(UPDATED April 21) Forecasting the effect of the California drought on fresh produce prices may be as difficult as predicting when it will end.
Avocados and lettuce may see the biggest produce price increases this year because of drought conditions in California, according to research conducted by Timothy Richards of the W.P. Carey School of Business at Arizona State University. In a study that highlighted in the Wall Street Journal on April 15, Richards looked at retail data from the Nielsen Perishables Group to estimate the sensitivity to supply shocks from the drought. That list also includes berries, broccoli, grapes, packaged salad, peppers and tomatoes.
Consumer prices for avocados may increase by 28% and lettuce could jump 34%, according to Richards. Shoppers are least price-senstive to those items, he said, and more willing to pay higher prices to get them.
“For those two commodities, consumers tend to be relatively price insensitive, so you could jack (up) the price of lettuce and avocado, and consumers don’t seem to change their habits that much relative to the other commodities,” he said.
The research mainly considered the demand and price response to reduced output, Richards said. To estimate the supply effect of the drought, Richards said he relied on estimates published in the media that say from a half-million to 1 million acres of all agricultural land will be hurt by the current California drought. Richards believes between 10% and 20% of the supply of certain fruit and vegetable crops could be lost, based on the number of acres planted to those crops in the state.
Some industry operators said the study overestimates the effect of the drought on production this year. The bigger worry, they say, is the long-term effect.
“We’re not too concerned about this summer on getting products out of the Salinas Valley or in the (Central) Valley where the drought is really going to affect them,” said Mike Gorczyca, procurement manager for Pro*Act, Monterey, Calif. “The main concern we have is what is going to happen next year or the year after that what is this drought going to do to the trees and the vines.”
For this year, Gorczyca said onion sizing in the Huron deal could suffer because of water shortages there. That may create active market conditions before the deal moves into Washington and Idaho, he said.
Strawberry suppliers have expressed concern about next year’s spring crop in Oxnard, he said, with expectations that acreage could decline because of water shortages.