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Two Growing Costs in Agriculture


Farmer in field with hands on hip, watching tiller

The new “Great Awakening” and “Great Resignation” raised wages across the United States’ labor market writ large over the past few years as employees reassessed their lives once the COVID-19 pandemic struck. Workers quit their jobs and demanded higher pay to either stay in their current roles or move to another employer. The impacts stretch across the farmland landscape and beyond. Those are among the influences that farmland owners have been experiencing with increased costs for labor, along with higher borrowing rates, according to new research by the University of Illinois.


But first, some background on the two “Great” factors impacting the country.


“The Great Awakening is real,” wrote Neil Dlin, Founder and Chief Human Experience Officer at Chorus Tree Consulting. “If there is a silver lining to the pandemic, it's that there is a great awakening happening and it's one that is long overdue. As someone who helps companies design better employee experiences and journeys, I am often witness to the systemic, even if unintentional, perpetuation of class systems in hierarchies, industries and professions. Simply put, people in entry level roles, customer facing, frontline, retail workers, hospitality workers and industries or professions considered blue collar are largely treated and thought of as ‘less than’, even if only subconsciously.”

 

Dlin continued, “The pandemic has only exposed an issue that has long been the case but it’s also brought it to an unavoidable impasse. We can’t continue the gap between their importance and their treatment any longer. The pandemic shined light on what can't be unseen and what clearly won't be accepted any longer.” Dlin expands his thoughts here. 

 

RELATED: The Great Resignation isn’t just a result of a worldwide pandemic, though, according to research in the Harvard Business Review. Retirement, relocation, reconsideration, reshuffling and reluctance are the 5 “R” factors that began a decade ago that may have accelerated during the global health crisis. Read those findings here. 


Now, let’s get back to the specifics as they related to farmland. Here is some perspective: The agricultural industry has experienced a steady rise in pay over the past two decades. Meanwhile, interest rates are taking a larger share of revenues but still below the average for the country this century.


Those two trends highlight an in-depth study of the highly productive agricultural region of central Illinois conducted by the University of Illinois’ Department of Agricultural and Consumer Economics.


Of course, the impact of escalating wages is in the eye of the beholder: Higher pay means that workers enjoy some gains after a generational trend of a growing gap between the wealthy and everyone else. That higher pay results in increased costs for farmland owners and the decision about whether to offset those increases, if possible.  


RELATED: Real weekly earnings for median workers, according to the U.S. Department of the Treasury, increased 1.7% between 2019 and 2023. The nominal weekly earnings for lower wage workers (the 25th percentile) grew at a higher rate than the overall average (3.2%). Read the Treasury Department report here.


The University of Illinois research found that the two overhead costs (labor and interest) rose faster in the beginning of this century compared to the years since. And those costs are expected to rise higher than the average annual jump this year and next.


Overhead cost projections


2000-2022 average: +8.5%

2006-2022 average: +7.4%

2023 and 2024: +9%                                                                                                                                                                      

“After being relatively flat from 2000 to 2006, hired labor costs have increased consistently since the 2006 crop year. This trend is consistent with the labor market challenges facing nearly all industries in the U.S. The overall labor force participation rate has declined since the late 1990s; nominal wages have been steadily increasing since the early 1970s, and real wages have exhibited faster increases over the past decade compared with the previous three decades,” the researchers found.


The researchers broke down overhead costs per acre since the 2000 crop year. Falling interest rates brought down overall costs in 2004 but there have been consistently higher expenses since then. And the researchers believe that average per acre costs could surpass $100, which would double 2000’s costs.


Average overhead costs per acre


2000: $50

2004: $40

2022: $82

2024: $100+



Wage pressures and working conditions could add stress to the available labor force in agriculture. Boston College Lynch School of Education and Human Development Professor David Blustein wrote, “The Great Resignation is clearly a fast-moving and powerful trend, one that has surprised many experts, including myself. Like most macro-level phenomenon, the Great Resignation is likely due to a confluence of factors that has coalesced to create a transformation in how people engage in work. One of the most prominent factors driving Americans to quit their jobs is that the labor market is now characterized by competition for workers in many (but not all) fields. As such, people feel more confident in being able to find better jobs.” 


RELATED: Boston College Professor David Blustein, author of “The Importance of Work in an Age of Uncertainty: The Eroding Work Experience in America,” explains the broader factors impacting available employees.  Read that here. 

Opmerkingen


American Farmland Owner Hayfields mountains

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