political and economic threats to california citrus: the bottom line timothy j. richards, ph.d. paul...
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Political and Economic Threats to California Citrus:The Bottom Line
Timothy J. Richards, Ph.D.Paul M. Patterson, Ph.D.
Jonathan Field, M.S.
Overview Background and Rationale Method of Analysis Objectives of Study Issues Under Consideration Results of Analysis Implications for Future of CA Citrus Points to Take Home
Value of California CitrusSource:USDA-NASS
0100200300400500600700800900
1000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Valu
e (
$ m
il)
Number of Farms in CaliforniaSource: U.S. Bureau of Census
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1955 1970 1985 1992 1995 1998 2001
Year
Farm
Num
bers
Retail-Farm Margins: NavelsSource: Calculations from USDA data
00.050.1
0.150.2
0.250.3
0.350.4
0.45
1991 1993 1995 1997 1999
Year
Farm
% o
f R
etai
l
Background California agriculture: $27.0 billion
industry in 2000 Threats:
Population Growth Scarce Resources Waning Political Influence Foreign Competition Over Regulation…
…more? Others…
Changing Consumer Tastes Big Business Attitudes Towards GMOs Corporate Scandals Pests and Diseases Health Care Costs / Workers
Compensation Over Regulation
The Big Question… Consumers, Voters and their
Representatives need to consider what would happen if…?There was no citrus industry in
California…
Role of Legislators Most issues involve some form of
legislative or regulatory action that can: Raise costs Increase competition Deny access to resources, or
.…can also be beneficial Increase demand Improve consumer awareness
Role of Public Policy Market Failures
Public Goods – examples are roads, public defence, education?, health care?
Externalities – examples are pollution, immunization, monopoly?, fraud?
Monopolies – examples are Microsoft? Grocery retailers?
Role of Economic Analysis
Smart decisions need good information Opportunity cost of a decision – “…the
value of the next best alternative foregone…” Example: eliminate heart disease?
Unintended consequences – secondary effects of poor decisions Example: UIC in Newfoundland
Objectives To define issues that have potential
economic impact on CA citrus industry
To provide accurate, objective information regarding the economic impact of public policy issues
To measure impact on: value of output, value-added, employment income, profit, employment, taxes.
Economic Impact Analysis Microeconomic Impact:
Higher costs lead to bankruptcies Bankruptcies lead to lower supply Lower supply means lower value
Macroeconomic Impact: Lower profit, wages, investment Lower retail spending, lower incomes Lower tax revenue
…Impact Analysis Multiplier Effects – the “trickle down”
or ripple effect of removing or adding a dollar to the economy somewhere in the system
Example – another box of oranges adds to worker incomes, which increases retail sales, which increases business profits, which increases employment…
Data Sources Agricultural output: USDA-NASS Input usage: Dept. of Commerce,
Bureau of Census Prices: Bureau of Labor Statistics Costs: U.C. Davis Cooperative
Extension Impacts: Various trade sources
Issues Under Consideration Air quality regulation Raising minimum wage for workers Higher cost of power and water Urban encroachment Increasing health care costs Trade Promotion Authority Greater funding for generic promotion
1. Impact of Citrus Industry What is the economic impact of the
citrus industry on the California economy?
In other words, what if we remove all citrus from California and calculate impact on output, value-added, taxes and employment including all backward and forward linkages?
Economic Impact of Citrus on the California Economy
0
500
1,000
1,500
2,000
$ M
illion
Total CA Citrus
Potential Economic Loss
OutputValue AddedWagesBusiness ProfitTaxes
…California Citrus
0
5,000
10,000
15,000
20,000
25,000
# J
obs
Total CA Citrus
Potential Jobs Lost
…Citrus Industry California economy would lose:
$1.6 billion in output $846.0 million in value added $465.0 million in worker income $101.0 million in business profit $208.0 million in rents, royalties,
other $80.0 million in state and local taxes 24,813 jobs
2. Air Quality Regulation Issue: Air quality regulations limit
agricultural burning, dust creation and diesel engine use
Impact: Equipment operation cost doubles: Costs rise Prices rise Consumers buy less Value of output falls
…Air Quality Regulation
0
20
40
60
80
100
120
$ M
illion
Total CA Citrus
Potential Economic Loss
OutputValue AddedWagesBusiness ProfitTaxes
…Air Quality Regulations
0200400600800
1,0001,2001,4001,6001,8002,000
Jobs
Total CA Citrus
3. Higher Minimum Wage Issue: Range of proposed increase from
$0.15 to $0.75 per hour – assume actual rises $0.45 per hour.
