Coffee Growing is a Complex Business

Pasadena Star News
By: Cynthia Kurtz
Published: 2/25/2015

I am one of the 54 percent of Americans over the age of 18 who reach for a cup of coffee every day.  Most of us don’t think much about where that coffee came from or what was involved in delivering this rich aromatic beverage. 

That changed for me while on a recent trip to Guatemala, one of the largest coffee producing countries in the world.  I learned that coffee is a complex business that affects jobs, GDP and immigration.

Guatemala is just south of Mexico.  It covers about 52,000 sq. miles and has a population of 15 million mostly rural people - only four million people live in cities.  The country is known for its Mayan ruins, handcrafts and textiles, volcanoes and coffee.

The trip was planned by Larry and Mireya Jones, owners of Jones Coffee on South Raymond Street in Pasadena.   Mireya is from Guatemala and they have been in the coffee business for decades.  So of course the adventure included a “Coffee 101 Class” complete with a trek into the field to pick coffee beans by hand. First lesson - to make “good” coffee, most of the work has to be done by hand. 

Coffee is grown in eight regions within Guatemala each having a different tasting profile because of the varying types of soils which depends on how close a region is to one of the ,volcanoes, rainfall (which varies from 36 to 200 inches per year), temperature, and altitude.

Growing coffee is hard, risky work.  Insects, weather and fungus are only a few of the variables that can affect the quality and quantity of the crop.  It’s a highly competitive business with Brazil, Vietnam, Colombia, Indonesia, and Honduras major competitors. A good or bad crop in any one country will impact the bottom line for all the others.

Beans sold by the growers are priced per pound of green beans.  Green beans are beans that have been picked, removed from their pods, fermented, cleaned, sorted, graded by size and quality, but not yet roasted. I counted 12 steps from the field to a bag of green beans involving hundreds of workers and requiring anywhere from two to eleven months depending on how long the beans are stored before shipping.

The risk and competitiveness make the market for green beans highly volatile – from a high in 1976 of $3.20 per lb. to a low in 2001 of $0.39 per lb. The current price is around $1.50 per lb.   When beans dropped to $0.39 per lb., many framers couldn’t make ends meet.  Farms closed and the GDP plummeted. 

That affected immigration patterns. Following the 2001 coffee crash a fresh wave of immigrants came to the United States. According to the last census, an estimate 1.1 million people of Guatemalan origin reside in the U.S.  Forty percent live in the west, primarily in California.  Many arrived after 1976. 

Today these immigrants send annually to Guatemala an estimated $5.6 billion  the single largest contributor to the Guatemalan economy - a 10 fold increase from the estimated $560 million sent prior to 1976.

We truly live in world economy  where  changes in climate or production anywhere can affects us in varying and unexpected ways.  Something to contemplate as you enjoy that cup of coffee.

Sales Tax Revenues are Dwindling

Pasadena Star News
By: Cynthia Kurtz
Published: 2/4/2015

Well maintained roads, clean parks, street lights, and the prompt arrival of police or firefighters in an emergency are services that businesses and residents alike depend on. We don’t often think about what basic services cost. In most cities and counties the primary source of funds for operations is the sales tax. But sales tax revenues are on the decline.

Local government gets just 0.75 percent of the 7.50 percent of the sale tax collected in California - 6.50 percent goes to the state and the remaining 0.25 percent goes into special transportation funds.
Hdl Companies, a local financial services company specializing in helping local government with tax related services, recently released a study about the diminishing and shifting local sales tax. They found that “after adjusting for inflation, per capita taxable sales in California have dropped over 15 percent in the last ten years.”

Hdl cites a number of reasons for the decline - most a reflection of how our tastes and priorities are changing.

First, and probably the most significant change, is the increased preference for shopping on-line rather than in stores. Shopping in stores fell eight percent during the 2014 holiday compared to the 2013 holiday period while on-line shopping increased by fifteen percent.

The National Retail Federation estimated that 44 percent of all holiday shopping was on-line. Fifty percent of office and school supplies are purchased on-line and 60 percent of consumer electronics.
On-line companies that have a physical presence in the state are required to collect sales taxes but those dollars don’t always get collected or returned to the city where the product was purchased.
Technology is reducing what is taxable. We use to buy books, CDs, DVDs, and computer software. But now consumers are more apt to get their music, movies and books digitally. The cloud holds and dispenses more and more of what we need.

