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California's Farm Crisis

March 26, 1985

California agriculture is fabulously productive, accounting for 10% of the entire nation's production, generating with allied industries such as food processing some 12% of the state's gross economic product. But for all their richness and diversity, the state's farms have not escaped the national farm crisis. The industry in California is "currently experiencing its worst financial stress in over 50 years," according to a study by the Bank of America. There has been an unexpected reversal of farm-economy expansion, with many producers "burdened by excessive debt loads, depreciating assets," although "the great majority of agricultural operations continue to be successful," according to a study by the Security Pacific National Bank.

The crisis in California farms is not generalized. Some farms and some regions are enjoying relative prosperity. But most are operating on narrow and sometimes negative margins, with every likelihood that full recovery will not come until the end of the decade--and then only after considerable readjustment, reorganization and the "shakeout" of the insolvent.

Indeed, the worst appears to lie ahead. Some state officials and bankers report that short-term, special emergency arrangements have been made with many of the most distressed farmers, allowing them to try to control their declining fortunes. But those applications of financial first aid are not expected to be extended beyond the early months of next year. There have been very few foreclosures, but the rate of foreclosure this year is four times that of last year and will accelerate in 1986, most experts agree. The dimension of the problem is demonstrated by the fact that there were no payments of interest or principal on about 12% of the agricultural loans in the last three months of 1984.

Some painful but necessary things are happening that could in the long run strengthen California agriculture. Land values are falling for the first time since the 1930s. The decline is reported in most areas--including the prime Central Valley, where more than half the state's farm revenues are generated. Vineyards that sold a few years ago for $14,000 an acre can be bought now for $5,000, one banker reported, and the decline has apparently not reached bottom. At the same time, farm closings may serve to eliminate some excess production and some marginal farms. The result could be more realistic land values and fewer but more efficient farms--both essential if the state is to compete globally.

New federal farm legislation and proposals for tax revisions could also have an effect on California. The leading sector of California agriculture, milk, and the third-ranking product, cotton, both are heavy with federal subsidies that would be phased out under proposals that are now before Congress. Many other sectors have been influenced by tax incentives that have encouraged what now appear to be uneconomical agricultural investments. Tax simplification would eliminate those distorting provisions.

Most California farmers see their future prosperity tied to free world trade and greater access to foreign markets. The only active move for protection comes from the wine-grape growers, among the most devastated in the present crisis. They are not likely to prevail, and that is as it should be--painful as their situation is today. One-third of the state's farm acreage is devoted to export-crop production--including 76% of the cotton, 54% of the almonds, 44% of the lemons and 42% of the rice. But competition is increasing in the world market not just in wheat, corn and soybeans--in which the Midwest once dominated--but also in the specialty crops--fruit, nuts and vegetables--in which California once dominated.

In California, as in the rest of the United States, the evidence suggests that the current crisis on the farms is not just another swing in the profit-and-loss curve inevitable in farming, but a profound structural crisis requiring significant changes to remain competitive. Farming may never be the same again.

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