Rising labor costs hit Midwest firms hard

The U.S. unemployment rate as a whole was down to 3.5 percent in September, the lowest it has been in 50 years.

For many in the Midwest produce industry, that has amounted to higher labor costs.

Figures from the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) indicate that farm wage rates rose from $12.32 in the Lake states for the week of April 8, 2018 to $14.52 for the week of April 7, 2019. (Wages are for “other crops,” a category including produce as well as tree nuts and hay. The Lake states are Minnesota, Wisconsin, and Michigan.) In the Cornbelt states, wages rose from $11.70 in 2018 to $13.31. (The Cornbelt states, from NASS’s point of view, are Iowa, Missouri, Illinois, Indiana, and Ohio.)

Higher wages reflect labor shortages.

“We hear about labor shortages in every sector of agriculture from dairy to poultry and produce,” reports Jeff Cummins, director of public affairs for the Indiana State Department of Agriculture. “It’s really creating difficulty on the farm in an already trying time. Many of our industry stakeholders are urging Congress to reform H-2A visas to make attracting and keeping workers a simpler, less costly process.”

The differential in wage rates among states can lead a company to make major changes in its way of doing business.

“Minneapolis has a mandated minimum wage which is above both the state and federal rates,” said Sam Maglio, president of Maglio Companies, headquartered in Glendale, WI, BB #:105281. “That has driven wages up in not only the city proper but surrounding markets. The undue impact on the market-area economy is huge; we closed our Minnesota facility and transferred work back to Milwaukee. Diesel is comparatively cheap compared to rapidly escalating labor costs.”

“Labor is the hardest part of running any business,” Ron Miller, president of Cleveland’s Miller Quality Produce Inc. BB #:152697 says. His firm deals with this variable by keeping the workforce tight—neither too large nor too small. “We don’t overstaff. We keep the staff busy, and they do a good job.”

The labor market has been tight,” notes Bill Dietz, president of Heartland Produce Company BB #:133466 in Kenosha, WI. “We have close to full employment, so naturally there’s less labor. There are not as many people looking for jobs.”

All the same, Dietz adds, “We’ve been able to fill most of our positions fairly quickly. Wage pressure? Over the years we’ve increased wages. Our goal for next year is to make sure that everyone is at a living wage. We offer a full range of benefits for employees: health, dental. It’s important for people who have families.”

Nevertheless, Dietz goes on to say, he has not heard specifically of any labor shortages in Wisconsin.

For Ron Carkoski, CEO of New Harvest Foods, a newly created merger of H. Brooks and Company BB #:100563 and J & J Distributing Company that is headquartered in Minneapolis, it’s about company culture: “We’re aiming to create a strong culture that will attract qualified people.”

Focus on Automation
A tight labor market is one of many factors that is pushing forward a long-term trend toward automation.

“Businesses have become more and more automated over the years,” Miller says. He points out that when he started out in the terminals in the 1960s, “they were pulling flatbeds manually down by the docks. Now we’ve got forklifts, rider jacks, sophisticated hydraulics.”

In the present, Maglio points out, “the labor shortage at unit level (retail or foodservice) is giving rise to additional fresh-cut business. The distributed labor is being replaced by centralized labor.”

Carkoski has the same focus for his company, emphasizing, “We intend to grow in cut products.”

“The focus of 2019 is indeed automation,” Maglio says.

In his own business, “print and apply label systems tied into our ERP [enterprise resource planning] system put traceable barcoded labels on every case we manufacture. Automated sensors are replacing human review of sanitizer levels. Carton dumpers are eliminating repetitive motion strains while eliminating a position on the feed line. Automatic fruit peelers alongside of fill and weigh equipment speed the process while reducing the head count.”

This is a multi-part spotlight feature on Midwest produce adapted from the October 2019 issue of Produce Blueprints.

Richard Smoley, editor for Blue Book Services, Inc., has more than 40 years of experience in magazine writing and editing, and is the former managing editor of California Farmer magazine. A graduate of Harvard and Oxford universities, he has published eleven books.