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)|
|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.
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.