Personal Finance: What’s for dinner? A dollop of price increases, for sure
04/27/2014 12:00 AM
04/25/2014 9:36 PM
First it was beef. Then it was limes. Next, it could be just about every fruit and vegetable on your dinner plate.
This summer, California’s drought means we’ll likely be shelling out a little more for fresh produce, especially lettuce and avocados.
How much? No knows exactly where prices will go, but there’s no doubt that fresh fruits and vegetables are headed for price hikes, largely because water-starved farmers are cutting back on what they’re putting in the ground.
A head of lettuce could jump to $2.44. Grapes could go up to $2.93 per pound. And a single avocado could climb as high as $1.60, according to a recent Arizona State University study that looked at the drought’s impact on California fresh food prices.
“Everything is going up. I buy only what I need,” said retiree Victoria Leon, shopping last week at a Raley’s grocery store on Freeport Boulevard.
In terms of price hikes, the “most vulnerable” California crops are those that use the most water or “simply won’t be grown,” said Timothy Richards, agribusiness professor with ASU’s W.P. Carey School of Business in Tempe. Richards predicts the biggest leaps for seven California-grown foods: avocados, berries, broccoli, grapes, lettuce, peppers and tomatoes, as well as bagged salads.
As a parched state limps into its third summer of drought, farmers have taken an estimated 800,000 acres of farmland out of production – roughly 10 percent of the state’s irrigated acreage – because they don’t have enough water. That’s led to a cutback in what’s being planted, whether it’s strawberries from Watsonville, summer melons from the Central Valley or rice in the Sacramento Valley. In other cases, heat-stressed or under-irrigated fields and orchards could cause a droop in harvests.
In simple economic terms, it’s supply and demand: Fewer peaches coming off trees means pricier peaches.
“You’re definitely going to see both short-term and long-term impacts. The question is how intense those impacts will be,” said Dave Kranz, spokesman for the California Farm Bureau Federation, which represents 53 county farm bureaus.
Given that California’s 80,000 farmers are the country’s biggest producers of fresh fruits and vegetables, “it just makes sense you’ll see some impact on overall availability and prices,” Kranz said.
Overall, the U.S. Department of Agriculture predicts supermarket prices for fresh fruits and vegetables could go up as much as 3.5 percent in 2014 due to California’s drought. But significant spikes in the price of beef and pork are already showing up. Beef prices rose 7.4 percent in the past year and are projected to increase another 3-4 percent in 2014, according to the U.S. Department of Agriculture.
At a Raley’s meat counter in Sacramento last week, butcher Luis Alvarez said the store’s cost for all types of beef, from T-bones to tri-tip, have gone up. “We’re paying a dollar more a pound than a month ago,” said Alvarez. A rib-eye steak on sale for $8.98 was $7.98 just three months ago, he said.
And the ripple effect on prices could last well into next year. California strawberry growers, for instance, who produce about 90 percent of the nation’s crop, typically replant in late summer, then again in fall and winter for 2015’s first harvest. But if the drought persists, they may not be able to get many of those later plantings into the ground this year, according to the California Farm Bureau.
Prices going up
For some fruits and vegetables, the price hikes are already happening. Bought a lime lately? At the Raley’s store on Freeport Boulevard this week, limes were 69 cents apiece, while Hass avocados were $1.78 each – or $1.29 for three or more.
Not all of the recent price hikes can be blamed on drought. Most of the limes consumed in this country, for instance, come from Mexico, whose harvest has been hobbled by a combination of citrus pests, heavy rains that knocked off blossoms, and drug cartels that have been hijacking truckloads of limes – dubbed “green gold” – on their way to market.
Similarly, pork prices fattened up not because of the drought but due to a highly contagious virus that’s killed millions of baby pigs in 29 states since last spring. The swine virus has led federal officials to project a 3 percent increase this year in the price of pork chops, bacon and other porcine products.
Beef prices also have been on an upswing that’s largely drought-related – from years past. A Midwest drought two years ago forced ranchers to thin their herds, leading to a supply shortage that beefed up prices. Ironically, some of those same ranchers are now buying cattle from distressed California ranchers whose grazing lands are too parched to support their herds.
This year, California beef producers are also seeing their costs increase due to weather-related corn and cattle feed shortages.
As a result, consumers should expect to see continued “steep inclines” in prices for beef and pork, said Charlotte Mitchell, executive director of the Sacramento County Farm Bureau.
In grocery stores, which operate on thin margins, some of the price increases may not appear in the produce bins. Given the fierce competitive market among retailers, grocers are very price-conscious and will try to absorb most of the increases before adding “a penny here or there” to the cost of a melon or a pound of tomatoes, said Dave Heylen, spokesman for the California Grocers Association in Sacramento.
As stores try to keep prices low, shoppers could see an increase in imported fruits and vegetables, from places like Australia, Chile or Mexico. “We might see more of that this summer than we typically would,” Heylen said.
What can consumers do?
If there was ever a time to grow your own backyard vegetables or fruits, this might be the perfect summer. Even with watering cutbacks, you can reap a do-it-yourself bounty at low cost.
Last summer, Debbie Arrington, The Sacramento Bee’s garden writer, planted a four-foot-long row of Kentucky Wonder green beans that were watered only once a week. From a single $1 seed packet, Arrington harvested about 40 pounds of flavorful green beans all the way through October.
Be aware of what you’re buying. If you mindlessly scoop up a bagful of limes or avocados for that next batch of margaritas or guacamole, for instance, you could get major sticker shock at the checkout aisle.
Instead, shop with a plan. “You can save so much money by building your weekly menu around what’s on sale and grocery stores’ specials,” said Jeanette Pavini, a Bay Area-based savings expert for Coupons.com. “If you do nothing else, just have a plan. And stock up.”
As ASU professor Richards noted, consumers are often less reluctant to cut back on food items they view as more essential, like salad greens. “They’re more willing to pay what it takes to get them,” he said.
But for items like packaged salads, which he predicts will go up 13 percent to a possible $3.03 a bag, consumers may prefer to scale back, either by finding cheaper alternatives or forgoing the convenience by doing the chopping and dicing themselves.
Certainly, this isn’t the first spike in grocery prices or even our first drought.
“Our economy has had its ups and downs, so people are pretty resilient and creative when it comes to saving money,” said Pavini, a longtime consumer savings expert. “Consumers have more control over their monthly budget than they realize .”
And like everything tied to farming, it’s all about the weather. “If we have a mild summer, the effect (on prices) might be less than if we have a hot summer when trees and plants might not produce as much if they’re under a lot of stress,” said Kranz of the California Farm Bureau. “There’s still some time for things to get better – or worse. But the degree is impossible to predict.”
About This BlogClaudia Buck is the Personal Finance columnist and business editor at The Sacramento Bee. She's worked at The Bee since 2005. Amid the financial turmoil of the recent recession, she became the personal finance writer, helping readers cope with some of the confusing, daunting and perplexing aspects of managing our financial lives. She serves on the journalism advisory board of her alma mater, Cal Poly State University, San Luis Obispo. Reach her at firstname.lastname@example.org or 916-321-1968. Twitter: @Claudia_Buck.
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