About This Episode
Paul Neiffer joins Chris Barron for a short conversation on proposed changes to the H-2A guest worker program. Neiffer says the program is not dead but is certainly in the sick bed. The H-2A wage base has climbed at roughly double the wage inflation rate over the last ten years, and the proposed rules add both cost and paperwork for the dairies, fruit and vegetable growers and row crop operations that rely on those workers.
The biggest change is job classification. Under the proposal, a worker brought in to drive a tractor who also drives a truck has to be paid at the trucker rate for all of his hours, even if trucking is 5 percent of the work. Neiffer cites a current truck driver rate of $13.32 an hour going to $22.55, against roughly $15 an hour for general farm work, which is a 60 to 70 percent increase in the required wage.
Housing and transportation push a $22 cash wage closer to $30 an hour. Filing gets more expensive too: each application carries a $15,000 fee, and an operation that suddenly needs three or four contracts instead of one is adding $30,000 to $45,000. Barron notes his clients' cost of employment is already approaching $35 to $36 an hour, and reaches $50 on some farms once owners are included. Both expect the squeeze to accelerate autonomous equipment.
“I wouldn't say it's on its deathbed, but it's certainly in the sick bed, so to speak.”
— Paul Neiffer
Key Takeaways
The proposed truck driver rate goes from $13.32 to $22.55 an hour, versus about $15 an hour for general farm work, a 60 to 70 percent jump.
The rate applies to all of the worker's hours based on the classification, even if he only drives a truck 5 percent of the time.
With required housing and transportation, a $22 an hour cash wage costs closer to $30 an hour in practice.
Each H-2A application carries a $15,000 fee; needing three or four contracts instead of one adds $30,000 to $45,000 of cost.
Barron's client data puts cost of employment near $35 to $36 an hour, and approaching $50 on some farms when owners are included.
Neiffer expects the rule to go through, and says rising labor cost will push adoption of autonomous tractors, sprayers and combines.
Full Transcript
Narrator: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com.
Chris
Barron: Welcome everybody to another episode of the Ag View Pitch. We are ready to have a short conversation with Paul Kneifer on the H2A H2A program and proposed changes. Paul, how's it going?
Paul
Neiffer: Going great down here in Phoenix. It's a little warmer than it was last week where I was at, so that's good.
Chris
Barron: Yeah, sounds good. So I guess my first question is, is with some of these proposed changes, is H2A dead for farmers or what's, you know, talk a little bit about what you're seeing. It looks like it's going to be a little more expensive.
Paul
Neiffer: Yeah, I wouldn't say it's dead, you know, especially for those farm operations such as a dairy or fruits and vegetables where they really rely on those H-2A workers to provide the labor that they need. They can't get it locally, but it's certainly getting more costly. There's more regulations, there's more paperwork involved. And so that's, that's, uh, I wouldn't say it's dead, but it's certainly got, uh, I wouldn't say it's on its deathbed, but it's certainly in the sick bed, so to speak.
Chris
Barron: It's, it's sick, huh? Okay, well, let's, let's dive into it a little bit then. What What's some of the things that the farmers that are listening, and we have a lot of row crop operations on here that kind of depend on those individuals to do more than just maybe drive a tractor. Maybe they're in the shop, maybe they're in a truck, maybe they're doing different things. Talk a little bit about what some of these changes might mean.
Paul
Neiffer: Yeah, and that's some of the key changes. Well, first, the increase in the wage base for H-2A workers has been about double the wage inflation rate for the last 10 years. It's definitely gone up. The proposed change, let's say you have an H-2A worker, they're from South Africa, you brought them up here to drive a tractor, but then they also know how to drive a truck. Maybe they have a CDL, likely they don't have a CDL, but they can at least drive the truck on the farm. Well, due to the fact that they're driving a truck, the H-2A rules, potential rules now say, hey, you're going to have to pay that guy as if he was a trucker. And you have to do it for all the work he does, even though he might only drive a truck for 5% of the time. And just as an example, I'm looking at it, the current rate for a truck driver was $13.32 an hour. Well, it's actually gonna go up to $22.55 an hour.
Whereas the rate for just being a person working on the farm is more in that $15 range. So you, you see right away, you're looking at about a 60, 70% increase in the rate of pay that you have to pay that worker.
Chris
Barron: And that hourly rate is a little bit deceiving too, right? Because you have to provide housing and all that kind of stuff.
Paul
Neiffer: You have to provide housing, you have to provide transportation. So by the time you factor that in, if it was $22 an hour cash, by the time you factor in housing and transportation, you're really looking at about $30 an hour. Now I'm going to tell you, in some parts of the country, like where I used to live out in Washington State, to get a good person to work on a farm, you're going to pay $30 an hour, maybe even $35 an hour, because the minimum wage in our state, or in that state, is $16, $17 an hour already. So, you know, it just depends on where you're at. A lot of these farmers have been able to acclimate to higher wages, but it certainly can be a painful process.
Chris
Barron: Yeah, when I look at our client cost of employment, which would include the owners as well, that number is approaching mid-$35, you know, $35, $36 an hour of cost of employment, which, which, you know, cost of employment. I mean, if all of a sudden you start providing a cell phone and you provide fuel to, to and from work and all these things, and then you add up all the benefits that are included with the cash payment and all these things, you know, I think our labor cost is higher than the average person realizes unless they actually sit down and track time and calculate that and do a cost analysis. Um, you know, and we see some farms that are approaching $50 an hour of cost of employment when you include the owners.
