A very informative article on the relationship, from California Water Blog.
California’s drought has been tough on farms and especially painful for farm workers in the Central Valley. But consumers of California-produced food have been spared large price increases.
Despite the severity of the drought and California’s dominant market shares in many foods – especially fruits, vegetables and tree nuts – consumers saw only small food price effects last year and are unlikely to notice much price impact in 2015. The reasons derive from California’s geography, irrigation plumbing system, the economics that drive the distribution of irrigation water among crops and the basics of food supply and demand.
The reduction in irrigated crop acreage – about a half million acres last year and likely much more this year – has been and will be mostly field crops such as rice, cotton, hay and corn silage. These crops affect food prices only indirectly and global markets establish prices for most of these crops. California’s output is a small share, and so has little effect on prices.
The food crops for which California has a large market share and California production can affect prices – almonds, pistachios, walnuts, fruits, grapes, berries and many vegetables – typically generate high revenue per unit of water. So, where possible, farmers continue to shift scarce and expensive water from field crops to these crops. Farmers have added incentives to shift water to their tree and vine crops to protect their long term investments in these perennial crops.
Additionally, many of the produce crops grown predominantly in California are concentrated in the state’s coastal regions where cuts in surface water deliveries have been smaller and groundwater remains available.
California dairy production will be down this year mostly because of low global dairy product prices, but also because the drought has caused higher California hay and silage prices that boost production costs. But the tendency of drought to slightly raise national prices of cheese, butter and milk powder is swamped by national and global market factors that have lowered dairy product prices.
Retrieved April 23, 2015 from http://californiawaterblog.com/2015/04/22/food-prices-and-the-california-drought/