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Economic shock waves hit Eastern Shore

Nicholas Sohr//Daily Record Business Writer//August 21, 2011

Economic shock waves hit Eastern Shore

By Nicholas Sohr

//Daily Record Business Writer

//August 21, 2011

Ocean City Real Estate Agent Joy Snyder

OCEAN CITY — Joy Snyder calls them “scavengers.”

They pick through the rock-bottom real estate listings and make lowball offers on homes bought five or six years ago at the peak of the market.

“Some of the offers I see are absolutely ridiculous,” said Snyder, an Ocean City real estate agent. “We have five properties for every buyer and they continue to look for the golden goose.”

That slack in the real estate market, a construction industry at low ebb, thin poultry profits and less beach-going traffic have sent economic shock waves reverberating though the Eastern Shore, disrupting an already rocky recovery.

The latest high-profile setback came in June when Allen Family Foods went bankrupt. The 92-year-old Delaware company was one of five remaining poultry producers on the Shore and its failure rippled through the network of farmers that supply the producers with birds.

“They don’t come out and say ‘We’re scared to death,’ but you can see it in their eyes,” said Virgil Shockley, a chicken farmer and Worcester County commissioner.

Blair Ranneberger, a former Allen supplier, said the bankruptcy was a first for him.

“I came to the Shore in ’75 and there were 16 poultry companies,” said the owner of Shepherd’s Crossing Farm in Willards. “I’ve seen them buy each other. Some came from out of the area. But I’ve never seen a bankruptcy.”

Persistent unemployment

The rest of the state has had its share of bankruptcies and layoffs, but the Eastern Shore is home to the highest and most persistent unemployment in Maryland.

Wicomico County is one of the best of the bunch here, but even its 8.6 percent unemployment average so far in 2011 is far higher than the 7.1 percent statewide figure. Neighboring Somerset and Dorchester counties both averaged more than 10 percent unemployment in the first half of this year.

Worcester County, the worst performer in the state, averaged 13.5 percent.

“Historically, the Shore counties have always been delayed in recovery,” said Memo Diriker, a Salisbury University economist. “There’s always an expectation that there’s going to be a two- to three-point differential.”

As they scan the horizon for signs of economic activity, local officials and educators are encouraging high-tech growth anchored by NASA’s Wallops Flight Facility just south of Worcester County in Virginia. They offer classes to teach people how to repair aerial drones. The University of Maryland Eastern Shore is planning a four-year academic program that will teach students to design, build and repair drones.

But, there are no large military bases, federal agencies or major research universities on the Maryland side to help keep high-paying, high-tech jobs in place, and the seasonal tourism business leads to wide fluctuations in payrolls. Unemployment in Worcester was 17.9 percent in January but fell to 8.9 percent by June.

Tourism has rebounded some in 2011 but still remains below 2009 levels. About 140,000 fewer people visited Ocean City in May and June compared to two years earlier.

Rentals have done away with their seven-day-stay requirements and accept shorter bookings.

“You can still drive up and down Ocean City and see vacancy signs until 4 in the afternoon sometimes,” said Diriker.

These trends ripple through an already fragile employment base.

The economist said some hotels have responded to the decline in tourists by cutting workers. One hotel — Diriker declined to identify it — uses a temp agency to beef up its staff on busy nights.

Other jobless residents may never appear in the unemployment statistics.

“People slap a magnetic sign on the side of their truck and do business as a handyman, corner fruit stands or whatever,” Diriker said. “There’s a lot of ‘I’ll come to your house and fix your roof and you pay me under the table.’ We have a pretty healthy gray economy.”

An ‘anemic’ construction industry

The housing situation is more black and white.

Snyder said the market began to turn at the end of August 2005.

“Our market changed the weekend of [Hurricane] Katrina,” she said. “I don’t think there’s any correlation there, but that’s the weekend it happened. It’s like the bridges to Ocean City closed.”

Worcester County figures back her up.

There were 446 permits to build single-family homes filed in 2005 with the county. The next year: 277.

By 2010 the number had slid to 60 — an 87 percent drop in just five years.

In another stark contrast, the projects that received permits in 2005 were valued at $100.5 million. Last year’s batch was worth $14.8 million.

Former county economic development chief Jerry Redden described Worcester County’s construction industry as “anemic.”

“It’s not past life support, but it’s pretty weak,” he said. “I don’t see that turning around for a couple more years. We’re having some new stuff built, but it’s not rebounding. It’s just bouncing along at the bottom.”

Snyder said she sees fewer buyers who have enough income to afford a vacation home and fewer would-be retirees who can afford to set themselves up near the beach.

“During the feeding frenzy, it didn’t matter,” she said. “It was new, it was pretty and they wanted it.

“We had an average of five buyers for every property. Multiple offers. Selling above list price. Signing before the ink from the printer was dry.”

A cyclical downturn?

Another longtime stalwart of the Eastern Shore’s economy, the poultry industry, is dealing with challenges of its own, despite a Korean firm agreeing last month to buy Allen out of bankruptcy. Harim USA has said it will operate all of Allen’s existing plants and continue to buy from its contract farmers.

“People are not going out to restaurants as often,” said Bill Satterfield, executive director of Delmarva Poultry Industry, an advocacy group. “If they are buying chicken in restaurants or supermarkets, they tend to be going to lower-priced items — dark meat instead of white meat.”

On top of that, the heat has left crops withering in the field instead of feeding flocks.

Satterfield said much of the industry’s pain is due to a regular, cyclical downturn that should swing back to, if not a growth phase, one in which farmers are paid more for their flocks.

But, other factors frustrating farmers appear destined to remain problematic, such as the cost of diesel fuel for trucks and electricity to heat, cool and light the chicken houses.

Shockley said he pays 50 percent more for power than he did just a few years ago, so much that it ate up about a quarter of the $14,600 he made on his last flock.

“It’s ugly,” he said. “You can’t even see the little black dot running around on the electric meter.”

Battling heat, regulations

The poultry industry is Maryland’s largest agricultural sector, accounting for $256 million of $640 million in farm income in 2009.

Employment at the processors on the Eastern Shore — including Delaware and Virginia — has hovered between 14,000 and 15,000 in the last decade. But, the number of farms raising the chickens has dropped, from 1,937 in 2005 to 1,696 last year, a 12 percent decline.

Farmers complain that Maryland’s environmental regulations for storm water runoff have hurt the Shore in competing against other poultry-producing regions. An Environmental Protection Agency plan to improve the health of Chesapeake Bay, essentially a pollution diet for the estuary, is expected to tighten such controls even further.

“Regulations are killing us in agriculture,” said Ranneberger. “Every time I turn around, I have to fill out more paperwork.”

From the paperwork to the weather, the result is less money in farmers’ pockets. Many run farms like Shockley’s — family operations with little or no wiggle room to cut staff or lower expenses.

“You go to Arby’s instead of a restaurant. You just deal with what you got,” Shockley said. “You don’t buy this and you don’t buy that. It’s like everybody else out here in the real world. You have to live with what you have.”


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