Californian growers operate on a razor thin margin, and rising energy costs are a looming risk that could threaten their competitiveness. Some experts say that renewables might be needed to keep farms in the black and contain price inflation.
The state’s abundant natural resources and mild climate made it an ideal location for growing fruit trees and nuts. More than half the nation’s fruit, nuts, and vegetables come from California. Those same qualities drew rapid population growth over the past century, and more people means a greater demand for power.
In response, peak energy pricing looms for businesses in California. The state public utility commission wants to reduce energy use during periods of high demand by charging more. Customers would pay a lower rate by using less energy at those times.
This affects growers’ operations directly and downstream: cold storage facilities use a substantial amount of energy, and California’s fruit crops pass through those facilities. Cooling energy has been available on the cheap, but bulk electricity discounts are nearing an end.
California’s Castle Rock Vineyards hired REC Solar to install a solar power system and smart grid solution, creating a US$350,000/year energy cost offset, said Ryan Park, REC’s director of business development. Power had already cost $500,000 annually without peak pricing in effect.
Utilities like renewable smart grid solutions like these, because the systems makes forecasting much easier, Park said. “They can depend on energy being taken off the grid.” A battery back up ensures that utilities won’t absorb any drop in power if weather conditions reduce solar energy recovery.
With energy prices on the rise, the U.S. farmers could lose their competitive edge to overseas growers without using renewables, Park argued. Water is already subsidized heavily in California, and price inflation could occur if costs continued to rise, he noted.
REC is a vendor, so I asked some independent experts what they thought. One university professor suggested that renewables could have a detrimental effect on a farm’s competitiveness, and another saw renewable energy as being less of a competitive driver than the capacity to produce high quality at high volume.
“I’m not intimately familiar with the California power market, but I suspect that a higher proportion of renewables will not make Californian agriculture more competitive, but less so,” said Dr. Matthew Roberts, a professor of agricultural, environmental, and development economics at The Ohio State University.
Sonja Brodt from the Agricultural Sustainability Institute at UC Davis acknowledged that energy costs are an issue of growing concern for farmers, compounded with concerns about the sustainability and environmental impact of fossil fuels.
“Oil prices tend to be set globally, with some regional/national variation, but in general, I believe it’s true that high prices here are mirrored by higher prices in places like Chile, too,” Brodt said. A major difference is that the labor market isn’t even, she added.
Brodt said that the cost of labor is significantly lower in less developed economies, giving places like Chile a competitive edge. California has managed to remain competitive through “very high yields, subsidized water infrastructure, and high quality,” she noted.
“At the same time, it is certainly true that the vast majority of California farmers operate on a very small (if any) profit margin, and reducing energy costs can certainly help them eke out a slightly higher margin. And there are probably more opportunities in this regard than in reducing labor costs any further.”
Check out individual crop “cost of production studies” at the UC Davis to see the percent of total production costs comprised of energy vs. labor vs. various other inputs: http://coststudies.ucdavis.edu
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