Why the California drought will be worse than everyone thinks [View all]

[marmar]

SAN FRANCISCO (MarketWatch) — We’re told by economists that the California drought is no cause for concern to the nation. The agriculture industry isn’t being forced into additional cuts. Food prices will increase only slightly.

Stephen Levy, director and staff economist at the Center for Continuing Study of the California Economy in Palo Alto argues that the market will correct a water imbalance. The state can eventually draw from new sources — desalination plants, diversions from Canada, and Washington and Oregon, to name a couple states. Some state crops including cotton and alfalfa will likely be phased out.

As for prices, “the big price moves have had to do with housing and energy,” Levy said. “Food is a relatively small impact when moving the index (Consumer Price Index, or CPI).”



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Sumner puts a 10% increase in California food prices at 0.06% of CPI. But should the drought continue, and prices rise 20%, it would add 0.12% to CPI.

It all sounds very reassuring. After all, so what if a quart of strawberries that used to cost $5 now costs $6?

No big deal — unless these economists are wrong. And, frankly, there’s a pretty strong case that should the drought persist, say another two to three years or more, prices will skyrocket. Remember, California is the biggest farm state in the nation, producing more than Iowa, Nebraska and Minnesota combined. ...............(more)

http://www.marketwatch.com/story/why-the-california-drought-will-be-worse-than-everyone-thinks-2015-04-07