The notion that growers are price-takers has long existed in farming, says Phil Martin, professor emeritus of agricultural and resource economics at the University of California, Davis, and a widely recognized authority on agricultural labor migration. While consumers might see commodity prices increasing at the store, Martin notes that’s not what the grower sees in returns.
“Even on market-ready strawberries, farmers get only 30% to 35% of the retail price, and it’s not just fruit and vegetables — it’s most commodities,” he says.
The Reality of Passing Labor Costs Down the Chain
Zach Rutledge, assistant professor and extension economist in the Michigan State University Department of Agricultural, Food and Resource Economics, says his team is looking at how wage increases are passed on to consumers at the farm gate. Rutledge notes that the growers he’s spoken with experience a lag between rising wages and recouping price increases until the next season or the season after.
“Our preliminary analysis suggests that farmers pass on about 75% of the labor cost increases to buyers at the farm gate, but that will certainly vary from crop to crop,” he says.
Martin says there are many ways to think about how labor costs factor into a grower’s overall production costs. For example, planting an acre of dwarf apple trees can cost around $70,000 and require a grower to tie up capital for three-plus years.
“When people talk about labor being 30% or 40% of costs, they are usually talking about variable or operating costs, not total costs,” he says.
Rutledge says, based on USDA data, the average operating cost for labor is about 38% for fruit and 29% for vegetables.
Imports from countries with lower wages also play a role in keeping margins low for growers, Rutledge says. Martin adds that an oversupply of some commodities reduces grower prices while input costs such as fertilizer, fuel and labor continue to rise.
“Labor seems to some like a cost that policy changes can reduce,” he says.
Hidden Expenses Behind H-2A Worker Programs
Martin says housing is a major variable in the cost of H-2A labor for growers.
“[Housing] can be less than $5 a day in the Southeast and $25-plus a day on the West Coast,” he says.
He estimates that in California, local workers earning the minimum wage of $16.90 actually cost growers $21 to $22 per hour once payroll taxes and workers’ compensation are factored in. Meanwhile, H-2A workers cost closer to $25 to $30-plus per hour, depending on housing costs.
These hourly rates mirror what producers nationwide are experiencing as mandatory housing, transportation and compliance overhead drive the true cost of the H-2A program well beyond the base Adverse Effect Wage Rate (AEWR).
“H-2A [workers] are more expensive, probably even on a per-bin or -flat basis,” Martin says. “There is no Social Security tax on H-2A wages, and H-2A [workers] are younger and more productive. Plus, they provide labor insurance, so there is some offset.”
Rutledge says it’s hard to predict what will happen in 20 years in terms of agricultural labor in this country, pointing to relief in the Department of Labor’s interim final rule that lowered the AEWR, which should help incentivize expansion of the program. He points to research conducted by Michigan State University that looked at the first half of H-2A applications in the state.
“In the first half of fiscal year 2026, roughly 70% of farmers reduced wages to the Skill Level 1 AEWR (or the applicable minimum wage), revealing that farmers are taking advantage of the new H-2A AEWR rules,” he says.
Why Automation Cannot Save Every Commodity
While automation might be seen as a solution to labor challenges, the truth is that mechanical harvesters only exist for some crops, Martin says.
“Current apple pickers pick only 70% or so of the crop, versus an assumed 95% for hand-pickers,” he says. “It’s hard to get hand-workers to pick what the machine misses. Mechanical will come — maybe in five or maybe in 15 years — depending on tech improvements, changes in farming systems and labor costs.”
As the fresh produce industry grapples with high labor costs, Martin says: “I think bulldozing or fewer acres will come to some commodities.”
In the long run, Martin thinks the domestic produce industry is headed toward a massive structural shift.
“Fruit and vegetables will be produced in the U.S. with mostly machines or migrant H-2A workers in 20-plus years, or imported,” Martin says. “And that [mechanization, migrant guest workers and imports] will play out differently in different commodities and be affected by everything from wages to tech to trade policies.”
