Natural disasters spell trouble for food costs

As the holiday season approaches, pastry chefs are preparing to go into high gear. But this year, the astronomical price of vanilla will jack up the food cost of cakes, cookies and other desserts. And how will citrus prices look with orange and grapefruit crops suffering weather damage earlier this fall? The current year has seen a spate of natural disasters—hurricanes, fires, cyclones and droughts—that is affecting food prices and, ultimately, operators’ profit margins. Here’s what to expect.

Madagascar, the world’s largest producer of vanilla beans, was hit by a cyclone last March, destroying a good portion of the island’s crops. Already-high prices for vanilla skyrocketed and show no signs of softening nearly eight months later. It takes about three years for vanilla plants to mature, and although Mexico, India and Tahiti also grow vanilla beans, Madagascar produces 80% of the supply. Additionally, the market for pure vanilla has grown significantly, as food manufacturers respond to consumer demand for natural ingredients and swap out artificial vanillin for the real stuff.

A kilogram of vanilla beans is now going for $600 to $750, and pure vanilla extract is selling for almost $500 per gallon, compared to $100 and $50, respectively, in 2015. Craig Nielsen of Nielsen-Massey and Lawrence Kurzius of McCormick, both large suppliers of vanilla, predict that high vanilla prices will continue well into 2018, according to an article in the Financial Times.

The wholesale price of avocados is up 125% since the beginning of 2017, reaching a peak in September, according to the American Restaurant Association, which follows the commodity markets. Drought caused a tighter supply of California avocados, with production down 44% in 2017 from 2016, according to the California Avocado Commission. Mexico, the other large supplier of U.S. avocados, has also experienced crop shortages this year. While some operators have hiked the menu price of guacamole, others are omitting avocado where it won’t be missed, as a garnish or a salad ingredient, for example. Although crop size is predicted to improve in 2018, consumer demand for avocados remains strong.

When Hurricane Irma hit Florida in September, it badly damaged orange and grapefruit trees that were weeks away from harvest. Estimates put the destruction of the orange crop anywhere from 40% to 70%, with the USDA estimating a lower figure, while Florida Citrus Mutual, an industry group, claimed a greater loss. This was supposed to be a good year for orange groves, which were recovering from citrus greening disease, but the hurricane’s devastation could mean the smallest crop since the 1940s, according to the USDA. That will probably result in a surge in citrus prices in the near future.

The latest wildfires in California wine country are too recent to analyze how they will affect wine prices, but experts agree they’ll probably have an impact. Napa Valley Vintners, a trade association for the industry, said that 47 wineries in the Napa Valley suffered damage as of mid-October, but only a handful sustained significant losses. About 90% of the harvest was already in, and most of the vintage had been put in tanks. In nearby Sonoma County, where fire damage was more severe, about 77% of the harvest was in, and the flames stopped short of most of the vineyards.

But the widespread loss of homes and large number of displaced workers is hampering wine production. And in both Napa and Sonoma, the jury is still out as to how the smoke will affect the quality and flavor of the wine. That won’t be evident until fermentation is complete. Since restaurants buy most of their wine several months in advance, operators won’t have to deal with quality, flavor and price issues until next year.