1. Political and Economic Threats to California Citrus: The Bottom Line Timothy J. Richards, Ph.D. Paul M. Patterson, Ph.D. Jonathan Field, M.S.

2. 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

3. Value of California Citrus Source:USDA-NASS

4. Number of Farms in California Source: U.S. Bureau of Census

5. Retail-Farm Margins: Navels Source: Calculations from USDA data

6. Background California agriculture: $27.0 billion industry in 2000 Threats: Population Growth Scarce Resources Waning Political Influence Foreign Competition Over Regulation…

7. …more? Others… Changing Consumer Tastes Big Business Attitudes Towards GMOs Corporate Scandals Pests and Diseases Health Care Costs / Workers Compensation Over Regulation

8. The Big Question… Consumers, Voters and their Representatives need to consider what would happen if…? There was no citrus industry in California…

9. 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

10. 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?

11. 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

12. 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.

13. 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

14. …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…

15. 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

16. 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

17. 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?

18. Economic Impact of Citrus on the California Economy

19. …California Citrus

20. …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

21. 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

22. …Air Quality Regulation

23. …Air Quality Regulations

24. 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

25. 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

26. 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

27. 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.

28. …Rising Payroll Costs

30. 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

31. 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

32. …Trade Promotion Authority

34. 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

35. 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

36. 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

37. 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???

38. 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?