Paul
Neiffer: Yeah. Well, and the benefit too, the H-2A workers, you typically have them here for 10 months. You know, they're going to be here for a good solid 10 months and, uh, If they go home at Christmas time, usually that's a slow time of year for a lot of farmers anyway. So even though you might be paying a higher rate than you would locally, you're getting people, A, that are motivated to work. Most of the H-2A workers that I've talked to, that people hire them, those are very motivated workers. They want to make good money. They want to send money home to help their families. Even though they can be maybe a little bit more expensive than they've been in the past, there's definitely benefits to having those H-2A workers.
Chris
Barron: Mm-hmm. I think one of the challenges is, and I can think of a couple of our clients that we work with that have row crop and they have a bunch of them. So, you know, if you have one or if you have two and you have a 35% or 40% cost of employment increase, it's not, probably going to kill you. But if you've got 10 of them and all of a sudden you increase it 35%, 40%, that, that's a bit of a hit.
Paul
Neiffer: Yep. Yep. That's a big hit. So, so yeah, that's, and then like out in the West Coast and then you add, the fact that you got to pay time and a half overtime, you know, that's even a bigger hit. So, yeah. And that's part of the problem too with how they calculate the average wage is they include all the overtime pay and so on as more and more states start bringing in time and a half, that's going to bump up that average rate too.
Chris
Barron: So, uh, so how much of this is state by state? Is it, is it mostly state by state or is it more of a federal?
Paul
Neiffer: They have a federal, but then there are state by state, um, offsets is my understanding. Because again, if you're in, let's say Mississippi, where your minimum wage is the federal minimum wage, versus you're in California or Washington or Oregon where the minimum wage is at least $15 an hour, There are adjustments, is my understanding, for state by state. Okay.
Chris
Barron: What about any other changes? I mean, is there anything else on there that's glaring that's a threat? And then also my final question is, what, you know, what are the odds? I mean, is this a done deal? Is it proposed and not done yet, or are we going to find out?
Paul
Neiffer: My understanding, it's proposed, not done yet. You know, based on this administration, it wouldn't surprise me that they'll have it go through. Even the previous administration, you know, maybe, you know, as we become more nationalistic, you know, as a society or as administration, it seems like instead of embracing these programs, we try to raise more red flags because they're saying, you know, a lot of people are saying, well, we're preventing people, local people from getting those jobs. Well, the local people don't want a lot of these jobs, let's be honest. Yeah, I just don't know. Another thing on there is you might have to do multiple applications. Each application is a $15,000 fee. So under the old rules, you had one $15,000 fee. Now you might have to have 3 or 4 contracts. So that's an extra $30,000 or $45,000. So that, that could be hurtful for a lot of farm operations.
It's just a lot of paperwork too.
Chris
Barron: Yeah, especially like I said, if you have, if you have 7 or 10 or something and they're all doing 3 different things, I mean, yeah, that would get really cost prohibitive, I would think pretty fast.
Paul
Neiffer: It does. It does. But you know, if, if, if you need them and you gotta have them, um, you know, you might not have a choice. Yeah, you might not have a choice or maybe, hey, I was going to bring over 4. Now I'm going to bring over 3 and hopefully we can get the work done with 3 instead of 4.
Narrator: Mm-hmm.
Chris
Barron: Yeah, it sounds like it's just getting more toward the cost of what it is. If you, if you can hire a U.S. citizen, you're probably— a lot of times it seems like some of the H-2A employees are more reliable, better employees anyway.
Paul
Neiffer: Yeah, unfortunately. Yeah, there's a lot of truth to that.
Chris
Barron: So, you know, and if the cost is comparable, I guess it's not the end of the world, but it's— but it is. It is a hit. And labor, you know, we've been looking at inflation and labor is one of those sticky things. You know, it, you know, with inflation, sometimes some, some stuff comes back down, but labor seems to be one of those sticky ones that, you know, where as it goes up, it never seems to come back down from wherever it gets to.
Paul
Neiffer: Well, and you're just going to see, continue to see the push for autonomous tractors, autonomous sprayers, autonomous combines. You know, though, that technology is already there, is my understanding. It's just, you know, maybe we're not quite ready for it, but, uh, as labor gets more expensive, it's gonna have to happen.
Chris
Barron: Yeah. Our technology guru at, uh, Executive Business Conference really educated us on that down there. And it sounds like that's, uh, stay tuned because that's, that's gonna be the solution for some of this stuff too. Um, yeah. You know, especially if the labor part of it gets to be cost prohibitive too.
Paul
Neiffer: So, Well, you know, on a sprayer that has got that technology is actually gonna more be more accurate than a human. Yeah, it's a lot of that.
Chris
Barron: Yeah, a lot of that technology is more accurate than people anyway.
Paul
Neiffer: Yeah, yeah, yeah. And even like self-driving cars, I would trust a self-driving car to create less accidents, not more accidents. I mean, look at all the idiots out there that you see. You know, my wife and I, we saw 2 guys racing down the middle of the road the other day, just zooming in and outta traffic. And it's like, you know, those are the idiots that cause accidents.
Chris
Barron: And they might have been on Zoom while they were doing it.
Paul
Neiffer: Yeah. So not you and I, but yeah.
Chris
Barron: Yep. So sounds good. Well, Paul, I appreciate your, your wisdom and your research on this stuff. This is one of those stay tuned, right?
Paul
Neiffer: Yep. Yeah. Stay tuned. And if something does happen where it actually does get implemented, we'll have another call on it.
Chris
Barron: Yep, that sounds good. Well, again, thank you, Paul. Appreciate it.
Narrator: You're welcome.
Chris
Barron: All right. And again, thanks everybody for listening. We'll catch you again next time on the Ag View Pitch.