What we are spending our hard earned dollars on is also changing. With the costs of necessities such as housing, healthcare, and education increasing as incomes stagnate or decline, there are fewer and fewer discretionary dollars to buy goods that are taxed.

In its effort to stimulate economic development and keep businesses in California, the Legislature has adopted new sales tax exemptions. We need to make California an affordable place to do business. But the exemptions have narrowed the tax base by some $11.5 billion annually and reduced city and county revenues.

Some local governments have responded by asking voters for special tax increases. Today there are 140 cities and 44 counties with tax overrides. Others are trying to increase their revenues by recruiting companies to move to their city or county often by offering sales tax rebates.
It is clear that tax codes are not keeping up with our changing lifestyles and technology. This isn’t just a local government funding problem. It is a problem for everyone who counts on these services.

Situation at Ports Affects Wider Economy

Pasadena Star News
By: Cynthia Kurtz
Published: 1/28/2015

The Ports of Los Angeles and Long Beach are critical to San Gabriel Valley commerce.
Over 6.7 percent of SGV jobs are related to international trade compared to 5.3 percent in Los Angeles County.

Close proximity to the ports is one of the top five reasons businesses locate in the region. So when there is a disruption in port activities, it isn’t long before the impacts are felt here.
A year ago, container ships moved quickly into and out of the Ports of Long Beach and Los Angeles. Containers were unloaded to waiting trucks and trains for distribution to their destinations across the nation. Containers filled with products from overseas were loaded and refilled with products and bulk goods from the United States with ships soon on their way.

What a difference a year makes. Today as many as 15 ships at a time are anchored waiting for a place to dock. Truck drivers trying to pick up or drop off containers wait for hours. Some leave without transferring their cargo only to return the next day and wait again.

And the congestion at the nation’s busiest ports continues to get worse. At least in part the congestion is due to the contentious contract negotiations between the Pacific Maritime Association (PMA) and the International Brotherhood of Longshore and Warehouse Union (ILWA). ILWA represents 20,000 dockworkers along the west coast including the Ports of Long Beach and Los Angeles. Workers have been without a contract since July.

Staffing decisions, mega-ships carrying almost twice the cargo of standard ships, and a recovering economy also play a role in causing the congestion. But regardless of the causes, the resolution of the problem will require management and labor working together. It is unlikely that can occur amid the current mudslinging and angst of tough negotiations.

After seven months of talks, both sides are frustrated and have requested federal intervention. This month a federal mediator began meeting with PMA and ILWA. That is great news. According to the Federal Mediation and Conciliation Service, the government agency that handles labor arbitrations and mediations, 85 percent of mediated negotiations end with an agreement.

In the meantime, the economic damage is mounting. Overseas competitors are quick to jump on the opportunity to discourage purchasing American products. With the opening of the Panama Canal expansion only a year away, East Coast ports are eager to divert cargo and showcase themselves as reliable alternatives.

Closer to home business must find ways to adjust to the delays while continuing operations. Philips Lighting in Baldwin Park has been experiencing shipment delays of lighting components of three to five weeks since August. In order to continue production, components have to be shipped by air dramatically increasing costs.

A SGV recycling company that exports over 125 containers of recycled materials every day started having problems in November. They had to add 300,000 sq. ft. of warehouse space to house materials that had been sold but could not leave the port. The additional cost for storage and handling is $1.8 million and growing.

Huy Fong Foods in Irwindale is also struggling with additional costs. When trucks comeback empty or receiving dates change there are additional costs. Retailers and manufacturers companies throughout the SGV are impacted.

The recovery is still too fragile to withstand any interruption. Let’s get this contact settled so we can get the ports back operating like clockwork.

Energy costs are expected to climb

Pasadena Star News

By: Cynthia Kurtz

Published: 1/8/2015 

The lower price of gasoline has helped low and middle income consumers and given the economy a shot in the arm. But gasoline isn’t the only fuel that keeps our state running. Natural gas and electricity are also important. They heat our homes, cook our food, and run our factories. The costs of these energy sources have the potential for more dramatic impacts on the economy and job growth than the price of gasoline.

Trying to get a handle on the future prices for natural gas and electricity is a daunting task. For starters, California’s energy resources are regulated by a host of state agencies - California Air Resources Board, the California Independent System Operator, Caltrans, CAL FIRE, the California Public Utilities Commission and the California Energy Commissions.

Each of these agencies is tasked with a specific set of responsibilities and a specific mission. Each has rule-making authority and the ability to pass on the costs of those rules to the entities being regulated, usually gas and electric utilities. Those costs then become part of the future rates we all pay.

