It’s one of the major questions related to the multiyear drought in California—will the lack of water lead to higher food prices in supermarkets across America? Has it already?
The short answer is that food prices have indeed increased dramatically for a number of food products over the last year. For instance, romaine lettuce jumped about 60 cents per pound to $2.19, and frozen orange juice went from $2.43 for 16 ounces to $2.73, an increase of 12.5 percent, according to Bureau of Labor information comparing February 2014 prices to February 2015 prices.
But experts noted that it’s complicated—such price increases stem from a variety of factors, of which the drought is just one. And while some food products increased in price, others, such as milk, coffee, and peppers, have decreased. Other analysts warn the drought will likely have a bigger impact in the coming weeks and months.
Crops at Risk for Greatest Price Increase
Eat an almond anywhere in the world, and there’s a good chance it was harvested in California.
The state produces about 80 percent of the global supply, exporting about 70 percent of the 1 million tons it produced in 2012, for example. Farmers hauled in $3.3 billion that year for almond exports, easily the top export from The Golden State in terms of value.
California also produces the bulk (70 percent or more) of 20 other food products in the United States, including apricots, avocados, strawberries, and romaine lettuce.
But most of these products are increasingly imported, decreasing the potential price increases due to the drought. About 7 of every 10 avocados, in American grocery stores, for example, are imported. Most apricots, kiwifruit, and artichokes are also imported. About half of the figs, grapes, plums, olives, and garlic are imported.
That leaves about a dozen crops that California produces the bulk of that aren’t supplemented much by imports: The United States barely imports any of the nuts California specializes in—almonds, walnuts, and pistachios; it imports little that the fruit that the state produces the majority of—strawberries, lemons, nectarines, and peaches; and these vegetables are barely grown outside California—broccoli, carrots, cauliflower, celery, and lettuce.
James Dunn, professor of Agricultural Economics at Penn State, said he sees a big potential for the drought to impact the price products that California specializes in, such as almonds.
“We’ve seen some of them increase, but we’re going to see more of them,” he said.
While the drought has had an impact on some prices already, there’s typically a delay in how food prices are affected because of harvest cycles. But, for instance, almonds are set to become more expensive this year since a number of farmers cut off bunches from almonds trees last year because of the drought—a drastic measure that has also been employed this year.
“We’re working off the inventories right now, but the prices of those inventories are already starting to reflect the fact that there’s not as much new crop behind it, so that becomes a big deal,” Dunn said.
“For example, typically in the corn business, if we don’t have at least 40 days of supply going into the harvest, then things really get dodgy, and people start to get really worried about running out of corn. ... That’s true of other things as well ... if you know a bad crop of almonds are coming, then the almonds that you have now are going to be more expensive because you know there’s not a regular sized crop going to be harvested in 2015.”
“Some of these things could quite easily—something that is particularly a California crop—could double in price, depending on where exactly in California it’s produced and on how dependent it is on the snowmelt, because essentially California doesn’t get much of their water from rain, it comes from snow,” he added.
California Gov. Jerry Brown recently mandated a 25 percent cut in water across the state because the regular supply of snow melt has consistently decreased during the four years of drought.
Will Prices Keep Rising?
Food prices typically rise 2.6 percent every year (compared to the 20-year historical inflation average of 2.4 percent). The Economic Research Service at the Department of Agriculture predicts an increase in 2015 in line with historical averages.
The major exception is beef and veal, which is forecast to increase as much as 6 percent, although for reasons largely unrelated to California. Despite the drought, fruit prices are predicted to only rise 2.5 to 3.5 percent and vegetable prices are predicted to rise only 2 to 3 percent across the United States.
“However, depending on its continued severity, the drought in California has the potential to drive prices for fruit, vegetables, dairy, and eggs up even further,” noted Annemarie Kuhns, an economist at the service.
Cattle ranches in California have also been forced to cut their herds due to the drought, but California doesn’t produce much beef so the impact on prices has been minimal.
Another mitigating factor is the strength of the dollar, which enables U.S. companies to import food at cheaper prices.
“You’re getting more of the commodity for the dollar,” said Kuhns.
The strong dollar has two big effects. First, imports get cheaper because one dollar buys more food in foreign markets. However, domestic food products become more expensive for foreigners so they buy less. That helps limit price increases, and in some cases even spurs price cuts since more of the U.S.-grown products are staying within the country. Indeed, a recent report from U.S. Commerce Department notes that California exported fewer agricultural products in February compared to last year, even though the exports made more money.
Gas has gone down over the last year or so, meaning it’s become less expensive to transport foods across the United States, yet another contributing factor to mostly balanced food prices.
While some products have risen over the last year or so, others have decreased, causing a general balance of food prices.
“In general food prices right now are not going up because the price of corn and soybeans and stuff has made the stuff from animal agriculture much more affordable,” said Dunn of Penn State.
