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Drought in California could lead to higher food prices nationwide

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Yesterday, California Governor Jerry Brown declared a drought emergency, after the state has experienced several years in a row of lower than average rainfall, leaving rivers and reservoirs at dangerously low levels. At this point, water conservation is voluntary, but may become mandatory if the drought persists. While the drought is the most widespread in California, it is reaching to several surrounding states, including Colorado, New Mexico, Nevada, Kansas, Texas, Utah, Arkansas, Hawaii, Idaho, Oklahoma. On Wednesday, federal officials designated portions of these states, as well as California, primary natural disaster areas, highlighting the financial strain facing farmers in these regions.

The drought threatens California’s $44.7 billion agricultural industry that produces nearly half of all the fruits, nuts and vegetables grown in the United States. Residents and businesses could be looking at billions of dollars in higher water rates and energy costs. California’s water managers say that unless the state gets strong winter storms in the next few months, they will be able to deliver only 5 percent of the water requested by agencies that are the source for more than 25 million Californians and nearly one million acres of irrigated farmland.

The devastation of these prolonged drought conditions are not only impending for the western part of the country though. California produces more than 80% of the almonds consumed around the entire world. This may be the largest of the agriculture in California, but the wine industry, produce, and even beef businesses will feel the effects of the lack of water. This will have a widespread effect across the country as prices for these items could increase dramatically over the next year—affecting millions of household budgets and grocery bills.

Governor Brown declaring drought emergency may open some of the farmers and businesses up for some federal relief funds, however, will not be able to preclude the far reaching effects of the higher prices that will be passed on to the consumer as supply of certain agricultural products dwindles. So where does that leave the demand side of the equation? Depending on how high prices may go, consumers may look for alternatives to these products or go without in order to ease the sticker shock of future grocery bills. While this may sound dire, a few good winter storms could still deliver the amount of precipitation so desperately needed in these areas.