PAYDAY Workforce Solutions Blog

Drought Could Result in More Than Just Higher Grocery and Restaurant Prices

On Jul 14, 2014

California’s severe drought has not only caused the cost of grocery and fast food prices to increase for beef, dairy, and vegetables. It’s probably also going to cost jobs. The U.S. Department of Agriculture predicts food prices will rise between three and almost seven percent this year, including beef and poultry, dairy and eggs, and fresh fruit and vegetables. Almost 500,000 acres of cropland in California are idle because of the rising cost of water, and it’s having a ripple effect.

Fast food and restaurant chains like In-N-Out Burger and Chipotle Mexican Grill have already raised menu prices, despite their efforts to keep prices as low as possible. In-N-Out’s vice president Carl Van Fleet says they experienced significant cost increases but raised menu prices for burgers by a dime and soft drinks by a nickel.

Even with the fast food chain’s recent price increases, customers are still eating out. But there’s no indication that In-N-Out’s recent price increases are the last economic result of rising beef prices that are the consequence of drought conditions. Food prices are likely to continue rising as drought conditions continue or worsen.

Chipotle is raising prices across the country this summer and has already done so in the Los Angeles region because of higher food costs. Company spokesman Chris Arnold says the cost of beef is up 25 percent from last year and they’ve raised their menu prices on steak dishes by 10.4 percent and chicken menu items by four percent.

Even the price of coffee is affected, with Starbucks raising drink prices in some markets by 10 to 15 cents and packaged coffee products in grocery stores by one dollar. California grocery shoppers are seeing higher prices in stores on fruits and vegetables, without the usual sales that customers counted on. Consumer behavior analysts like Phil Lemper say ongoing price hikes will definitely change consumer buying habits, with people buying smaller portions of beef or and substituting less expensive food items.

Lempert predicts that restaurants will also change habits and start serving smaller portions of the most expensive meat menu items to keep customers coming in the door and preserve profit margins. Experts like U.C. Davis professor of agricultural economics Daniel Sumner say the drought is affecting the cattle cycle, with fewer cattle having babies, and causing longer times to slaughter.

The U.C. Center for Watershed Sciences predicts that the California drought could cost the state’s food growing communities almost $2 billion in revenues and cost thousands of jobs. Their recent study showed that if drought conditions don’t change significantly, the ripple effect will continue with price increases, business loss, and job loss, for California and across the country.

Contact PAYDAY for more assistance in regards of the drought connected to increase of restaruant prices and jobs.

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