigrants coming from Central America, the tariffs will be dropped. The issues of the short-term financial impact on American consumers and US businesses are really secondary in the minds of the advocates for such policies.

The point is that the produce industry is not really responding to the interests that are pushing the policies it doesn’t like. If your main concern is illegal immigration across the Mexican border, then you will hope this works, and then, after Mexico steps up and controls the immigrants coming from Central America, the tariffs will be dropped.

Similar thoughts came to mind when we read Kevin Murphy’s op-ed in The Wall Street Journal, “American Farmers Need Immigration Reform.” Kevin was the CEO of Driscoll’s and is an immigrant from South Africa, so he is well positioned to make this case. His plan is simple:

The American Farm Bureau Federation notes that “50-70 percent of farm laborers in the country today are unauthorized.” Why so many? Because “few U.S. workers are willing to fill available farm labor jobs.” It’s not possible, then, simply to replace this workforce with American citizens. The only question is whether foreign-born workers will produce our food here in the U.S. or in other countries for us to import.

There’s a three-step solution: First, ensure a viable guest-worker program for the effective inflow of farmworkers. They’re often called low-skilled, but many are highly skilled for specific and essential jobs.

Second, workers who are otherwise in good legal standing should have the opportunity to earn legal status. That would provide safety for them, and much-needed stability for their employers.

Third, pass laws that enable a system of legal workers and secure borders. This will ensure we’re not back at this same place 30 years from now.

None of this is new, though, and it is hard to see why it will suddenly be persuasive. Even within the produce industry, though few see an upside in publicly challenging big growers, we often hear of a different opinion. As far back as 2006, one of the most important buyers in the industry wrote us with his thoughts and we will reprint that piece here:

Some very incisive thoughts in response to our piece on immigration:

On immigration, much to the dismay of my shippers, I’ve long contended that the agricultural community is hooked on the drug of cheap labor. In the 60’s, people were mechanically harvesting certain vegetables for Campbell’s Soup. They had to quit doing it because labor was so cheap — they couldn’t beat the cheap labor rates — and the machine wasn’t efficient enough to overcome it. The point is, it was being contemplated 40 years ago, and it should have been an industry-wide effort ever since.

We haven’t worked on mechanization and automation in this industry because we have had no motivation to do so. Now, with fear of labor shortages, we see a frenetic pace of R&D on mechanical harvesters. I’m already hearing tales of at least four companies that will be mechanically harvesting lettuce in Yuma with less than 50% of the labor previously needed, and they also claim better quality! And this is only the start of an industry revolution.

And we haven’t attributed the correct cost to our cheap labor. Thirty percent of California prison inmates are in the country illegally. There are 20 murders per year in Salinas, a city of 150,000 people. The city spends almost $1 million on a gang task force every year. These are social costs that are borne by all the citizens of the city and state, and aren’t accounted for in the cost of the produce.

Where there’s a will, there is a way. We haven’t had the will because there was no need to abandon our reliance on cheap labor and find a better way of doing things.

This reader, who has extensive experience at the highest levels in our industry, makes the point that often gets lost in all the political battles, namely, that the industry of today is shaped based on the incentives in place today. Only a fool would extrapolate from the current situation and assume in some kind of linear fashion that if we were short 10% of the produce harvesting work force, then ultimately production must decline 10%.

Wages can go up, mechanization can change both the amount and the nature of the labor needed, consumer product preference can shift as higher wage rates lead to differential price changes on various products depending on the difficulty with growing, harvesting and packing.

In the piece we ran last week, the Pundit linked to an article by Professor Philip Martin from U.C. Davis, and we’ll link to it again for those who missed it. It is a fascinating piece that talks about what impact guest workers really have on an economy. His basic point is this:

Guest worker programs tend to increase legal and illegal immigration for two major reasons: distortion and dependence. Distortion refers to the fact that economies and labor markets are flexible: They adjust to the presence or absence of foreign workers. If foreign workers are readily available, employers can plant apple and orange trees in remote areas and assume that migrant workers will be available when needed for harvesting. Dependence refers to the fact that individuals, families, and communities abroad need earnings from foreign jobs to sustain themselves, so that a policy decision to stop guest worker recruitment can increase legal and illegal immigration.

In talking about the failure to pursue mechanization, our reader is basically referring to the distortion effect that Professor Martin refers to in his report.

In addition, our reader points to something economists call externalities. Basically, this is a cost not paid by the parties in the transaction. Pollution is the classic example. In the absence of regulation or taxation, a seller of product could have a factory that bellows pollution in the air, and neither the seller nor the buyer of the goods made in that factory has to suffer the effects of the damage caused by the pollution. That price — bad health, increased medical expenses, closed fisheries, etc. — is paid by an external party, typically the general public.

This reader is pointing out in his note that there are many costs to farm labor and not all of it is reflected in the price of the goods. If there are external costs to hiring the current classification of farm labor and we restrict that classification from entering, from a societal standpoint, it means there will be more resources available to deal with any problems that come about if labor does become constrained due to restrictions on immigration.

