We have observed the gradual weakening of the position of grower cooperatives and have noted in our stylized history that several have disappeared while others have had to deal with declining market share and financial challenges. Some aspects of mandated marketing programs have been problematic. Some programs have been terminated by grower referendums and others have suffered adverse court decisions in regard to quantity control prorate programs or assessment of the benefits of generic advertising to individual private label firms. The weakened competitive position of grower cooperatives and problematic features of mandated marketing orders are a consequence of the existence of large producers and integrated grower-processors of sufficient size to have market power of their own. This is now more common than it was in the 1920s and 1930s when enabling legislation was initially crafted. We believe that erosion in the contribution of co-ops and marketing orders will likely carry forward into the 21st Century.Population numbers and per-capita incomes are the dominant determinants of ultimate demand for the produce of California farms and ranches. Table 14 reviews California, national, and worldwide prospects for population and economic growth. Demand within the state grew over the epochs with significant increases in population and per-capita incomes occurring in the recent past. The relative growth in California demands will likely exceed that of nationwide per-capita demands in the future, the result of continued immigration and rising incomes. Export demands, important in the early history of the state, have again become important, responding to rising incomes in important offshore markets in Europe, Asia, and elsewhere. It is obvious that California agriculture, being demand driven, must be sensitive to changes that effect state, national, and international demands for the products of its farms and ranches. Issues will relate not only to quantities in trade channels but also to quality and supply reliability. Future marketing opportunities will be defined in importance by trade to both local and distant markets as well as the location of competitive battles for market shares. High export dependency for many of its products, increased in-state population’s demand for food products,pot raspberries slower growth in national markets, and, above all, the possibility of both growing populations and incomes in developing economies will be important determinants for success.
These two drivers reflect the most negative of our outlooks.The SWP, which was funded differently than the CVP , may provide a financial model for future endeavors to serve particular sectors of the state, including agricultural, urban, and environmental water users. Highways are in a deteriorating state. Increased maintenance and traffic congestion add to transportation costs. Local roads are affected by inadequate local funding. Airports and harbors also face difficulties, including the need for health and security assurances. “User pay” may also be the coming mantra for covering the costs of research, development, and extension services. Private agricultural R&D investments now exceed public expenditures, a trend that is sure to continue, possibly to the detriment of discovery of basic scientific research necessary for applied research products. It may also skew products toward large-market products, curtailing development of applied research products focused on smaller markets, e.g., for smaller-volume horticultural crops of the sort common to California. We have postulated that superior management will continue to be a hallmark of a viable agricultural sector in the future. Higher tuition costs reduce public contributions to each student’s education at the state’s colleges and universities. Here, too, the shift ap-pears to be one of user pay, perhaps reducing educational opportunities and, along with that, less public support of the tenet that the benefits of a well-educated population serve society and the general welfare of the citizenry. Extension and public-education programs are also under budget scrutiny with the almost inevitable consequence of reduction if not elimination. Private extension and public-education programs may be developed for those willing to bear the cost. Programs without a core, definable economic market may cease to exist.The increasing regulation of agriculture is driven by environmental, worker, and consumer safety issues, among others. There has been a continuous increase in regulations, compliance challenges , and the like. The majority of regulatory pressures have been imposed since WWII during a period marked by rapid increases in the number of people living in California and a growing slate of concerns by the general public about the environment, labor, health, and consumer policies. A recent study of farmer responses to the effects of regulations reflects one attempt to categorize the broadening scope of regulatory activity: employee-related regulations—safety and health, employee rights, disclosure, transportation; community-related regulations—consumer health and safety, community public health and safety; natural resource-related regulations—air quality, water quality, water rights, threatened or endangered plants or animals, and wetlands; and regulations related to transportation of materials—transportation of hazardous wastes and of goods and materials .
Regulations had a perceived effect on management practices, including those of employee safety and training, paperwork, technology, management support and improvement, cultural practices, scale of operations, and efficiency . We in no way argue that regulatory activities are not in the public interest, but they do increasingly change the policy and regulatory environment within which economic activity exists, constraining options, increasing costs, and reducing the competitiveness of California agriculture. We can admit only to viewing the future as one in which regulations will have profound impacts on firm and industry productivity and competitive performance.The second set of new drivers is the flip side to the positive impact of population and income growth on demand: namely, competition for natural resources. Urban growth has already pushed agriculture virtually out of Los Angeles, Orange, San Diego, San Mateo, and Santa Clara Counties and is now spilling over the Tehachapis from the south and the Coast Range from the west into the Central Valley. Thirty-five million people demand more recreation space, more water, more land, and more public space . When we recognize that only a small part of California is hospitable to human habitation, which, in general, occurs in the same areas where agriculture thrives, the potential for increasing abrasion on the urban-rural interface is inevitable. In summary, both drivers are responsive to the demands of a growing non-farm population in the United States and in California. Both are external forces to which accommodation must inevitably be made. Litigation is only infrequently successful in preventing negative impacts. Agriculture has come to learn to work with other interest groups to make the best of possible outcomes. To the extent that they limit choices of producers and processors, they can add to the cost of production, reducing economic profitability and placing California producers at a competitive disadvantage to producers in other states and even in other countries that are not similarly affected. U.S. markets for some crops may not be affected unless there are alternate producers of the same or substitute products in other states or if there are offshore producers with lower costs of production. Shares of market in third-country markets may be affected if there are global competitors in those same markets with lesser constraints or non-regulated production options.Willard Cochrane in his history of U.S. agriculture argues that agriculture in the United States has basically been “supply driven.” That is, production was initiated for self-consumption , but marketable surpluses emerged as productivity increased.
