Extreme weather could push food inflation even higher | CNN Business
S E E D E D C O N T E N T
The weather has long been a fickle farmhand, devastating fields one year while delivering bountiful harvests the next.
But as extreme weather events increase in frequency or become even more intense, the unpredictability is becoming more of an economic liability.
As the United States continues to battle high inflation, the effects of prolonged droughts and extreme weather events could help keep the heat on prices for a long time to come.
The Consumer Price Index, which measures price changes for a basket of goods and services, showed inflation hit 8.3% in August from the year before. But food prices rose at an even faster pace, increasing by 11.4% during that period, according to the Bureau of Labor Statistics.
Scorching heat and drought continue to bear down on the American West, forcing farmers in vital agriculture-producing states to fallow land, pull up orchards, reduce livestock herds, and slash expected yields.
"The prolonged droughts that we're seeing [present] some increased risk that inflation remains higher for a longer time," said Charlie Dougherty, a Wells Fargo economist who recently co-authored a status report on the economic state of American agriculture.
The high heat and drought have only compounded the issues facing American farmers, including supply chain ripple effects from Russia's war against Ukraine that have caused inputs such as fertilizer to surge in price; nationwide worker shortages; and inflation and high energy prices, the economists noted.
"When you've put all that together, farmers and ranchers have experienced extraordinary cost pressures," Dougherty said. "And those higher costs are being passed on to consumers." The rise in food prices is one of the key factors fueling inflation, according to recent CPI data.
The overwhelming majority of fruits, tree nuts and vegetables are sourced from drought-stricken states such as California and Texas, the American Farm Bureau Federation noted in a recent market update.
The drought and its effects "will likely result in American consumers paying more for these goods and either partially relying on foreign supplies or shrinking the diversity of items they buy at the store," according to the Farm Bureau. "Drought conditions in the US also risk global access to some items like almonds, since California produces 80% of the world's supply."
While the majority of those specialty crops are holding up, one of the hardest-hit crops in California has been rice, according to Aaron Smith, UC Davis' DeLoach professor of agricultural economics.
Rice acres have dropped by 55% this year, Smith said, noting US Department of Agriculture data showingan increase in prevented-planting acres, or land intended for a crop but prevented by natural disaster or inadequate water.
California, which is second to Arkansas in rice production among US states, generates about $900 million of rice annually, he said. California is a key producer and exporter of medium-grain rice, found in sushi and risotto dishes. While the acreage drop represents a big hit to US rice production, the effects could be mitigated by other sources, he said.
"If you look in a global perspective, which is what drives the price of rice, California is not a very big producer relative to the whole world," Smith said. "The local impact is very big; the global impact and the consumer impact for now — not so big."
A worker walks along a dried-up field of sunflowers while extreme weather conditions, including record-breaking heat waves, are the latest sign of climate change in the western United States, where wildfires and severe drought have emerged as a growing threat, near Sacramento, California, U.S., August 18, 2022. Carlos Barria/Reuters
The globalized economy and trade serve as a buffer to an extent, said Josue Medellin-Azuara, an associate professor of environmental engineering at UC Merced who studies climate change adaption and the economics of agricultural, environmental and urban water uses.
"I don't think we're in a situation of food insecurity at this point, but it's really just a reminder that warmer temperatures can bring some more challenges to produce many of the agricultural commodities we traditionally see," he said. "There's a recognition that the groundwater reserves won't always be there to help us weather future droughts, if we don't use those more sustainably."
Weather whiplash
In far western Minnesota, a few miles from the South Dakota border, Anne Schwagerl and her family run a 400-acre organic farm.
Last year, Schwagerl and other farmers across the North Star State endured the worst drought seen in decades. Some of the yields were halved on her family's farm, where they grow crops such as corn, soy beans, oats and rye.
This year brought the rain. By mid-June, about 75% of the state saw above-average levels of precipitation, according to the Minnesota Department of Natural Resources.
"We had a really challenging fall harvest and then a wet winter, which was great," Schwagerl said. "We needed that rain, but then it kept coming, and we had a very wet late spring. So it was this whiplash feeling of knowing that this could change [at] the drop of a hat."
