Red or green, New Mexico's commercial chile industry is plagued by international competition, labor shortages and plant diseases.

While New Mexico remains the No. 1 chile-growing state in the U.S., about 80 percent of chile in the country is imported from China, Peru and India, according to New Mexico State University.

The industry's economic muscle has dropped from $400 million to $375 million in the last two years, according to Gene Baca, president of the New Mexico Chile Association and senior vice president for Bueno Foods in Albuquerque. The number of acres cultivated fell from 35,000 acres in the mid-1990s to little more than 12,000 acres last year. "The situation is dire," Baca wrote in a recent e-mail.

The chile industry is one area of agriculture with high growth potential, said Jaye Hawkins, New Mexico Chile Association administrator. "We only meet 15 percent of the chile demand right now, and the demand is growing," she said.

New Mexico grows and markets chiles a variety of ways: fresh chile, dry red, processed green and jalapeños, cayenne and oleoresin, a chile extract used in dyes and to spice up food.

The chile industry used to employ 5,000 full-time people from farms to processing companies, and several thousand seasonal workers during harvest. Last year, the full-time jobs dropped to 4,100, Baca said. "Long-term farmers are getting out of the industry, and many will no longer grow chile because of plant disease and labor shortages," he said.

Other countries, where costs are lower, are filling the gap. Currently, what looks like Hatch green chile may actually be grown in Delicias, Mexico, Hawkins said. And one of New Mexico's biggest chile competitors is Peru, which pays about $3 per day for workers to pick chile.

NMSU agriculture economist Terry Crawford said the rate has gone up to about $85 per day in New Mexico in the last year, in part because of the increased federal and state minimum wage. But as fuel and labor costs rise, New Mexico farmers can't raise their prices and stay competitive with the chile prices offered by other countries.

U.S. immigration policy is also making it hard for chile farmers to find field help, especially younger workers. "Regulations are making it harder for guest workers to come across the Mexican border. (People) here still working the chile fields are over 50," Hawkins said. The younger immigrants, he added, "get higher-paying jobs in construction; they're not interested in harvesting."

Developing machines to harvest, thin and de-stem chiles is another priority. "Much of the work in the industry is still done by hand rather than by machine, like is done with major crops such as corn, wheat and cotton," Baca said, adding, "Foreign countries have a huge cost advantage because their labor costs are a tiny fraction of the costs in the U.S."

State funding is needed to get the machines into the fields, Hawkins said. The Legislature this year approved a $250,000 annual appropriation, most of which will go to developing chile harvesting and de-stemming machines, Baca said.

"Without mechanization, the industry will disappear in five years," Hawkins predicted.

This year's original request was for $1 million a year for the next four years. "We figured with such a big influx of money, they could get the research finished quickly," Hawkins said.

Last year, the chile industry received a one-time $500,000 appropriation and $362,000 a year for mechanization and research, Hawkins said.

The Manufacturing Technology and Engineering Center at NMSU is working with the New Mexico Chile Association to design equipment that will thin chiles and remove the stems.

"Our goal is to have effective harvesting and de-stemming equipment in use during the 2009 season," Baca said.

Chile is something that differentiates New Mexico from the rest of the U.S., Baca said. "New Mexico has led the nation in production and processing for decades because New Mexico chile is the best in the world," he said. "It would be a disaster to lose it."

To find out more about the New Mexico Chile Association, go to www.nmchileassociation.com.

Contact Staci Matlock at 470-9843 or smatlock@sfnewmexican.com.