Originally published April 25 2014
Fresh produce prices skyrocketing in 2014
by J. D. Heyes
(NaturalNews) The embattled American consumer can't seem to catch a break. Gas prices remain high, electric rates are rising, clothing is becoming more expensive, school debt is piling up, taxes are climbing, healthcare costs have not come down and food prices -- wow. Everything that costs money is rising, while wages remain flat or depressed. Does anybody in Washington get it?
Grocery prices, especially produce, are hitting new highs, and what's worse is that we shouldn't expect them to fall anytime soon, thanks to a number of factors (including a few I just hit on).
As noted by The Wall Street Journal (WSJ):
The cost of fresh produce is poised to jump in the coming months as a three-year drought in California shows few signs of abating, according to an Arizona State University study set to be released....
The study found a head of lettuce could increase in price as much as 62 cents to $2.44; avocado prices could rise 35 cents to $1.60 each; and tomatoes could cost 45 cents more at $2.84 per pound. (The run-up in produce prices is in line with other projections showing that overall food cost gains are expected to accelerate this year.)
Costs have been rising already, but drought is making them worse
These latest projections were compiled by Timothy Richards, an agribusiness professor at the university's W. P. Carey School of Business, WSJ reported. He examined the effect of the California drought on farmland, as well as consumer pricing trends, to determine the eight fresh fruits and veggies most likely to experience the largest price increases this summer.
Indeed, prices may already be on the rise. According the Labor Department's consumer-price index, which measures such data, food prices rose 0.5 percent for the second straight month in March, making it the largest two-month gain in the food-at-home category since 2011.
Individually, food and vegetable costs rose 0.9 percent in March, following a 1.1 percent gain the month before. Meanwhile, the price of meat and dairy products is also rising. Still, overall consumer prices only inched up 0.2 percent in March, but that reflected the fact that wider inflation throughout the economy remains subdued.
Nevertheless, just because prices aren't rising as fast on other goods doesn't mean that consumers won't feel the rise in food costs, since everybody's got to eat (as opposed to, say, purchase a new washer and dryer or automobile).
The problem lies in large part with the drought in California; the state produces the most of each of the products Richards identified in his analysis. In the case of avocados, for instance, California is the only state with any significant crop.
The rainless state of being in California has wiped out between 10 and 20 percent of crops for the eight items, but the amount of expected price increases tends to vary widely, WSJ reported. Lettuce prices could possibly rise by as much as 34 percent, and avocado prices by as much as 28 percent, making them the largest potential increases.
"People are the least price-sensitive when it comes to those items, and they're willing to pay what it takes to get them," Richards said. "It's hard to make a salad without lettuce."
True, but it's harder still to pay for salad when prices for its primary ingredients continue to rise.
'We could be seeing California pass as the nation's bread basket'
More from WSJ:
In basic economic terms, the drought reduces supply, which puts upward pressure on prices. But how high the price can rise is determined by consumers' willingness to pay more against their ability to find a substitute.
Packaged salads, for example, would increase in price by only 13%, even though many of the ingredients in them are projected to increase in cost by a greater percentage. That's because consumers view premade salads as a "luxury" good and would readily switch to lower-cost alternative if the price gets too high, Mr. Richards said. They could chop the lettuce themselves or buy frozen vegetables.
The impact of the drought in California, and the overall escalation of food prices, could actually extend beyond produce aisles to deli counters and to individual products like salsa, because they all use the hardest-hit produce.
One positive bit of news: the threat of competition from farmers outside of California, as well as foreign produce suppliers, will be incentivized to ship more crops throughout the U.S., which will put downward pressure on the market and could serve to curb drastic price increases.
Water supply problems in California, however, are expected to persist for years to come, leaving the state's farmers with some hard choices to make, Richards says. They will have to figure out which crops to give the limited amount of water to and which ones to let fall away.
"We could be looking at [a] future where California is no longer bread basket for the country," he added.
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