The reader’s two points together are astute and point to something problematic about both trade associations and governmental bodies: Both tend to be responsive to the industry only as it is today. The people who are going to work in factories that will produce automated harvesting equipment don’t know it yet, so they can’t lobby for their interests. The only voice that typically gets heard is from those who have something to lose from a change in the status quo.

We are glad to serve as a forum for such unheard voices here at the Pundit.

Kevin Murphy echoes many of the industry’s leaders when he concludes, “The only question is whether foreign-born workers will produce our food here in the U.S. or in other countries for us to import.” But those two scenerios — either foreign-born workers producing our food here or in other countries for us to import — are simply not a complete listing of all available options. 

No less a publication than The New Yorker recently ran a piece, The Age of Robot Farmers, which starts with the interesting efforts of Gary Wishnatzki of Wish Farms. (Gary’s grandfather bought produce from this Pundit’s grandfather and great-grandfather, and both of our families eventually became wholesalers off both the Washington Street Market and, eventually, the Hunts Point Market in New York.) 

Now Gary is a true industry leader on the production side. In his Gary’s Post Blog, he tells a funny story:

“You Have Less Than a Year to Live”

For the last five years, I have dedicated a significant amount of time to Harvest CROO Robotics. In the summer of 2017, we were invited to the Forbes Ag Tech Summit in Salinas, CA to be recognized for our efforts to bring an autonomous strawberry harvester to market. Along with co-founder Bob Pitzer and Head Electrical Engineer Scott Jantz, we set up a booth display with a looping video of the technology in action.

An estimated 2,000 growers, academics and technology experts throughout California attended the event. In addition to the exhibits, there were speakers and panel sessions that went on throughout the day. Along with numerous produce industry leaders, guest speakers included Janet Napolitano and namesake Steve Forbes. 

The session on farm automation particularly interested me, so I made a point to sit in on it. The panel included Brian Antle of Tanimura & Antle, Dan Steere of Abundant Robotics and independent strawberry grower Javier Zamora. The discussion centered around robotic solutions for the farm. Brian Antle and Dan Steere spoke of the technologies they are using for planting lettuce and picking apples, respectively. 

When Javier was asked about automation in strawberries, he made a point to say how hard it would be for a machine to pick strawberries. He described the delicate nature of the fruit and the difficulty with identifying ripe berries. He ultimately said it was nearly impossible and he would not see an automated solution for strawberries in his lifetime.

At this point, I’m getting agitated. We’ve spent countless hours trying to bring a solution to market, so this subject has been very near and dear to my heart. Now, here I am listening to a person who was totally oblivious of our developments, and he was speaking as if he was some expert in the robotics industry! I was more than a little miffed. As I sat there, teeth gritting, I remember thinking “not in his lifetime, huh?”

When the panel discussion was over, I spontaneously sprung to my feet and made a beeline toward Javier. As he came down the steps, I greeted him and extended my hand: “Hello Javier, my name is Gary Wishnatzki. It’s very nice to meet you.” I got up close and put my hand on his shoulder. I stated in a somber tone: “I am very sorry to be the one to inform you, but (I took a dramatic pause) … you only have a year to live.”

At first, Javier was taken aback by my brash statement. Eventually, he began to chuckle once I explained the context. I urged him to come by our booth and see the video of our technology. After he did, I’d like to think that his perspective shifted on the prospect of a robotic berry picker happening in his lifetime.

We are headed for great things, as long as we live long enough to accomplish them.

Whether Gary’s efforts succeed or not, the point is that simply saying Americans won’t do this work is not going to be persuasive. The key phrase in the Farm Bureau statement is “fill available farm labor jobs,” and the key word is “available” – but in capitalism, if you can’t attract labor, you change the job or the compensation so you can attract labor.

The letter to the Pundit from the big buyer and Gary’s work with robotics both allude to a kind of tipping point. Surely in an age when we can do robotic surgery, and artificial intelligence applications are becoming commonplace… surely we can develop the technology to limit the need for laborers. The challenge is that the availability of inexpensive labor makes it uneconomical to do so.

In any case, there are so many reasons different people oppose using immigrant farm labor:

1) Some see externalities in their employment — crime, cost of law enforcement, social and medical costs, etc. — as our letter-writer alludes to.

2) Some see the immigrant labor force as depressing wages for unskilled Americans.

3) Some see a political issue as in a democracy if people become citizens they become, in a sense, your partners. Fully able to vote. But not everyone wants to become partners with new people.

4) If they believe we should have a certain number of new immigrants each year, they would prefer us to prioritize on other criteria, such as allowing in people who are well-educated, who have resources to invest in the country, etc.

We’re not completely persuaded by any of this, but if the industry is going to move the needle on public policy, we need to engage heavily in the debate. 

That means taking a greater role in communicating on tariffs, labor and a host of other concerns. It also means understanding the concerns of those who think differently and doing the difficult work of changing their minds.

 

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