State budgets are hurtin’ for certain, and we may start to see more unwanted industry consequences in coming months.

Grim budget outlook makes it harder on industry

Tom Karst
National Editor

Sin taxes are more in vogue than ever, and new transgressions are being targeted.

Along with jacking up the tax on a pack of cigarettes by $1, New York Governor David Paterson is proposing a state-wide cent-per-ounce tax on sugared drinks.

More important, the governor has proposed privatizing shipping point inspection services.

Nothing is final yet, and New York industry leaders are pushing back against the proposal.

The recession has severely battered the vitality of state budgets. Notwithstanding the help of the stimulus bill last year and this year, the situation remains dire.

Press accounts report that Washington state faces a $2.6 billion budget hole, and environmentalists are pushing to triple the state’s “hazardous-substance tax” on petroleum, pesticides and other chemicals to bring in $250 million.

That appears to be a great example of a so-called hidden tax that promises to clobber agribusiness, but good. 

Oregon voters just passed a measure that increases the personal income tax rate by 2% for households earning more than $250,000 a year and imposes a tax on gross revenues for corporations that don’t report a profit.

Yikes — that’s a little harsh, isn’t it? You didn’t make a profit? Doesn’t matter — hand it over.

Economist Mike Shedlock, who author of the blog Mish’s Global Economic Trend Analysis, said the vote was a “charred earth victory” for unions that will drive already troubled Oregon into a death spiral.

California Gov. Arnold Schwarzenegger has proposed to cut state employees’ pay by 5%, starting in July.

I asked a question about the effect of state budget woes on the industry on the LinkedIn Fresh Produce Industry Discussion Group.

Joel Nelsen, president of California Citrus Mutual, Exeter, said the California Department of Food Agriculture is facing leaner times.

“CDFA is now severely hamstrung in its abilities as a result of lost general fund support. Eradication efforts are now dictated by resources rather than science,” Nelsen said. “Exclusion programs exist on paper but too often lack substance.”

What’s more, Nelsen said, the fiscal meltdown has led to a sharp increase in state fees, charges or assessments to offset lost general fund support.

“In some cases nominal permit costs have jumped 1,000% in the past few years, and that is not a typo,” Nelsen said.

“So while ‘taxes’ per se have not risen, the costs of doing business within the state have increased sharply.”

As Nelsen said, the cost of doing business for growers is rising painfully.

The federal budget coffers aren’t exactly running over either, except in red ink.

In his State of the Union address on Jan. 27, President Obama pledged to freeze federal discretionary spending for three years, beginning in 2011.

It will be no easy task to win federal support for specialty crops in coming years. In fact, it figures to be very tough to maintain the gains already won.

With new food safety compliance costs looming in the not-too-distant future, industry advocates will have to do battle to keep U.S. growers competitive with international suppliers.

Industry connection

I earlier mentioned the produce discussion group on LinkedIn. The group now has about 450 members. It is an international meeting place for industry questions and discussion, along with Packer news feeds that are pulled into the group.

Recent discussions in the group included an inquiry from a European operator about U.S. visitors to Fruit Logistica, the traceability event in Denver and an inquiry about tracking produce prices.

I encourage you to join if you haven’t already. Here is how the group rated the top challenges of 2010 in response to a question from me, in order of importance:

  1. food safety legislation,
  2. potential cost of health care reform,
  3. weak economy and sluggish consumer demand,
  4. availability of financing for business,
  5. labor issues,
  6. traceability costs,
  7. food safety audit harmonization,
  8. financially distressed customers,
  9. finding talented managers to run businesses, and
  10. the estate tax.

E-mail tkarst@thepacker.com

What's your take on challenges the industry will face in 2010? Leave a comment and tell us your opinion.