Food and Wine in Utopia: Interview 3 (Agricultural Real Estate Investor)

Foreword

                In this interview series about Food and Wine in Utopia, I interviewed an individual who is deep in the food industry, from food growing to real estate for agriculture.  He mentions the Invisible Hand often, a metaphor that Adam Smith used in his book Wealth of Nations. A book that I recommend while reading this interview is Hunger by Martin Caparros.

 

How long have you been growing food crops and what food crops have you grown and where have you grown them?

For 45 years, I’ve been growing strawberries, citrus tree fruits, grapes, all the vegetables. I’ve grown in six different 6 growing regions in California, Baja California, Mexico, Chile, and contract growing in China.

What makes you want to stay in this business? If there's a guarantee that you can make more or similar cash flow through other means of business, would you still want to do that? Or would you rather want to stay in food production? What's your biggest motivator for staying in food production?

Well, as you'll find most of my answers are going to be economic. You know, I believe that if you can be a more efficient operator than the average person in the agriculture space, you can make a higher return than a passive investment.

And because I have 45 years of experience, I generally have good knowledge of agriculture as well as a careers worth of relationships in the space. It’s also interesting to me if I didn't have my relationships and my experience, I certainly would not enter the agriculture space.

What was the first food production related job that you got?

I started farming strawberries when I was in high school in the Future Farmers of America (FFA)[1]. Then had a roadside stand, and eventually on top of that, a $300 million strawberry company that sold to private equity.

I’ve heard of an experience where picking strawberries was brutal on people’s lower back. Was that the same experience for you?

Agriculture and strawberries specifically have been good to me, I don’t consider it (brutal work), but I mean, it’s hard work for sure. But you’ve got to work with your mind and spare your back.

The question I have is now going to delve a little bit into utopia and how you think that should work. Or if you start imagining if you were an autocratic leader that could change the food industry or economy, and if money was not the driving factor, economics was not a factor, what sort of crops would you choose to produce here in California?

Well, generally, the economics of the crops follow the economics of cost to grow. For example, strawberries and raspberries are some of the most lucrative, but they're also the most expensive (to grow). I grow wine grapes and citrus at the moment because they're less labor intensive and easier to manage than strawberry crops. But the management intensity of what we call “specialty” crops is generally the most profitable, and that’s what I would pursue.

My father was in the carrot business, and it had very low margins. That’s why I entered the strawberry business because while it was a higher stakes risk, it had a much higher return than the carrot business.

I rent ground to strawberry, blackberry, raspberry, and blueberry growers because they’re able to pay the highest rents because it’s one of the highest value crops. I don’t want to grow it because I understand the risk and the time required. I don't have the time for that, so yeah, wine grapes and citrus are a perfect mix for me at this stage.

At UC Davis, I had a professor in the Viticulture and Enology program that talked about the importance of understanding and manipulating the genetics of yeast or grapes to combat with climate change or the changing environment that limits resources for the winemaking/wine growing world. Grapes could be one crop commodity that gets less priority in the future when considering what nutrition the community gets. If it ever came to that, do you think economics and nutrition go hand in hand in our current market and do you think that is the current case? If not, do you think that should be the case in your utopia? Or how should it be regulated?

I think the invisible hand is going to intervene. The large water consumption crops are going to move to other regions. You know, wine grapes use 1.5 acre-feet of water. Strawberries is 2.8 acre-feet. Broccoli and lettuce use 4 acre-feet. Alfalfa uses 8 to 10 acre-feet. Flowers, ornamental flowers, use 10 acre-feet. The first shortage we’re going to experience in California will be water shortage. As the water gets allocated, the high-water users are going to get relegated to places with more abundant water supply. Flowers have moved substantially from California to Columbia. Alfalfa has moved heavily into Oregon and Washington, where they have better water supplies.

So, my guess is the higher value crops are going to be the only crops that can afford the water and labor that we got in California. So we're going to grow the higher value crops and the other crops are going to have to go elsewhere.

If you were the autocratic leader, would you let these water shortages change the market trends or would you rather have a situation where you can dictate certain percentages of each different crops that could stay within California? That everybody's just going to suffer a little bit together and everybody still gets to enjoy that prosperity of being in California together.

You know, government intervention can only hold the water at one end of the bathtub for so long, it's going to sink its own level. Once growers understand the economics, they'll make decisions in their own best interest far better than any government intervention. The crops that can't afford to pay the prices will get fallowed. Crops that can afford to pay the prices will get their pick of the best ground with the highest quality water.

