By Daniel A. Sumner
California’s drought has been tough on farms and especially painful for farm workers in the Central Valley. But consumers of California-produced food have been spared large price increases.
Despite the severity of the drought and California’s dominant market shares in many foods – especially fruits, vegetables and tree nuts – consumers saw only small food price effects last year and are unlikely to notice much price impact in 2015. The reasons derive from California’s geography, irrigation plumbing system, the economics that drive the distribution of irrigation water among crops and the basics of food supply and demand.
The reduction in irrigated crop acreage – about a half million acres last year and likely much more this year – has been and will be mostly field crops such as rice, cotton, hay and corn silage. These crops affect food prices only indirectly and global markets establish prices for most of these crops. California’s output is a small share, and so has little effect on prices.
The food crops for which California has a large market share and California production can affect prices – almonds, pistachios, walnuts, fruits, grapes, berries and many vegetables – typically generate high revenue per unit of water. So, where possible, farmers continue to shift scarce and expensive water from field crops to these crops. Farmers have added incentives to shift water to their tree and vine crops to protect their long term investments in these perennial crops.
Additionally, many of the produce crops grown predominantly in California are concentrated in the state’s coastal regions where cuts in surface water deliveries have been smaller and groundwater remains available.
California dairy production will be down this year mostly because of low global dairy product prices, but also because the drought has caused higher California hay and silage prices that boost production costs. But the tendency of drought to slightly raise national prices of cheese, butter and milk powder is swamped by national and global market factors that have lowered dairy product prices.
California ranchers have reduced their cattle herds because of dry pastures, but this has had little effect on beef prices because the state’s share of the North American cattle production is so small.
Even when farm prices rise, retail food prices often show little response. The farm commodity share in what consumers pay tends to small compared with other costs in the chain of marketing, labor, transportation and packaging. That means even a 10 percent higher price of a food commodity at the farm could mean a price hike of only 2 percent or 3 percent for consumers.
The impact of the California drought nationally and internationally may not be noticeable given all the other variables that determine food prices. For example, this year the strong dollar is reducing export demand, especially for dairy products and tree nuts.
The bottom line is farmers are scrambling to efficiently use what water they have –largely stored in underground aquifers – to keep food supplies available, especially for crops where substitutes from elsewhere are not readily available.
What if this drought continues? Clearly, each year of drought will force farmers to idle more cropland, eventually affecting prices for California specialty crops. Beyond that, no one has yet carefully developed a timeline of consequences for water supply, food production and food prices should the drought continue for many more years.
Daniel A. Sumner is director of the UC Agricultural Issues Center and the Frank Buck Professor in the Department of Agricultural and Resource Economics at UC Davis.
McClurg, L. 2015. “Drought not likely to cause higher grocery bills” Capital Public Radio. April 20, 2015
York T. and Sumner DA. 2015. “Why food prices are drought-resistant.” The Wall Street Journal. April 12, 2015
Integrated Environmental Modeling
Ocean, estuarine and watershed systems
May 21-22, 2015
Please join us for this international workshop on advancing environmental modeling.
We are bringing together experts from Europe, Asia and across the U.S. to explore ways to improve the development, application and integration of modeling for multipurpose management of ocean, estuarine and watershed systems.
Community-based modeling, public domain platforms and integrated modeling from various systems will be discussed. A white paper developed from workshop proceedings will be prepared and released to improve modeling integration.
Admission is free, but please register in advance:
Further information: integrated modeling.ucdavis.edu
Organizers: Peter Goodwin and Chris Enright, Delta Stewardship Council/Delta Science Program; Josué Medellín-Azuara and Jay Lund, UC Davis Center for Watershed Sciences; Benjamin Bray, California Water and Environmental Modeling Forum
Sponsors: National Science Foundation in partnership with the California Water and Environmental Modeling Forum and the International Association for Hydro-Environment Engineering and Research