Rising labor costs to boost robotics and hiring of farmhands from new regions

CoBank senior economist Ben Laine says wages could increase to the point where it becomes cheaper for the US to import commodities rather than the labor needed to produce them domestically.

Tight US labor markets could accelerate a shift towards automation in the dairy industry and lead permanent-crop producers to source farm workers from new regions of the world, according to CoBank.

In a new report, the Colorado-based rural credit provider says agricultural wages have been forced to rise quicker than most other industries in order to entice manual laborers fielding more lucrative opportunities in construction, food services and manufacturing.

Detailing differences in labor conditions among agricultural sub-sectors, the bank singles out the dairy and specialty crops segments as those for which labor accounts for the most significant share of operational costs.

“The risk to the agricultural sector, or any domestic industry, is that wages will increase to the point where it becomes more cost-effective for the US to import the commodities rather than import the labor to produce them domestically,” senior economist Ben Laine wrote.

Pain in the H-2A

Limitations on visas designed to bring in seasonal agricultural workers have played a key role in creating the labor stress currently facing US producers. The report argues flaws in the program are part of what encourages many workers to work around the system, helping explain why only half of the current agricultural labor force is legally authorized to work in the US.

The most commonly used visa for temporary agricultural workers, the H-2A, requires a costly process to ensure that the job could not have been filled by an American worker and that bringing in the guest worker – for a period of up to 10 months – will have no negative effect on US wages. The report says applicants have only 75 days before a worker is needed to complete necessary applications, leaving many permanent-crop growers in a position of having to apply for foreign guest worker visas before having a clear sense of how big their crop (and resulting labor needs) will be.

Because Mexico is the primary source for hired workers on US farms, the report said, changes there have been particularly important for agricultural labor conditions. In addition to structural factors such as a decreasing birthrate and consolidation in its own agricultural sector, demographic changes resulting in a decreasing share of its population coming from rural areas also loom large.

“Mexicans looking abroad for work in the US, meanwhile, are increasingly from urban areas and are more attracted to the higher-paying job opportunities off the farm in urban areas,” Laine wrote.

“Robot payment”

In response to the dwindling number of workers from Mexico, the report predicts that ag employers will continue to increase wages, begin to bring in workers from East Asia and Central America’s Northern Triangle and increasingly look to pursue automation and robotics.

Though permanent-crop producers’ labor requirements rise significantly during harvest, the report points out that dairy producers’ labor needs are the same year-round, making the sector particularly sensitive to labor conditions.

CoBank profiled a dairy producer in Washington State that responded to difficulty in hiring workers by investing in eight robotic milkers and a computerized feeding and waste management system. The producer told CoBank that the resulting labor savings has made up two-thirds of what he referred to as his monthly “robot payment” and that he plans to convert his other operation as soon as it is financially feasible.

“Though the high cost of some of these technologies has been prohibitive in the past, as the technology improves and the cost of labor continues to rise, the benefits begin to outweigh the costs for more producers,” wrote Laine.

Still, agricultural producers are also responding to labor challenges in more straightforward ways. Coping strategies include purchasing an apartment complex to cut down on housing costs and introducing alternative ownership schemes such as employee stock ownership plans, the report notes.