How will the California drought impact food prices?

Drought may have gripped California's agricultural heartland for a fourth consecutive year, but it's not the only factor putting pressure on imported produce prices at the supermarket.

More than 93 per cent of the state is currently experiencing "severe" to "exceptional" drought, according to the U.S. Drought Monitor, and the governor recently implemented new rationing measures for cities and towns to cut water use by 25 per cent.

When California officials tested the depth of the snow pack in the Sierra Nevada mountains on April 1, they found dry grass where 1.5 metres of snow should have been. (Rich Pedroncelli/Associated Press)

Farmers have so far been exempt from those restrictions — even though they use 80 per cent of the state's developed water supply. Still, many have had their usual federal allocations of water reduced to zero for the second year in a row and have had to draw more heavily on groundwater sources or purchase water from contractors and other farmers — for as much as 10 times the usual rates. Others are switching to more efficient irrigation methods and less water-intensive crops or letting some land go fallow.

John Bishop, a produce buyer for distributor Fresh Start Foods in Milton, Ont. says his Californian tomato suppliers are planning for a smaller crop this June.

"They have told me that they are reducing their acreage by 20 per cent because they don't have enough water to be able to continue to grow the way they've grown in the past," he said.

Canadian food from California

About 76 per cent of Canada's fresh strawberry imports come from California. (Gus Ruelas/Reuters)

California is the primary source of many of Canada's imported fruits and vegetables, including:

84 per cent of broccoli and cauliflower.
76 per cent of fresh strawberries.
68 per cent of lettuce.
69 per cent of carrots, turnips and other root vegetables.
89 per cent of almonds.

Prices of some of those products have increased in the past year, but it's hard to draw a clear line between those increases and the drought, say Bishop and others.

Between February 2014 and February 2015 prices rose 3.5 per cent for fresh fruits and 8.4 per cent for fresh vegetables — compared with overall inflation of 2.1 per cent.

Lettuce prices have jumped about 40 per cent in that period. Part of that is likely due to the shift Californian farmers have made from so-called row crops, such as lettuce, carrots and tomatoes, to higher-value perennial crops like nuts and wine grapes. But it's hard to separate the effects of the drought from other factors that affect retail prices, such as:

Fuel prices, which have been falling and made transport cheaper.
The low Canadian dollar, which has made U.S. produce more expensive.
Other weather events, such as frost.
Labour disruptions, such as the farm workers strike in Mexico, where some produce comes from in winter, and wage pressures.

"Periods of drought often get exaggerated in terms of their impacts on retail food prices," said Richard Barichello, professor of food and resource economics at the University of British Columbia. "The larger likely effect is to shift land away from producing hay and livestock feed and more into valuable crops."

California's almond production, for example, increased to record levels last year, despite the drought.

No substitute for fruit and veg

The University of Guelph's Food Institute estimates the price of fruits and nuts will go up between one and three per cent in 2015 while vegetable prices will increases by three to five per cent.

Sylvain Charlebois, lead author of the forecast, says if California produce gets too expensive, Canadian grocers will have to find a cheaper alternative because unlike meat, which can be substituted with other food that provides protein like eggs or fish, fruits and vegetables "have no substitutes."

And although locally grown produce is finding a foothold in some grocery chains, it could never make up the volume of lost Californian imports.

Search for new suppliers is on

Sobeys CEO Marc Poulin and other grocers have started searching for new suppliers that could potentially replace California produce if the drought starts to have a more severe impact on prices or supply. (Nathan Denette/Canadian Press)

Charlebois said Canadian produce importers — and especially those who bring in organic products — have been feeling the effects of the drought for the last 18 months, but Bishop said it'll be the next eight months that will be critical as California enters the dry season and the agricultural production cycle moves north from Yuma, Ariz., where some of our vegetables come from in winter, to California's Central Valley and Salinas regions.

It's the Central Valley that has been hardest hit by the drought.

Bishop says that although he doesn't consider his California produce supply under serious threat just yet, he has started scouting other potential suppliers — looking as far afield as Argentina, Australia and South Africa.

But few contenders can match California's fertile micro-climate, extensive agricultural infrastructure and proximity, especially when it comes to crops like lettuce, broccoli and cauliflower, Bishop said.

Lemons, for example, "can be on a boat for a week or 10 days and they're fine." But lettuce, he says, "has to be harvested, cooled and used within seven days."