By Harry Ferdon, Economist
The Central Coast produces a substantial share of vegetables for domestic and export markets. Industry cost pressures have been increasing over the last several years. Key cost pressures include COVID related changes, supply chain disruptions, and changes in input markets that affect the cost of labor, material application, water quality, and water supply. In addition, changes in farming practices to support food safety and industry sustainability goals have also resulted in higher costs. All of these changes increase the costs to raise, pack, and market a crop.
As supply chain disruptions first became prevalent in 2021, the Grower Shipper Association of Central California engaged ERA Economics to prepare an assessment of current, continuing, and future cost pressures for Central Coast produce growers and packer-shippers. ERA worked with stakeholders to develop baseline industry costs, and estimated how those costs are expected to change in response to key cost pressures. Results were presented in a concise policy report that The Grower Shipper Association has used to support its members.
ERA calculated baseline industry costs and how each cost pressure is increasing costs. The economic assessment found that there were substantial cost increases for many inputs from 2020 to 2021. This is consistent with longer-term trends in increasing costs. The greatest increase in costs was in labor, freight, and packaging costs. Ongoing increases in labor, land, pest and disease management costs continue to add additional cost pressures. Future regulatory cost pressures include SGMA, which will increase water costs, and AgOrder 4.0, which will increase farm input costs.
Higher production costs affect industry supply, reducing production as fewer acres are planted and harvested, or existing fields are managed less intensively. This would affect demand for farm inputs. A reduction in supply would also put upward pressure on farm-gate prices, leading to higher produce costs for produce buyers and final consumers.
We have seen some of these industry dynamics play out over the last several months. Substantial disease pressure in the Central Coast damaged the fall crop and resulted in a spike in retail prices for lettuce. This adds to broader inflationary pressure impacting households. Looking forward, potential curtailments to Colorado River supplies could affect lettuce production in the winter growing regions, which would further increase prices for consumers.
Drop us a line if you want to talk more about industry shocks on food prices. Our team at ERA Economics leverages calibrated economic modeling to quantify impacts of potential input or regulatory shocks.