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Food and beverage, cosmetic and retail industries

Drought costs in California

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  • October 15, 2015

Drought in California California is an important food-producing region. Continued strong global demand and prices for many of its fruits, nuts and vegetables has helped sustain the farm economy. But the 4 year drought has had a severe impact on agriculture in California. It has already squeezed about 30% of the workers and cropland out of production in 2015 compared to 2014.

In 2015, the state’s agricultural economy will lose about $1.84 billion and 10,100 seasonal jobs because of the drought, with the Central Valley hardest hit.

Agriculture economy does not totally fall apart thanks to underground water supply

But important groundwater pumping creates some issues such as lowering the water table, causing wells to dry up, requiring drilling to access new water supplies deeper and deeper and not knowing exactly how large are the reserves that are left.

Food cost

While droughts in California are generally associated with higher retail prices for produce, the effects do not appear immediately. Price increases lag due to the time it takes for weather conditions to alter crop production.

All food costs are not impacted the same while taking water shortage into account. Fresh produce undergoes relatively little processing, packaging, and advertising. It is also highly perishable, meaning that storage has little impact on the final prices. Considering farms and agribusiness represent about 40.2% of final prices for fresh products, any increases should generally show up on supermarket shelves. Commodity price swings have a muted effect at the retail level, as other factors make up the price consumers pay at the supermarket and only 7.4% of the final price depends on the farm and agribusiness.

Solution for Food and Bev companies

For Food and Beverage businesses using these commodities or any food products coming from California it is crucial to optimize their products portfolio. Costs are going to evolve and formulation adaptations (in product origin or quantity) need to be made –such as labeling, quality management, cost management, etc.

For businesses wanting to keep their margins, things have to be considered and re-thought. Lascom PLM offers robust software to assist industries with re-formulation. Lascom’s tools help R&D teams in their daily tasks. It is simpler to change an ingredient quantity, replace ingredients and create new formulas when you can immediately know the impact on costs and other criteria. Volatile commodity prices can then be managed and finished products adapted depending on market fluctuations.

Solution for Californian agribusinesses

As margins are tighter these days, it is very important for agribusinesses in difficulty to optimize their portfolio. Lascom PLM provides solutions to better manage product lifecycles and business intelligence to benefit from an overall view and consider activity globally to prioritize projects and better evaluate costs.

Lascom also assists companies with their quality process to better comply with local and global certifications (INCO, FDA, etc.). Documentation is attached to a specific commodity, formula or final product facilitating audits, claims, recalls or information. This could also justify a higher price for final customers to buy and smooth the high costs of production due to drought.

To learn more about our products and how to better manage portfolio, click here

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