Drought may cut key farm exports from California


Issue Date: April 2, 2014
By Ching Lee

Water shortages are expected to reduce production of many of the state's top agricultural exports, and marketers, analysts and commodity groups say it remains to be seen how this will impact California's ability to supply key export markets—and hang on to them.

The outcome has implications throughout the California economy, said Josh Rolph, director of international trade for the California Farm Bureau Federation.

"Based on the severe water shortages expected in Northern and Central California, it seems apparent there will be reduced production of a number of crops," he said. "If farm exports decline as a result, that will affect jobs throughout rural areas, as well as at ports and other urban workplaces."

For products such as almonds, the state's No. 1 farm export, much will depend on what the actual size of the crop will be this year, said Richard Waycott, president and CEO of the Almond Board of California. If yields reach close to 2 billion pounds—similar to the last two years—then there should be enough to supply export markets, he said.

"There may be some shortages on size or certain varieties perhaps, but it's just too early to say," Waycott said.

California remains the premier producer of almonds, supplying more than 80 percent of the world supply, while countries such as Australia and Spain have comparatively small production.

With more than 200,000 almond acres facing water shortfalls, Dave Baker, director of member relations for Blue Diamond Growers, said there are definitely concerns about how the state's crop will fare. He noted growers have been using more groundwater that has high salt and boron content. He said that could affect production later in the year and prolong stress on the trees caused by water deficits, damaging them for two to three years. These impacts could cut the state's crop by 200 million pounds, he added.

Exports of California pistachios have seen record highs in recent years and a light crop could thwart further market expansion, said Richard Matoian, executive director of American Pistachio Growers, which represents production in California, Arizona and New Mexico. He noted some 40 percent of California growers are in water districts facing "zero" water allocations this year.

"I think the concern is we're potentially going to face a loss in momentum that we've seen over the last few years of record shipments and record price returns to growers," he said.

Matoian said while it's unclear how big an impact the drought will have on the state's production, he's certain the crop will be smaller and supplies tighter, leading to higher prices. He said it's unlikely competitors such as Iran could fill the gap created by a shorter California crop, as "all pistachio production areas in the world" are experiencing water issues of their own.

"No one else has the supply to be able to meet the worldwide demand, and there are no new production areas," he said.

The price of medium-grain rice has shot up in recent months due to tight world supplies and announcement of water cutbacks in California, said Kirk Messick, senior vice president of Farmers' Rice Cooperative. The state typically exports about 50 percent of its rice.

Even with production cutbacks, there should be enough rice in storage and in the new crop to supply the domestic market and the state's key export markets in Japan, South Korea and Taiwan, said Chris Crutchfield, president and CEO of American Commodity Co., a rice handler and marketer based in Colusa County.

Crutchfield said more price-sensitive markets in the Middle East—which in recent years have purchased 20 percent of the state's crop—may import less California rice and turn more to Australia, Russia, India and Vietnam.

But Messick noted that Australia, a major exporter of medium-grain rice, has its own drought issues and is facing a 20 percent to 30 percent lighter crop this year. Russia's crop also was off—by 40 percent, Crutchfield said—while Egypt, formerly a top producer of medium-grain rice and a California competitor, has reinstated a self-imposed export ban on rice.

Other U.S. rice-producing states such as Arkansas and Louisiana will probably double their acreage to take up the slack, selling to Middle Eastern markets in Libya and Turkey, Messick said.

"We'll lose a certain percentage of consumers each time we have an event like this," he said.

For the short term at least, California dairy farms should be able to produce enough milk to meet export demand, said Michael Marsh, CEO of Western United Dairymen. U.S. dairy exports reached an all-time high in 2013, helping to buoy prices for farmers, according to the U.S. Dairy Export Council. About 40 percent of the nation's total dairy exports come from the Golden State, according to the California Milk Advisory Board.

Marsh said the drought has hit organic milk production particularly hard due to poor pasture conditions and lack of available organic feed, but the state's overall milk production is up. However, as producers work through their current hay inventories and look to restock, feed supplies will be very scarce and expensive, he said. That will limit farmers' ability to increase production—and may even lower it.

Milk-producing states in the Midwest will make up some of the production and take some of the market share that historically may have gone to California, Marsh added.

After two record harvests, there is currently plenty of wine to supply the market, said Gladys Horiuchi, spokeswoman for the Wine Institute in San Francisco. While it's uncertain how far this inventory will go should there be a short harvest this fall, any impacts are not immediate, she said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.