A soaked field of newly planted corn at Anne Schwagerl's Prairie Point Farm in western Minnesota after a heavy storm in the spring of 2022 dropped 3.5 inches of rain. The heavy rain came months after Schwagerl and other Minnesota farmers endured the worst drought in decades and exemplifies the "whiplash" nature of extreme weather, she said. Anne Schwagerl
And in the past couple of years, the intensity of those weather events has only increased and relatively infrequent weather phenomena like derechos — long-lasting and high-powered wind storms that can crush grain bins like they were soda cans — have joined the vernacular, she said.
"2019 was a historically wet year. All throughout the year, we couldn't miss a rain for love or money," she said. "2020 was Covid, our first Covid year, where everything was locked down. And then 2021, we went through a once-in-a-generation drought."
"It feels like you can't use those words like 'once-in-a-generation' anymore because they keep happening. Does that still have meaning?" she added.
Schwagerl is feeling uneasy about what 2023 might bring in terms of input costs, commodity prices and weather.
"We're riding along on this endless roller coaster at the same time as everyone else," she said.
Compounding factors
Ariel Ortiz-Bobea, an applied economist at Cornell University working on agricultural and resources economics, is optimistic about the private and public sector investing in research and development and other mechanisms to improve productivity and conserve resources. He expressed concern about lesser-developed countries and the effect of global events such as the war in Ukraine.
"If things get more politically hairy, those [drought] events become more painful," he said.
Extreme weather also can negatively affect companies' bottom lines, according to research from Paul Griffin, professor of management at UC Davis.
Griffin's research of heat effect found that every degree over 77 degrees Fahrenheit (25 degrees Celsius) translates into an annualized loss of sales of 0.63% and a profit margin decrease of 0.16%. Stock pricesdropped by an average of 22 basis points in response to a heat spell, Griffin found.
Corn crops that died due to extreme heat and drought during a heatwave in Austin, Texas, on Monday, July 11, 2022. Jordan Vonderhaar/Bloomberg/Getty Images
"The implication there is that if sales are decreasing, then firms will have an incentive to raise prices," he said.
The exact extent to which extreme heat, drought and, more broadly, climate change will play a role in prices and inflation is extremely difficult to estimate, Smith said.
There are far more costs baked in to the price of a product than what consumers pay at the grocery store — including wages, materials, production, processing, transportation, distribution, retailing, and marketing, he said. Farmers and ranches receive an estimated 8 cents from every dollar spent on food at home and away from home, according to the Farm Bureau.
"All those costs are much bigger pieces of the food pie than the actual value of the food that's produced by the farmer," he said. "So when we're looking at food prices and worrying about things that might increase food prices, we probably should be paying more attention to those costs of processing and transportation and marketing rather than what's happening on the farm."
Russia's war in Ukraine helped fuel a sharp rise in oil prices, which filtered down through key inputs such as fuel and fertilizer; and it complicated already tangled supply chains, further raising costs for all the businesses that help bring farm products to the table.
Still, the very prospect of more extreme weather could further sap away groundwater and limit the cultivation potential in the future, Smith said.
"That's probably going to mean, as we look forward, fewer acres of the different fruits and vegetables that are grown in California and that people around the country eat," he said. "So that, inevitably, in the long run will raise prices — maybe not this year, but they will go up."
Tags
Who is online
403 visitors
The shortage of rice alone will certainly have a huge effect on the rise in the price of groceries.
And politicians will blame each other and not really do anything.
That seems to be SOP with them.
In my space, it is like Mother Earth is saying "fuck you" to all of us simple humans for all the carnage we have caused her.
Humans believe that we can bulldoze Mother Nature with power and money. We have yet to learn that she will kick our ass anytime she sees fit.
She has been doing a pretty good job of it.
I've often wondered why California would continue to shoot themselves in the foot. California is right next to the Pacific Ocean, seems they would want to be running desalination plants to provide water. But then again desalination plants do require a lot of electricity and California seems hell-bent on moving to "green" energy which just won't provide the power needed for such plants. It appears that once again politics is being chosen over a resolution.
