Why the Drought Won’t Hike Food Prices

Kiplinger's spoke with Daniel Sumner (pictured left), a professor in the Department of Agricultural and Resource Economics at the University of California-Davis, about the effects of California's drought on produce prices over the long-term. Here's an excerpt from our interview:

See Our Slide Show: 7 Ways California's Drought Affects You

California is in its fourth year of drought. Why haven’t we seen big price increases on produce from California farms? Start with the geography. Many crops for which California is the major supplier—lettuce, strawberries, avocados—grow along the coast, which hasn’t been as severely affected by the drought.

What about prices for crops grown in the hard-hit Central Valley? Most of the acreage cuts are in field crops, such as cotton and alfalfa, which have a limited effect on food prices. Some produce crops are affected; cantaloupes could get cut back a bit, so there may be a period this summer when they’re more expensive. But farmers are doing everything they can to move water. Groundwater is scarce, but farmers have enough stored in aquifers so that, when they’re hit with these severe droughts, they can usually pump a little deeper. Water is incredibly valuable for crops that are crucial to U.S. produce supplies (think carrots, tree fruits, grapes), so a farmer will idle a thousand acres of cotton, cut back on alfalfa or grow only 60% of his usual rice crop. Given a very complicated set of rules and regulations, farmers are being really innovative about ways to transfer water.

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Is that sustainable long-term? We can’t go on pumping water forever like we have over the past few years. If this drought continues, we’ll gradually have to cut back water even for more-valuable crops.

The U.S. Department of Agriculture says that fresh fruit and vegetable prices will increase between 2% and 3% this year. What do you think? I’d agree. Competition from other countries, such as Mexico, and even other states, such as Arizona and Texas, will keep prices from rising more. But there’s a lot of weather yet to happen before the year is over.

What about California wine? Will we have to pay more for cabernet sauvignon? Farmers aren’t cutting back too much on the vineyards. But the drought could affect lower-priced wines, which tend to be made from grapes from the Central Valley. You might eventually pay more for those wines but probably not this year. The weather in the spring seems favorable for high yields and quality. And the strong dollar means that some wines from Chile, Australia, France or Italy will be a little cheaper, and that puts pressure on wine prices here.