The Impact of Drought on Food Prices and Georgia's Rural Economies

The developing drought in Georgia and the Southeast will likely have little impact on the price consumers pay for food. However, it could play havoc with those rural communities in Georgia most dependent on agriculture if it develops into a full-blown summer crop growing season drought.

The reasons the drought will have little impact on food prices is the localized nature of the drought combined with the small percentage of major crops produced in Georgia, large U.S. stock piles of most crops, and the small food cost percentage contributed by the commodity itself. Georgia is one of the top cotton- (#3 state, 10% of production), peanut- (#1 state, 38% of production), and pecan- (#1 state, 31% of production) producing states.

But a drought for the entire growing season across the production belt would be required to reduce national supplies of these crops to levels significant enough to increase the prices of clothes, peanut butter or Christmas pecans consumers purchase.

Georgia is also the top producer of poultry in the country but the poultry industry is dependent on grains produced in the Midwest and not the south. Georgia produces only a fraction of the corn used to feed Georgia's poultry flocks.

Even calf prices in Georgia are dependent on feed prices at the feedlots of the western cornbelt. Grain producers in the Midwest had an excellent growing year last year, and grain prices are low due to the large stocks left from the crop.

For instance, the stocks of grain stored on farms as of March 1 were 20% above 1998's stock. The Midwest is also not currently affected by the southeastern drought, and even if a drought were to develop there, the grain stock carryover from last year's crop will cushion any grain production shortfall this year.

Even if the drought became widespread enough to reduce farm commodity supplies, large farm price increases are required to impact consumer prices. For each food dollar consumers spend, only about $.23 goes to the farmer for the raw commodity. This is far less than the $.38 that goes to the labor required to process, package and market food after it leaves the farm gate.

While an expanding drought may not have much impact on consumer food prices, it could wreak havoc on the rural economies of Georgia. Because of low commodity prices, government mandated reductions in traditionally profitable crops, and the weakened financial position of Georgia farmers due to past droughts and poor prices, Georgia farmers are ill prepared financially to handle a major drought. The result could be a significant farmer exodus from farming in areas of the state that are dependent on agricultural income for their economic health. For instance, Southwest Georgia is directly dependent on agricultural and forestry income for 23% of all the regions employment. About 36 % of the area's total economic output is directly related to agriculture and forestry production.

In addition to the drought, farmers in Georgia may be faced with further restrictions on how they use water to irrigate crops. Also new regulations are being enacted on confined animal enterprises which could have offered some farm income diversity to crops.

For more information contact John McKissick (706-542-9080, jmckissick@agecon.uga.edu) Extension Economist, Department of Agricultural and Applied Economics, College of Agricultural and Environmental Sciences, Cooperative Extension Service, The University of Georgia.