Jan 18 2009

Competition and rising costs force Southwestern farmers to consider alternatives

NPR : Farmers May Switch Crops Due to Labor Shortage

Pure competition forces firms to produce their output in the most efficient manner. Productive efficiency is achieved when producers achieve their minimum average total cost. Any increase in costs may lead to economic losses for a firm, and if costs increase too much a firm may be forced to shut down.

The scenario above is basically a textbook explanation of the reality faced by farmers in the American Southwest this very day. Hundreds of fruit and vegetable farmers are facing higher variable costs as tougher border security and immigration laws has led to a shortage of cheap labor, which the farmers depend on in the labor-intensive fruit and vegetable industry.

Listen to the podcast above, then study the graphs that accompany this article.

Rising costs for in a perfectly-competitive (PC) industry: Click on the thumbnails of the graphs to see the full-sized versions

economic profitEconomic lossesShut down scenario

Discussion Questions:

  1. What changes have occurred in the American fruit and vegetable industry?
  2. What are the possible outcomes for Southwest farmers?
  3. How might technology help save these growers from having to shut down their operations?
  4. What other alternatives do they have to shutting down in the long run?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

181 responses so far

181 Responses to “Competition and rising costs force Southwestern farmers to consider alternatives”

  1. jduplessison 31 Jan 2013 at 3:11 pm

    # ykim3 I agree for the most part but I also wonder. Will this stabilize wages of simply reduce employees. There is a difference.

  2. Abreezon 01 Feb 2013 at 8:56 am

    #ahashir

    What changes have occurred in the American fruit and vegetable industry?

    There have been shortages in labour due to legislation passed by the government that strengthen immigration laws, now the farmers receive most their labour from Mexico but younger labourers are not able to gain visas to enter the United States. The farmers are stuck with idle older generation labourers that is lowering their productivity and hence increasing variable costs.

    What are the possible outcomes for Southwest farmers?

    Their farms would most likely have to shut down or relocate as their total costs would eventually exceed their total revenue. Most probable that they would relocate to neighbouring countries that have excess labourers such as Mexico.
    How might technology help save these growers from having to shut down their operations?
    As said in the podcast, the farmers could use converted tomato pickers but even these have limitations. The American agriculture industry have highly advanced machinery in use, but the problem is that some fruits and vegetables can only be hand-picked but there are advancements being made that will help solve this situation.

    What other alternatives do they have to shutting down in the long run?

    They have the option of relocating to another country that have a more lenient labour law, hence farmers that grow crops that cannot be harvested using technology can move to Mexico that have ample amount of labor.

  3. Abreezon 01 Feb 2013 at 9:02 am

    @alee

    Crop rotations are a really good idea, it will also help the farmers grow crops through out the year. Investing in technology would be a lot pricier than hiring a few farmers from Mexico, but they I guess they have to do so to stay in the competition.

  4. cmacleodon 01 Feb 2013 at 7:35 pm

    What changes have occurred in the American fruit and vegetable industry?

    There is a shortage of cheap labour so famers are struguling because of the stricter laws on immigration

    What are the possible outcomes for Southwest farmers?
    They would have to move to mexico, employ unducumented people or pay more to legal workers.

    How might technology help save these growers from having to shut down their operations?
    Technology could really help them becuse if they have a machine that does the work that a person can do more efficiently then they would not have to employ as many people.

    What other alternatives do they have to shutting down in the long run?
    To move away, to use technology or by hiring illegal workers.

  5. cmacleodon 01 Feb 2013 at 7:39 pm

    #jduplessis, I totally agree with all your points but I think moving to mexico may not be a good idea because it would cost a lot of money to move, buy the land, ect. It would cost too much

  6. ylahhamon 04 Feb 2013 at 5:09 pm

    1. The change is an increase of the cost of the variable cost (labor)

    2. The main possible outcome is a loss in income due to higher costs

    3. They could save money by reducing the amount of laborers but increasing the productivity using machines

    4. They should attempt to achieve productive efficiency by reducing labourers and using machines to increase output

  7. ylahhamon 04 Feb 2013 at 5:12 pm

    @cmacleod

    you make some positive points, but i would appreciate if you were clearer on what the farmers will achieve ‘by hiring illegal workers’ and dont you think that in any case this will be negative in the long run?

