Diesel Jump Plows Under Profits

Field workers load freshly picked red peppers onto a conveyor to

Farmers all over the South Valley are suffering due to the
skyrocketing cost of fuel; Prices create a domino effect throughout
agriculture industry
Gilroy – If the $800 of diesel fuel stolen from LJB Farms a couple of weeks ago was the worst loss the Bonino family has suffered this year, things might not be so bad.

But it doesn’t compare to the money the family has lost buying their diesel legally.

“We have experienced a huge decline in our business and I think we can relate it all to the cost of diesel,” Judy Bonino said. “It’s hurting us in a lot of ways.”

Few industries are as reliant on fuel as agriculture. It takes diesel to run tractors and other farm equipment. It takes diesel to ship products to market. Fertilizers and bug sprays are petroleum based. So are the bags used at fruit and vegetable stands.

Farmers all over South Valley are suffering, and as the cost of fuel goes up, they are almost powerless to do anything about it. Contracts signed months ago become worthless; produce sits around waiting to be transported because trucking companies can’t afford to carry it; sales vanish.

“We can tell our men to be more careful with the trucks, and we’ve tried to cut back with how much we’re working the ground so we don’t have to run the tractors as much. But with so many things we have no choice,” Bonino said. “We have to fertilize when it’s time to fertilize and we have to spray when the bugs are there.”

As wholesale diesel prices hit $3 a gallon, fuel bills at LJB have nearly tripled from this time last year, to about $8,000 a month. And LJB has lost access to distant markets because customers can’t pay shipping costs. The pasilla peppers the Boninos used to send to Chicago are now being dried for local sales at lower prices.

In most cases, the Boninos – and other growers – can’t pass costs along to customers and middlemen because they have to abide by deals they made before diesel spiked so dramatically. They can only try to cut back.

“We can’t put a fuel surcharge on a box of zucchini,” said Tim Chiala, co-owner of George Chiala Farms. “The fuel thing is terrible. It’s going crazy. We’re locked into contracts and those margins just keep shrinking.”

And with the higher prices, carriers aren’t providing enough trucks, and they’re raising their prices to cover fuel costs.

Pete Aiello, owner and sales manager of Uesugi Farms in San Martin, said the truck shortage has been a problem for several years but the spike in diesel prices has made things worse.

“This is not a new problem,” Aiello said. “The higher fuel rates are, trucking companies get more and more reluctant to send their trucks on the road. It’s getting increasingly difficult to get trucks in a timely manner.”

Many of Uesugi’s customers for the farm’s bell peppers, provide their own trucks, but those that don’t have been forced to wait several extra days for shipments, a situation that can cost Aiello sales and hurts prices.

“It makes it tough when you have perishable items sitting in your cooler, and it doesn’t help when you’re expecting a truck and it doesn’t come for four or five days.”

Out-of-sight diesel prices are also playing havoc with the Christmas tree market. Paul Battaglia, owner of Battaglia Tree Farms in San Martin, said he’s losing business because he can’t set prices.

Christmas tree season heats up in November, but most wholesale deals are made long before that. Battaglia said he’s sure to lose money on deals he made before Hurricanes Katrina and Rita pushed fuel prices even higher, and he’s having a hard time finalizing other deals. He’s already decided against importing trees from North Carolina, as he has done in previous years.

“We’re talking about gas surcharges, but some customers are unwilling to accept that because it’s an unknown. It’s very frustrating,” Battaglia said. “If we knew what the price is going to be we could set our prices. We’re hoping to see some stabilization soon.”

Rob Schlichting, of the California Energy Commission, said prices may ease in the near future. Wholesale diesel jumped about 12 percent immediately after the Gulf Coast hurricanes but have returned to summer levels. There is, though, a supply problem, with fuel intended to come to California being diverted to other markets.

“There’s a real nationwide demand for diesel that has taken California’s supply to other markets,” Schlichting said. “But production is up in California and we should see prices inching down again.”

But a supply shortage means more than higher prices. Because he can’t get all the fuel he needs to run G &K Farms, Kip Brundage is worried he won’t be able to harvest all of his hay before it’s ruined in the rainy season. Fortunately for Brundage, he’s able to pass his costs along. He’s upped the price of hay bale by almost 30 percent.

“My supplier says, ‘don’t ask me the price of diesel, ask me if you can get it,’ ” Brundage said. “We have to raise our prices or close the door.”

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