I grew up in Orange County where there were 60,000 acres of crops at one time. In my lifetime, it went from broccoli, cauliflower, and cabbage (which are low value crops) to beans, colored peppers, tomatoes, strawberries. Then eventually the beans went away. The tomatoes and peppers followed too. And the only ones who could afford the rent and the water structure was strawberries. We’ve seen the same thing play out in Oxnard.

The Ocean Mist Company, which is one of the largest Salinas Valley companies has a new operation in South Carolina, where they're farming 4000 acres of lettuce and vegetables because they can’t afford the labor, the water, and the rent in California. They have a huge advantage when a third of the population is in the northeast, they're closer to their customer base, so that's an example of a large-scale farming company that made a decision, an economic decision to move their production to another state where water is more plentiful.

Sorry to interject you here. You were talking about how they moved closer to the customer base. When you were younger, did you see any impact on the local communities, access to food, when all these crops were moving out?

Yeah. Absolutely. So the San Joaquin Valley, they’re going to have to fallow 25% or 1,250,000 acres of land over the next five years because of the water sustainability.  Many agricultural communities in the San Joaquin Valley and some in the Coachella Valley, are largely bedroom communities and more than 65% of that is farm labor. They are going to suffer terrific losses. If you drive through Santa Maria today, Santa Barbara County, you’ll find vacant restaurants because what I’ve just talked about plays a large role in this as well.

There’s not enough activity to support those businesses and you know many of those are nationwide changes. Look at the demographics of Santa Maria. They made a large investment based on the demographics and then as the workforce has shrunk, the demographics don't support their brands anymore, and they're closing them.

You know they closed Target in East Palo Alto today and that was the only grocery store in East Palo Alto. So, you’ll have serious economic consequences.

With these movements of larger food companies coming in or coming out, you have a stable proportion of small farms that you often see at the farmer’s markets. Do you think that their inefficiencies with farming at a small scale helps or harms the environment more?

I'm sure that you know they can help the local community by having better access to food or more local foods. But at the same time, they're probably releasing more carbon than any large-scale farming[2]. What are your thoughts on their role in this food industry and the environment?

So there currently is a niche where small growers can farm and go to farmers markets. They generally go to 10 to 15 farmers markets. They get direct premium retail prices higher than what you can buy in the grocery store. So the premium they receive covers their inefficiencies.

And it’s a social experience for the buyer of produce. Especially the younger generations are now more inclined to buy organic produce. They want to touch and feel their food.

It’s a small scale in the big scheme of things. It’s an example of something that can work but is a minor part of the economy.

That's a good thing you talked about. There is a niche of people who want, for example, organic products. An earlier conversation I had with a chef was his fascination with the customer's fascination with certain ideologies and how strongly they cling to that ideology that they only want to eat. Like foods without certain kind of chemicals.

Do you think that this is relatively a new movement that you've seen here within California or do you think there's going to be more in the future? Do you think more trends are going to keep coming up?

How does that affect the food industry?

Organic is not safer. But they believe that it is safer. I have 6 grandkids, a daughter, and two daughters-in-law who buy organic milk, organic everything. And they have strong feelings.

And I own organic land that I have rented to strawberry growers and vegetable growers. I also have conventional ground. I understand that organic is not healthier, but it is perceived to be. There is a large contingent of people who want to pursue that. There are chefs that want to pursue that ideology, and I'm not going to engage them in the facts of the situation because their ideology is not going to be changed.

Then do you think in the utopian society, there will always be a majority presence of the food production still being handled on a mass scale without the overkill of organic intervention?

Or do you think we'll start to see more of organic farming? Or a better education system that can educate the population? Maybe better food to access for everybody?

You may have to think about the economic factors as well.

Will it no longer be a free market, or maybe it is a stronger free market. It's all up to your interpretation. Do you have any general ideas?

So the organic consumption follows the economics that can afford it. So generally, you know, the East, and West coasts, and the Sun Belt. In the center of the United States very seldom even has an organic section. It is less important, and the economics are driving these decisions. There are large companies, like Driscoll Strawberry, that have a third of their volume being organic. They get a premium for it and it's a nice business model for them. You have other vegetable companies that have not been able to make organic production work because it's not on a scale that's economical for a large-scale company.

Yeah, it's an ideology as much as it is anything else.

You also mentioned (behind scene) that the rising minimum wage has also put dents into certain food companies and certain fruit productions where their margins are getting smaller. That this might be putting some organizations out of business or they're relocating.

