California Drought and Food Prices

With record low snowfall and rainfall, California is experiencing one of its worst droughts in the state’s history. As the top producing food state, this could spell disaster for consumers at the grocery store. The graph below shows how California is the dominant producer in many household items, essentially the only producer in some of them.

Commodity U.S. Rank California’s share of U.S. production (based on quantity produced)
Almonds 1 99%
Artichokes 1 99%
Walnuts 1 99%
Pistachio 1 98%
Apricots 1 97%
Plums 1 97%
Figs 1 96%
Nectarines 1 96%
Olives 1 96%
Garlic 1 95%
Broccoli 1 94%
Grapes 1 90%
Cauliflower 1 89%
Strawberries 1 89%
Lemons 1 88%
Lettuce 1 85%
Dates 1 82%
Peaches 1 74%
Carrots 1 69%
Tangerines 1 62%
Source: California Agricultural Resource Directory

Because of the lack of water within the state, especially the Central Valley, one would expect the supply curve of foods produced in California to shift to the left, causing the prices of the produce to increase. However, this has not yet happen. The U.S. Agricultural Department has reported that they only expect produce prices to increase about 2-3% percent in the next year, which has been the normal inflation rate for the past 20 years. So why aren’t prices increasing? In reality only 10% of the price of food comes from the actual production. The majority of the price comes from transportation, handling, packaging and mark-up. Also with oil prices decreasing, transportation costs will be decreasing. Another reason why prices have not been impacted nearly as much as one would have thought is because of the location of the drought and where food is produced. Although the whole state is affected by the drought, the coastal regions have not been affected as much as the Central Valley. Crops are grown all over the state, but many farms the produce crops that are more valuable are located in coastal areas so they have not been affected by the drought as much. Californian farmers have diverted scarce water to crops like fruits away from wheat and other products where they do not have a large market share. Therefore the supply of this “valuable” produce has not been affected too much. However, different produce has reacted in different ways. Garlic, radishes and carrots prices have increased steadily, while limes strawberries and celery have actually decreased in prices from the past year.

california-drought-monitor

So who is impacted by the drought if consumers haven’t been? The farmers and the food processing industries. Farmers have been loosing jobs by the thousands in the past few years, and this drought will probably increase unemployment within the sector.

Only time will tell how exactly this drought will affect food places in the US and abroad. As the drought worsens, less and less land is useful for production and more drastic price changes will most likely occur because of the further reduction in supply.

http://www.marketwatch.com/story/californias-drought-probably-wont-make-your-food-prices-rise-2015-04-02?page=2

http://www.latimes.com/food/dailydish/la-dd-drought-produce-prices-20150407-story.html

http://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx#foodCPI

-Kylie Coffman

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3 thoughts on “California Drought and Food Prices

  1. madisonsmith17

    This is very interesting! It’s hard to imagine that when we buy these products 90% of what we’re paying for is packaging and transportation. This brings into play one of the problems with GDP. Having higher prices that include these costs actually helps GDP, but this is not a high quality item that we would necessarily want as a part of our GDP. Realistically, we would prefer most of the cost that goes into GDP to be the item we are actually intending to purchase.

    Reply
  2. piotrbroda17

    I wonder if the strength of the dollar has anything to do with rather stable produce prices. With the dollar being on the rise, importing goods is much cheaper and even more so with low oil prices. If prices of some fruits and vegetables rise, perhaps we can get them from abroad for lower prices. With the global economy, a drought in just one area should not have drastic effects on a grand scale.

    Reply
  3. Victor Matheson

    Nice post, but to respond to Maddy, remember that transportation really is something that you might find useful. If you love almonds, having a whole stack of them sitting in a roasting facility in California won’t do you much good.

    Reply

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