Contrary to Malthus’ prediction that demand would outrun supply, agriculture in developed countries has been characterized by production expanding more rapidly than demand , leading to oversupply, low prices, and, ultimately,plastic gardening pots government intervention to support incomes. The individual farmer’s main defense to such situations was to improve efficiency by adopting new technology. But if new technology was rational for one, it was rational for all, so aggregate supply expanded further, thus pressing prices to lower levels. The argument thus arises that agriculture is on a perpetual “treadmill” of overproduction and low prices . But California agriculture was not settled by small homesteaders intent on feeding themselves first and then possibly producing small surpluses of basic commodities—grain, milk, eggs, and meat. California agriculture started with big farms and ranches producing much more than could be consumed by the farmers directly. California farmers produced to meet someone else’s demand—for hides and tallow on the East Coast and in Europe, meat for miners and those supplying miners, wheat for export, nuts and dried fruits for the East and Europe, and so on. This dominant focus on meeting changing product demands, coupled with the range of total products possible, meant that California agriculture could be opportunistic. But to be so, it had to constantly adapt to survive and, yes, thrive. Constantly adjusting to changing opportunities has meant that California agriculture has a perpetual thirst for new technology—better and cheaper is always a potential market advantage. Being a long distance from markets for both outputs and inputs placed an extra premium on efficiency and adaptiveness. This set of factors pulled California agriculture through a quick sequence of changes that, as incomes climbed and population grew, meant that California agriculture became more and more diversified—200 crops in 1970, 350 in 2000. A lesser focus on basic crops meant that California agriculture has been less influenced by, or dependent upon, U.S. farm programs. However, if programs offered opportunities, California agriculture made the best of them. After all, an agriculture that is more efficient or productive than that of the rest of the country should be able to perform better. California agriculture has done so in cotton, rice, and dairy. Being less focused on Washington, California agriculture sought favorable state policies on water, transportation, research, and development, as well as favorable tax treatment. Until 1961, rural areas dominated the state senate. California agriculture was able basically to get its own way pre-WWII and remained a powerful force thereafter, at least until it lost the Peripheral Canal battles in the 1970s.
A few other distinctions will round out our case that California agriculture is different. It has always been a capital-intensive but simultaneously very seasonally labor intensive agriculture. California agriculture has always had a strong dependence on distant markets but, as its own state market grew, it adjusted to meet growing “instate” demands. It has benefited greatly from being in the middle of a rapidly growing and rich “domestic” market. Having access to 35 million local customers is preferable to having only 0.75 million or even three million . The constant adjusting to meet changing demands of affluent consumers has had consequences for the nature of California agriculture. Since 1952, the share of output accounted for by annual field crops has fallen precipitously while production of higher-valued vegetable and perennial crops has increased substantially. Dairy production now dominates the livestock sector. The result is that a rising share of California agriculture is on longer, multiyear production cycles. This necessitates a longer planning framework if periodic price run-ups are not to be followed by rapid buildups in production capacity, which inevitably result in market gluts and falling prices. This is currently happening in the wine industry worldwide.It is now time to end this story. We have consulted history. We have argued that California agriculture has performed well compared to U.S. agriculture. Based on the total value of crops and livestock marketed, California became the highest-ranking agricultural state in 1948. It has maintained that ranking ever since while increasing the difference between it and the second most important agricultural state . In 1950 California accounted for 8 percent of the total value of U.S. agricultural production. Since then, the share has steadily risen. In 2000 California agricultural production was worth $25.5 billion, amounting to 13 percent of the U.S. total. The value of California agricultural production of crop and animal products is now more than the combined value of the next two states, Texas and Iowa. But California agriculture’s dependence on federal government farm payments has been significantly less than that of the rest of U.S. agriculture . In 2000 California’s payments amounted to $667 million out of total U.S. direct government payments of $22.9 billion—only about 3 percent of the total. In contrast, Iowa received about 10 percent of U.S. payments and Texas received about 7 percent. It is likely that payments to California producers will fall relative to grain-belt areas because field-crop production will continue to decline as growers shift to higher-gross-income crops as markets permit.