Drought Spreading to Wallets as Food Prices Increase

Food
Anyone who has not paid attention to the California drought soon will be. The unprecedented conditions in the state, which is the largest U.S. agricultural producer, is causing food prices to increase, which will be spreading to consumer wallets in the next few months.

Increased costs for food staples, like meat to vegetables, are beginning to pinch consumers. In February alone, prices rose for dairy, eggs, meat, poultry and fish.

The surge in food prices is far greater than the 1.1 percent annual rate of inflation. The federal government now expects food prices to rise 3.5 percent this year. This will be the largest increase in the past few years and continues the trend that food prices are rising faster than prices on other items. The rise in most food prices would be worse if there had not been sharp decreases over the past year in grain prices, including corn.

Ninety-five percent of California is suffering from drought conditions for the third straight year. Hundreds of thousands of farm acres will be left unplanted this year due to water shortages, which will result in even higher prices and shortages on some food items later this year. Broccoli, melons and sweet corn are crops that will likely be planted on reduced acreage this year due to water concerns. Others might have two planting cycles in a normal year and will not this year. The California Farm Bureau quotes one grower who plans to reduce melon production by about 20 percent and notes that lettuce production in part of the state could drop 25 to 30 percent.

In the produce department now in stores, there actually may be an overabundance of some products. The warmer winter weather accompanying the drought has caused some vegetable crops to ripen and reach markets ahead of schedule, creating an overlap with produce from areas that typically supply them in now.

For some crops, the anticipated shortages from California in coming months can be partly mitigated by crops grown elsewhere. For example, there may be more corn and melons coming from Mexico. But some items rely heavily on California and cannot be grown elsewhere. Strawberries are one crop that is dependent on the golden state, which produces 90 percent of the U.S. crop.
The California drought and spreading potential for crops shortages are not the only thing forcing food pricing to increase and affect wallets. The food situation is exacerbated by rising milk demand in other countries, tight cattle supplies from Texas, a drought in Brazil affecting coffee and sugar, and weather problems in Southeast Asia boosting prices for palm and other oils.

The grocery store is not the only place consumers will feel the impact of the drought. Restaurants and prepared food makers are grappling with what cost increases can be passed on to customers without impacting sales. For example, Fatburger North America plans to increase burger prices in its 150 restaurants by up to 5 percent soon. White Castle, which has 400 locations, forecasts that its beef costs will be 27 percent higher than last year by summer, but is resisting passing the costs on for now. Undoubtedly many restaurant chains will be spreading the drought to customers’ wallets as they find their food supply prices continue to increase.

By Dyanne Weiss

Sources:
Wall Street Journal
California Farm Bureau
Wall Street Journal
The Province

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