California has the largest desalinization plant in the Western Hemisphere.
California isn't the only state with a lack of water problem. Nevada, Arizona, West Texas and parts of the midwest all grow crops that we eat. Of course, Hurrican Ian just destroyed thousands of acres of produce.
California currently has 12 desalinization plants in operation but it's not enough. And the legislature recently voted against building a new plant.
The plant you mentioned is the largest there but it only provides 10% of the drinking water to San Diego.
If California had more plants in operation, then they could logically reduce their intake of Colorado River water which would free more up for Arizona and Nevada.
Actually, they have 14 and 23 plants that turn brackish water into drinking water.
And if Nevada and Arizona didn't try to turn the desert into green lawns they wouldn't have a problem. If Texas build more desalinization plants they may not have the drought problem in West Texas.
As of July 2022 CA had 5 more plants under construction or in the planning stage.
The plant that you're discussing was planned for Huntington Beach where I lived for three decades. The area it was planned for was highly protected wetlands which would have destroyed not only the local critters but it acts as a flyway for many species.
The problem is people don't think of water as a resource. They have taken it for granted since we really haven't had several generations.
Exactly, to most people it was infinite, turn on the faucet and there it was. The world has changed and if we don't start treating it as a resource it will only get worse.
I don't think that there is any one answer. Like with climate change, we need an all of the above approach. Individual families can easily reduce their water usage with no real impact on lifestyle. Desalination can help especially in the far west. Cities need to replace leaking water pipes and change water rate structures. Agriculture can expand 'smart' irrigation systems, drip irrigation when practical, recycling wastewater, etc. I read that Israel reuses about 75% of their wastewater for crop irrigation.
I agree it is going to take more than one solution to solve this problem.
Israel has always been an innovator when it comes to water and usage. It's how they turned a desert into fertile ground. I think we could learn from some of their techniques.
But I agree, this has to be a total approach, but getting people to wake up is the problem.
Ok, my google searching only found 12 plants but I can accept 14. But what's the difference between a desalination plant and a plant that turns brackish water into drinking water other than brackish water doesn't have as much salt as sea water? My google searching doesn't turn up those 23 plants either.
Agreed. Never meant to imply that the problem would be solved just by California building more plants. This is a huge issue and each state needs to be planning for the future because as you stated elsewhere, water is a finite resource.
Hi Snuffy,
Brackish water plants don't require as much "work" to get drinking water. Btw, here is the article that says there are 23 plants in Cali:
.
Thanks.
The solution has to be multi-faceted Snuffy, there we certainly agree. Not only a huge issue for the states involved but for the US because a failure in those states will affect all states.
Isreal was the designer and builder of the huge desalinization plants in Carlsbad CA.
I didn't know that. Thanks!
what a grossly misinformed comment.
Rather than just a snarky response, explain why.
[deleted]
[comments about another member are always off topic & no value]
Thread locked for no value and disruption.
The best desalination technology is still not good. Testing in the Middle East where they've thrown billions of dollars at this issue shows almost twice as much waste water as water clean water.
I've read about that, EG.
I think what is going to happen is that there will be more desalinization plants and possibly, pumping water way across the country. There is going to have to be some drastic measures taken, to remain not only a bread basket but just to live.
In addition to the plants, we must look at every avenue to save water. The idea that it is endless has had its time.
I totally agree. This is the 11th hour for some places in the US.
Arizona tried to make a deal to pipe water out of Lake Superior, but Canada stopped that before it could go very far. In the mean time Phoenix added an additional 20 million people between 2010 and 2020 without making any plan to ration water.
Probably the state that has done the most in water conservation is Nevada...
Nevada is using less water today than it did in 2002 when the population explosion began.
I think that the amount of power needed to move a significant volume of water that distance to include crossing the Rockies would hato be enormous. Wouldn't Michigan, Wisconsin and Minnesota have to agree as well?
I'm not sure but since Lake Superior water drains into Lake Huron and Lake Michigan, which drains into Lake Erie which drains into Lake Ontario by using St. Mary's River, St. Clair River, Detroit River, and the Niagara River, the other bordering states might have to agree as well