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Rising fuel and fertilizer costs, shrinking water supplies, trade disruptions and mounting regulatory pressures are converging to push food prices higher in California, with farmers and grocers warning the strain is rippling across the entire supply chain — and increasingly onto consumers.
The pressures are not isolated. They reflect a broader national and global trend in 2026, where geopolitical instability, particularly conflict affecting energy and fertilizer markets, has sharply increased production costs for agriculture. Across the U.S., farmers are cutting acreage, switching crops or bracing for losses as input prices surge and markets remain volatile.
In California — the nation’s top agricultural state — those dynamics are magnified by higher baseline costs and tighter environmental and water constraints.
Steven Fenaroli, CAFB (LinkedIn)Farmers squeezed by costs, water and markets
Steven Fenaroli, who directs policy advocacy at the California Farm Bureau, says growers are confronting overlapping pressures that are forcing fundamental changes in how they operate.
“We’re getting it from every which direction — the state, the federal government, from outside market forces,” said Fenaroli, during a conference on affordability last week hosted by Capitol Weekly and the University of California Student and Policy Center.
He pointed to tariffs, fuel prices and fertilizer costs. About 70% of U.S. farmers report they cannot afford all the fertilizer they need, while diesel prices have jumped about 46% in recent months — raising costs for planting, irrigation and transportation, according to an American Farm Bureau Federation survey last month.
Those increases are tied in large part to global energy disruptions. The Strait of Hormuz — a key route for both oil and fertilizer — has been severely constrained by conflict, pushing up prices for fuel and nitrogen-based inputs critical to crop yields.
In California, diesel prices have climbed above $7 per gallon in some areas, dramatically increasing the cost of moving crops from field to market.
At the same time, long-term structural challenges are intensifying. Groundwater restrictions under the Sustainable Groundwater Management Act are expected to force the fallowing of hundreds of thousands of acres, reducing output in a state that produces most of the nation’s fruits and vegetables.
Climate pressures are compounding the issue. California has experienced increasingly frequent drought conditions and a shrinking snowpack, adding uncertainty to already tight water supplies.
Fenaroli emphasized that the economics are becoming untenable. Farmers retain only about five cents of every dollar spent on food, leaving little margin to absorb rising costs.
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“That's not sustainable,” he said, adding that those numbers are not incentivizing the next generation to take over their family farming and ranching operations.
The consequences are already visible. California has been losing farms at a steady pace — about 1,500 per year between 2017 and 2022 according to the most recent USDA Agriculture Census — and that trend could accelerate as costs remain elevated.
Market instability is adding another layer of risk. Trade tensions and tariffs have reduced export opportunities, particularly in key markets like China, while global buyers shift to other suppliers.
“When buyers leave the market — when they don't want to buy California crops — it’s really hard to get that back,” said Fenaroli.
That uncertainty has real-world consequences. The bankruptcy of major processors like Del Monte Foods has left some California growers without reliable buyers, forcing them to consider pulling out crops or switching production altogether.
“Everyone always likes to say, ‘Oh, farmers are so resilient.’ And they are. But gosh, there’s only so much people can take before they just throw in the towel,” Fenaroli added.
Grocers feel pressure as costs reach consumers
Retailers are increasingly caught in the middle — absorbing upstream cost increases while facing pressure from consumers already struggling with higher grocery bills.
Leticia Garcia, who directs government affairs at the California Retailers Association, said grocers, particularly independent operators, have little ability to control prices but must manage the consequences.
“The grocery store is the last stop for all of these products,” said Garcia.
Independent grocers face unique challenges. Without the purchasing power of national chains, they pay higher wholesale prices and operate on razor-thin margins. Garcia cited one example where a 25-pound box of Roma tomatoes jumped from $16 to $45 in a year, leaving only a few dollars in profit.
Those thin margins are being squeezed further by rising energy costs — especially for refrigeration — and by litigation and compliance costs that can consume significant portions of operating budgets.
The broader economic environment is also shifting consumer behavior. Grocery prices have already risen nationwide as energy costs feed through the supply chain, with even modest increases in fuel translating into higher prices for food and consumer goods.
Garcia warned that potential federal cuts to nutrition programs like SNAP and CalFresh could further destabilize the retail sector, particularly in low-income and rural communities.
“Removing all that money from these communities is actually going to have a huge impact for them,” she said.
Retailers are already seeing warning signs. During recent disruptions to SNAP benefits, some consumers shifted away from fresh produce toward shelf-stable items and increased reliance on food banks — a trend Garcia said underscores deeper affordability challenges.
Food banks themselves are experiencing rising demand, reflecting a growing number of working households that cannot afford basic groceries.
Leticia Garcia (California Retailers Association)Policymakers face limits as pressures persist
James Sayre, an associate professor of agricultural economics at UC Davis, said the current moment is defined by a rare convergence of economic shocks across the food system.
“Up and down the supply chain, we're seeing really unprecedented headwinds,” said Sayre.
Agriculture’s dependence on fossil fuels — for both machinery and fertilizer production — makes it particularly vulnerable to energy price spikes. Historically, similar energy shocks have triggered food price increases worldwide, a dynamic now playing out again.
California’s reliance on export markets adds further risk. About 40% of the state’s agricultural output is exported, meaning disruptions to trade relationships can quickly translate into lost revenue for farmers. Sayre noted that price increases tend to reach consumers quickly, while any relief takes longer to materialize — meaning grocery bills may continue rising even if input costs stabilize.
“Unfortunately, we should expect prices to keep going up quite drastically,” he said.
Asm. Rhodesia Ransom, D-Tracy, said lawmakers are attempting to mitigate the impacts, but many of the underlying drivers — from global energy markets to federal policy — are beyond the state’s control.
“In California, we went from having solid plans and making sure that we can take care of everyone, to now we're really scrambling to fill in holes,” said Ransom, who pointed to increased funding for food banks to support both producers and consumers, helping stabilize supply while improving access to fresh food.
At the same time, lawmakers are reexamining how cumulative policies affect affordability.
“Every decision that we make has a cost associated with it,” said Ransom. “We have to find out if these costs are necessary.”
