“Labor today is a top three issue for a lot of companies in food and agriculture at the moment. They are worried that they don’t have enough labor. They are worried about the cost of labor. And they are worried about what they can do about it,” Justin Sherrard, global strategist animal protein for Rabobank said at the bank’s annual Food and Agribusiness Summit in New York City at the end of November.
This concern has mounted in recent years as tightening labor supplies have limited productivity and in some cases delayed companies’ expansion plans, while at the same time companies’ labor needs are changing, added Pablo Sherwell, head of RaboResearch Food & Agribusiness, North America.
“There are a couple of reasons for these dynamics,” he explained. “First there has been an incredible economic transformation within our sector. Today many farms and food operations are getting bigger and more sophisticated, which is creating the need not only for more unskilled labor, but also more skilled labor.”
In addition, he said, “as our sector is growing, other sectors in the economy have also grown – increasing competition for these workers,” leading to the current low unemployment level.
“Third, the demographic trends are changing,” he noted. “Population growth, particularly in rural areas, has stagnated if not decreased. In addition, rural population is aging and in many cases younger generations are moving to urban areas.”
And finally, he noted, the migration numbers are declining in the US and Canada – a trend that has caused the labor pool to shrink and which shows no sign of changing.
Are labor shortages here to stay?
Part of the acute shortage and struggles the sector faces could be a short term issue due to the current economy and state of the market, said David Jacobs, vice chairman and global section head of Rabobank’s consumer foods and beverages sector.
But, the overall shortage also could be a long-term trend that players need to start addressing sooner rather than later.
According to Christine McCracken, an executive director at Rabobank who focuses on the animal protein industry, these factors pose a long term threat to the food and beverage industry.
“In rural areas where labor is a big challenge, I don’t see that getting significantly better, and a lot of that has to do with … this shift in demographics,” including changing lifestyles and values, she explained. “Our kids today grew up with electronics. They don’t want to go work in a slaughter facility [in a rural setting]. That is a hard sell.”
Similarly, she said, people from other countries who might previously have filled this gap also grew up with electronics and access to increased technology and information and as a result, they also don’t want to do what their parents did.
Invest in technology and students for a brighter future
So what is the solution? One option is using enhanced technology and automation to ease the need for labor and also make food and ag jobs more attractive to younger generations who want more tech-focused careers, McCracken said.
The dairy industry already is leading the charge on this strategy, Mary Ledman, a global dairy strategist with Rabobank, said at the conference.
“There has definitely been more of an implementation of robotics” in the dairy industry, she said.
For example, she noted, the advances in automatic milking technology and efforts by a group of dairy processors in the upper Midwest US who worked with South Dakota State University to create a dairy plant on campus to educate and prepare dairy science majors to enter the workforce and manage the types of modern facilities that now are around the US.
Offer more than a living wage
Another solution is to offer more than a living wage, which during times of low unemployment can be obtained from nearly any employer, reducing employees loyalty based on pay alone, said McCracken.
“Giving incentives to show up is always a good idea, but I think rewarding employees who perform well” is a strong motivator and an approach that fosters loyalty by demonstrating appreciation, she said. “I hear a lot about guys that are rewarded for the work they do, hitting certain benchmarks. … If you treat your employees well and reward them, they will continue to show up.”
Rewards can range from expensive bonuses to something as simple as paying for a round of beer and getting to know employees on a personal level so that they feel connected to the company and each other, she said.
Recruit abroad, but don’t move abroad
Some companies may be tempted to move their operations to countries where there are more workers and labor costs are lower with the idea that the goods produced outside of the US can be shipped back when they are complete.
While this strategy may have worked in the past, with the current unease around trade, the final component of this strategy – shipping back to the US – may not be as easy as it once was.
“I am very familiar with companies that specifically moved their operations to Mexico to take advantage of low labor costs and then three years later when they were trying to sell that business a lot of people said, ‘Wait, we don’t understand what is going on with NAFTA and Mexico-US relations and if I can still get a low cost product back into the US at a competitive price,” Jacobs said.
“I think a lot of people are learning from some of those lessons,” and are coming to terms with the idea that “when you move abroad into other countries in search of the perfect labor situation, you add a lot of complexity. So, it is not going to be a quick fix,” he said.
An alternative approach employed in the dairy sector has been to set up HR departments in Mexico to attract labor and bring people to the US for different skill sets and jobs, said Ledman.
“There is not a lot you know when you think about moving a company, but outsourcing your HR department to Mexico as a way of having that continuous supply of labor” has fewer unknowns and strong results, she said.