Diesel Prices Sowing Anxiety

Rising energy prices are proving to be a real headache for a key drivers of the California economy: farmers.

When Charley Mathews penciled out planting this year’s rice crop on the 1,000 acres he farms near Marysville, he figured on spending $15 to $20 an acre for diesel fuel and maybe $40 for fertilizer.

But as he worked the land Friday, Mathews calculated he would now be paying as much as $40 an acre to run his tractors and irrigation pumps and up to $75 for fertilizer, which is made from natural gas.

It all adds up to less profit. “When you start taking out $15 here and $25 there, it really hurts my margins,” said Mathews, who earns $100 to $200 an acre in a good year.

For farmers and food processors, businesses that account for 6% to 7% of California’s $1.5-trillion economy, fuel costs even now trail other expenses, such as land and labor. In fact, on average, fuel is about 2% of the total a farmer spends to bring a crop to harvest, said Jose E. Bervejillo, an economist at UC Davis’ Agricultural Issues Center.

But the run-up in petroleum prices has been so steep that it is going to slice deeply into income for many agriculture concerns. Farmers have little latitude to charge customers more to cover unexpected increases in operating costs; many sign contracts that lock in prices well in advance of harvest.

“In the short run, farmers bear the cost,” unable to pass their higher fuel outlays on, said UC Davis agricultural economist Karen Klonsky. So, across the state, farmers are cutting back on pruning, irrigation and pesticide use to save money, betting that Mother Nature will provide the break that the oil-producing nations haven’t.

Chris Puentes, president of Interfresh Inc., a Fullerton-based produce distributor, said he had been paying truckers fuel “surcharges” of 3% to 6% for more than a year.But lately, he said, truckers have been charging 14%.

Puentes has to pay, because he has to get his melons, avocados, corn and other produce to his customers. And the market -- not his trucking bills -- determines what prices he can charge.

“There is a going rate for any particular item on any particular day, and we can’t really change that,” he said, adding that his business was simply eating the added costs.

Making matters worse for California’s farm economy, diesel costs more here than almost anywhere else in the nation; antipollution rules require a special blend of fuel that is often in short supply.

The price of diesel statewide peaked at an average $2.274 a gallon Monday, up 60 cents, or 36%, since Jan. 5, according to a weekly federal survey. And that was 43% higher on average than a gallon of diesel a year ago.

The price hike has prompted John Grether to think twice before sending one of his 15 diesel-fueled tractors into the lemon and avocado groves he farms in Ventura County.

“We are trying to eliminate some orchard work, but there is only so much discretion that we have,” Grether said. “We still have to farm.”

Although he doesn’t like upsetting long-standing business relationships, Grether said, he was working harder now to get the best deal on fuel and was dividing his business among several suppliers.

Grether benefits from being a member of Sunkist Growers Inc., the giant Sherman Oaks-based citrus cooperative that controls more than 60% of the oranges, lemons and grapefruit sold in stores.

Sunkist, which handles distribution for growers and packing houses, is able to pass on higher shipping costs to its customers -- namely the big supermarkets. Each week the cooperative checks a federal Department of Transportation fuel index and then adjusts what it pays truckers, said spokeswoman Claire Smith.

“When we pay more,” she said, “we pass it on to the retailers.”

Farmers of other crops aren’t as insulated. For instance, because of many plant closures in recent years, tomato growers in Yolo and Sacramento counties must truck their crops to processors as far away as Stockton and Modesto, economist Klonsky said.

To rice farmer Mathews, absorbing higher fuel expenses is just another one of the many ups and downs of growing crops for profit.

“Until harvest,” he said, “farming is about risk management.”