Impact: Labor cost rises 6.7% 3.16%Lower output $50.0 million lost GDP, $25.0 m in citrus $22.0 million lost value added Lost jobs! 750 in California as a whole
4. Urbanization Issue: Urban encroachment results in a net
loss of orange acreage in Southern California counties.
Impact: Our analysis measures direct loss per 1,000 acres of production.
Result: $3.4 million in lost economic activity $1.7 million in lost citrus production $1.0 lower employment income
Unmeasured loss in recreational, environmental habitat
5. Increasing Irrigation Costs Issue: Increasing energy and water
prices causes increased irrigation costs. Impact: Assume growers face 10% rise
in total irrigation costs. Result:
$18.7 million lower State GDP $9.6 million in lost citrus value 300 total jobs lost Unmeasured loss in competitiveness
6. Increasing Workers Comp Issue: Failure of insurance providers led
to AB 749 and 486 – massive increases in workers comp premiums.
Impact: 120% rise in workers’ comp: Costs rise Lose international competitiveness Consumers switch to cheaper substitutes Some growers exit industry.
…Rising Payroll Costs
0
50
100
150
200
250
300
350
$ m
illions
Total CA Citrus
Potential Economic Losses
OutputValue AddedWorker IncomeBusiness ProfitTaxes
…Rising Payroll Costs
0
1,000
2,000
3,000
4,000
5,000
6,000
Jobs
Lost
Total CA Citrus
Jobs Lost
Can Policy Help Citrus? Provide the Conditions for Success
Level the playing field Help increase demand Assure access to resources Keep taxes low
Address Market Failures Stop monopolies Provide public goods
7. Trade Promotion Authority Issue: Presidential authority to
negotiate free trade deals may mean total increase in exports of $315.0 million (Sunkist)
Impact: New exports are incremental sales: Higher demand Higher prices Higher profit throughout channel
…Trade Promotion Authority
0
100
200
300
400
500
600
700
$ m
illions
Total CA Citrus
Potential Economic Gains
OutputValue AddedWorker IncomeBusiness ProfitTaxes
…Trade Promotion Authority
0
2000
4000
6000
8000
10000
Jobs
Total CA Citrus
Job Gains
8. Domestic Demand Program Issue: Public / private consortium
doubles investment in 5-A-Day program. Impact: Doubling spending causes
demand to rise by 0.5%. Result: Higher demand leads to:
$4.3 million in citrus output $8.5 million in State GDP 130 more jobs in California
Summary of Results Estimated potential impact of
“most likely” outcome in each case Top three impacts by value:
TPA – positive impact Workers Comp – negative impact Air Quality – negative impact Minimum Wage – negative impact
Summary of Results TPA (potential gains):
$624.1 m added output - 5,510 citrus jobs
Workers Comp (potential losses): $170.5 m less output – 2,976 citrus jobs
Air Quality (potential losses): $119.4 m less output -- 1,054 citrus jobs
Minimum Wage (potential losses): $49.8 m in less output -- 440 citrus jobs
Caveat on TPA Although TPA has potential for
highest reward, it also has highest risk: Increased import competition Continued unfair trade Phytosanitary problems Bioterrorism? China???
Conclusions Without impact of TPA, other issues
have potential to cost California 8,063 total jobs and 3,672 in the citrus industry – 25% of total employment.
Development of other activities would likely mitigate these economic losses
Other issues may emerge to be more important eg. Biotechnology?