Minimum wage is an important topic within utopia because it relates to the larger topic about the economics of the current world and the economics of what people want the utopian society to be. When we talk about minimum wages, we also talk about labor movements. Do you have any quick word or sentence you want to mention about the economics or how that impacts the food economy? And if you have any wishes of which direction it would trend towards.

Well for instance, in California, the minimum wage today is $16.50. Minimum wage in South Carolina is $8.25. South Carolina and Georgia grow peaches with $8.25 labor. California grows the peaches with $16.50 labor. The consumer doesn't know the difference between those peaches and that’s an example of a fungible product with roughly half of the labor cost.

California has decided that they want their minimum wage to be $16.50. And now more than 50% of all the strawberries that used to be grown in California are now grown in Mexico. This is because of the inability to afford the labor in certain market windows. 

When I started farming, the labor rate was a $1.25 an hour but when it went to $1.65, we didn’t know how we would pay it.

Basically, I've learned it takes two to five years for a minimum wage increase to be absorbed by the invisible hand. Only efficient businesses could afford to stay constant and those that are not efficient are going to go out of business in terms of bankruptcy.

That's the consequence of raising those prices. It raises prices for everyone in the grocery store. Some people are willing to pay it, others aren't.

Yeah, that's an interesting topic you brought up about the buffer zone on hiking the minimum wage for when people start feeling it and when it's taken by the invisible hand. Do you think that there can be policies or strategies that can be implemented where we can prolong this buffer zone period or to delay hurting the pockets of consumers?

I think the economic consequences of decisions are going to drive that strategy. And I think any thought that you can control it through government intervention is false.

You’ve got big examples of electric cars and solar panels that have been subsidized for a decade. They're still not economical without subsidies, either one of them. And because of the subsidies on solar panels, in California, there’s way too much electricity between 8:00 AM and 6:00 PM that they can't use. There is no power source between sundown and sun up. The government tried to intervene in a completely screwed up. We're paying 3-4 times what we were for electrical power 10 years ago. And the government tax burden has pushed so much cost and subsidies to those organizations and they're operating less efficiently than they did before.

You know the ideology can tell you that we now have a cleaner environment, we have less carbon footprint. But I'd say that's an example of failure and unintended consequences of dramatic policies. Now the utilities are unwilling to buy this excess solar power.

I think the reality is we all want businesses to behave in a certain way. To create full employment. Yet we want to control them so that they make rational economic decisions, so we want to control what they pay their workers, the government interventions, the control of pesticides, laws and regulations. But you know, they’re regulating themselves out.

The electrical example is one. Now with AI, we have an increased need for electricity that we’ve completely idled. We’ve abandoned coal, oil, natural gas in favor of clean methods and now we have less electricity in the United States than most of our competitor countries because they have nuclear power[3].

Couple of questions left. The engagement between the common citizen and the food industry; do you think it is enough that they mostly engage through grocery stores or restaurants? Or would you want them to be more engaged than they are now? For example, I heard a radical suggestion that perhaps like the military draft service, there should be a draft to get everybody involved in the food business, at least at some point in their lives. So maybe, like some time in high school, they must spend a certain number of hours with the farm near them. Do you have any ideas about that?

I think that's completely an irrational thought and it's not practical for the employers to educate people who have no interest or desire to be involved in some forced manner. The ag industry is a fairly low margin industry across the board. He doesn't have the profitability to take on that educational role at a reduced productivity level.

Like I said several times, that the economics drive all the decisions in agriculture. The most efficient are going to survive, and those who are not efficient are going to fail.

Would it be helpful to educate the consumer? I think absolutely. But I don't think having them work in an agricultural role would achieve that.

What’s your idea of how people should be educated or engaged with the food industry?

So generally speaking, the leaders in the commodity space educate the consumers. I mean, Driscoll has an outreach program, Sunkist has an outreach program, the larger marketing firms recognize that they have to educate the public. They're able to measure that in the marketplace as to how the public is responding to their education. I think that's the most efficient way.

From our conversation today, a utopian society, I would paraphrase it for you, and you can correct me if I’m wrong. The utopia is a really distant society in the future. Now my question is, how far do you think this goal is from our current stage in our society right now? And do you think it is attainable to reach that final efficiency stage?

I do not think it's attainable. And I think there's competitive forces around the world that are going to try to take advantage of economic opportunities that present themselves and so those will be forces to bear on the US food production. You know a big share of our crops come from other countries.

I mean, ironically. You know, we buy food all over the world and we ship our corn and soybeans all over the globe.

Yeah, I'm convinced that the economics is going to drive all the decisions, and people will make their own decisions based on their own economics and that’s my view.