These regulations and rules are intended to meet goals most of us support such as increased conservation, reduced environmental impacts, or improved public health. But between setting the goals and implementing the rules there is no one responsible for considering how all these regulations work together, whether they will assure that California has adequate energy supplies, and what will be the cost.

Cost does matter. According to a report by the Public Policy Institute of California, 76 percent of California adults favored a law passed in 2011 that requires one-third of the state’s electric power to come from renewable energy sources by 2020 as long as electricity rates stayed the same. When respondents were told that the green power might come with higher rates, the support dropped to 46 percent.

Based on a 2013 California Energy Commission Staff Report the cost for electricity could be as much as 27.8 percent higher by 2020 and natural gas could be 108 percent higher. Those estimates were based on no new rules after 2013 but the Legislature is already looking at new 2050 goals for emission reductions.

Fortunately, there is a coalition asking for a comprehensive review of the impacts of state energy policies - Californians for Affordable & Reliable Energy (CARE). 

Speaking for the group, California Business Roundtable President, Robert Lapsley, recently told a SGV audience that “although it does not receive the same attention as other issues, energy policy is the most critical and potentially impactful decision-making that is happening in state government. It will have lasting impacts on the economy, income levels, poverty and the ability of the state to generate adequate revenues to fund state priorities.”

CARE does not oppose actions to protect the environment or public health but does believe that California needs a comprehensive energy plan. According to the National Association of State Energy Officials, 38 states have operational energy plans and 22 are either updating their plans or developing new ones.

California public policy is on the cutting edge in many ways but crafting a comprehensive state energy plan must become a priority.

If you are interested in learning more about CARE, visit CAREaboutEnergy.org.

Economy Faces Challenges Ahead

Pasadena Star News

By: Cynthia Kurtz

Published: 12/31/2014 

Time to wave good-by to 2014 and start planning for 2015. Reliable crystal balls are hard to come by these days. But even so there are some indications of what to expect in the New Year.

Let’s start with the stock market. While it isn’t the most important indicator of the economy’s direction, higher stock prices can indicate strong earnings estimates for companies. Strong corporate profits correlate with a rise in GDP and job growth. 2014 is ending with a record high stock market and predictions that the trend will continue.

Consumer confidence - the 800 lb. gorilla in the economy - is up. When consumers are concerned about spending money there is a chain reaction that reverberates throughout the economy. Retail sales slump, manufacturing activity slows, hiring stops, and the unemployment rate increases. 

Lower gasoline prices are leaving extra cash in consumers’ pockets and they seem willing and ready to spend it. Predictions are that gas prices may go even lower before stabilizing. Many workers are expecting wage increases in 2015 so confidence and spending should continue.

Unfortunately drought conditions are also expected to continue. Even with a few early winter storms, the levels of the state’s reservoirs and groundwater tables remain alarmingly low. A wet winter might prevent a crisis but water is going to remain scarce and the cost for it will go up. Making capital investments and operating changes now to conserve water will pay off for businesses and consumers in the long run. 

Closely related to water costs are energy costs. With less water, in-state hydro power generation slowed to a trickle this summer. Electric utilities had to purchase power from sources further away and bring it long distances to meet consumer demands. That costs money.

The 2014 summer fires and the closing of the San Onofre Nuclear Generating Station (SONGS) increased transmission costs. Power rate increases lag behind commodity cost increases so residents and businesses alike should expect higher rates in 2015.

Economists are predicting the price of housing will also rise in 2015 but that 30-year mortgage rates will remain low. The housing market has not been able to stabilize as it climbs slowly out of the 2008 crash. 

The wild card for the recovery of the housing market is the Millennials. The U.S. Census reported that 23 year-olds are now the largest population group followed by 24 year-olds and in third place 22 year-olds. The Census Bureau also says that rather than becoming smaller, as one might assume, immigrants tend to be younger so the size of U.S. age groups increase until about the age of 40. That means there will be even more young adults in their mid-20’s in the next few years.

When the majority of Millennials begin to set up their own households, demand for housing will increase dramatically.  With increased demand, developers will step up production.  Manufacturing of furnishings, appliances and other household goods will also increase.  2015 just might be the year that this trend begins.

Overall the U.S. economic recovery will continue with bumps in the road when international incidents send financial shocks through global markets.  But at home we can expect relative economic calm.  The SGV will continue to benefit from this recovery. 

Regardless of how well the economy does, my wish for 2015 is health and happiness for you.