    “What changes have occurred in the American fruit and vegetable industry?

    There is a shortage of cheap labour so famers are struguling because of the stricter laws on immigration

    What are the possible outcomes for Southwest farmers?
    They would have to move to mexico, employ unducumented people or pay more to legal workers.

    How might technology help save these growers from having to shut down their operations?
    Technology could really help them becuse if they have a machine that does the work that a person can do more efficiently then they would not have to employ as many people.

    What other alternatives do they have to shutting down in the long run?
    To move away, to use technology or by hiring illegal workers.”

  8. mchastanet2on 05 Feb 2013 at 1:07 pm

    Discussion Questions:
    What changes have occurred in the American fruit and vegetable
    industry?

    The American fruit and vegetable industry moved from a worker labour to a machinery labour. The laws were tightened and there is a limit numbers of allowed Mexican to work.
    So Farmers were left with no labour. Now most of the fields that should have been grown are being substituted by cornfields that are mechanically cultivated. So now most farmers switched from chilli to corn due to variable cost.

    What are the possible outcomes for Southwest farmers?

    They won’t be able to produce a lot with high variable costs. And they will have their profit decreasing. So they might have to shut down or move to a country where there is cheaper labour.

    How might technology help save these growers from having to shut
    down their operations?

    Technology will help them decrease their production cost as they will need to employ less people (machines instead) . Because machines don’t need too be paid wages unlike workers. So over the long run the farmer will be able to make profit even more than he used to make.

    What other alternatives do they have to shutting down in the long
    run?

    A other possible alternative is to move his firm/operation to Mexico. Over there there is still enormous labour force as low wages. This will allow him to produce without having legal issues and he will be able to make profit.
    The farmer could also employed illegal workers at very low wages. But this is illegal and if he gets caught he will have to close his business.

  9. mchastanet2on 05 Feb 2013 at 1:11 pm

    #hteoh

    I think you gave great answers for each questions. You seem to know well the content and i agree with all you points. I beleive that even though you have Mexico, farmers could also go to china or phillipines where the wages are really low.

  10. rparsonon 06 Feb 2013 at 1:43 am

    1. What changes have occurred in the American fruit and vegetable industry?
    As there is a shortage of labor, American farms have been making greater use of capital intensive machinery, using technology as a substitute for numbers. As some crops cannot be harvested using these newer methods, farmers have been switching crops or using genetic engineering to modify crops to be easier to machine harvest.

    2. What are the possible outcomes for Southwest farmers?
    Southwest farmers may remain competitive by using newer technology, but currently many are moving to Mexico in order to take advantage of the cheaper labor. It will take either continued technological progress or immigration reform to stop this trend.

    3. How might technology help save these growers from having to shut down their operations?
    The growers can use technology as a substitute for workers, as it acts as a force multiplier through making relatively few workers able to harvest vast areas of land in a much shorter time frame. This increased efficiency, though expensive in the short term, can help to keep these growers in business.

    4. What other alternatives do they have to shutting down in the long run?
    In the long run, they can move to areas with cheaper labor, lobby for immigration reform, or work on making themselves more efficient.

  11. rparsonon 06 Feb 2013 at 1:57 am

    @nwarner
    I agree with your points, and very much agree with your answer to question four.

  12. DBharwanion 21 Mar 2013 at 7:26 am

    What changes have occurred in the American fruit and vegetable industry?
    There is a shortage in cheap labor because of the stricter laws being put in place. This is resulting in the farmers moving to Mexico where they won’t have to deal with immigration laws.

    What are possible outcomes for south west farmers?
    The farmers are face with a few possible choices they could either move to Mexico, employ illegal workers or use technology.

    How might technology help save these growers from having to shut down their operations?
    Technology will help farmers to cut down on labor and it will also help them to harvest more crops at a faster rate.

    What other alternatives do they have to shutting down in the long run?
    The main alternatives would include: moving away employing illegal immigrant workers, using technology, or changing crops using technology.