Farm Labor Costs and Specialty Crop Prices

The specialty crop farming sector in the United States faces growing challenges as farm labor becomes increasingly scarce and wages continue to rise. This issue is particularly acute in California, the nation’s leading producer of specialty crops, where production relies heavily on manual labor. With over half of US fruits and one-third of vegetables now imported from countries with lower labor costs, domestic producers argue they are losing their competitive edge because they cannot pass higher labor costs onto buyers who increasingly source their goods from low wage international markets. In this study, we develop an equilibrium displacement model to simulate the impact of rising farm labor costs on the farm gate prices of specialty crops grown in the United States. We complement our simulation analysis with a set of reduced-form regressions. Our preliminary simulations suggest that a 10% increase in the real earnings of crop farmworkers causes farm gate prices to rise by about 4.4%. Reduced-form results show elasticity estimates roughly half that size.