Why groceries cost more in the Bay Area

Top: Andy Katz (center) of S.F., at the Ferry Plaza Farmers Market in S.F., shops for Brussels sprouts from Iacopi Farms of Half Moon Bay and other produce, above. Top: Andy Katz (center) of S.F., at the Ferry Plaza Farmers Market in S.F., shops for Brussels sprouts from Iacopi Farms of Half Moon Bay and other produce, above. Photo: Michael Short, The Chronicle Photo: Michael Short, The Chronicle Image 1 of / 34 Caption Close Why groceries cost more in the Bay Area 1 / 34 Back to Gallery

Despite living close to the country's most productive cropland, Bay Area shoppers pay steeper prices at the grocery store than people who live much farther from farms.

A cost comparison of the staples of American diets shows that San Francisco prices are on par with those in Washington, D.C., a city with a more distant and tenuous connection to farmers.

The price of basic food items has become a big issue for consumers. With a deadline approaching, Congress has yet to pass a farm bill, raising the specter of a "dairy cliff" that could roll back government subsidies and double the retail price of milk. That Capitol Hill debate could have other implications for California shoppers.

But if and when the farm bill is adopted, prices in San Francisco and Washington are expected to remain similar. That's because the distance food needs to travel to reach store shelves - and the associated fuel and transportation costs - is a small piece of the pricing structure, according to both agricultural economists and farm advocates.

"The ultimate seller has to factor in all those other costs as well," said California Farm Bureau Federation spokesman Dave Kranz. "The cost of labor, keeping the lights on in the store, whatever regulations they have to comply with all go into the cost, and that's a larger proportion of the cost than the actual cost of the food itself."

Dr. Roberta Cook, a marketing economist in the Department of Agricultural and Resource Economics at UC Davis, estimates that on average about half of the country's fresh fruits and vegetables are grown in California. About three-fourths of some products - lettuce, broccoli, cauliflower, fresh oranges and most leafy greens - are grown in California, as are an even higher percentage of fresh strawberries and raspberries.

But that proximity to the source doesn't necessarily translate to lower prices because produce labeled and marketed as "local" can be sold at premium prices to consumers who are willing to spend more to support area businesses. It's a matter of supply and demand.

Furthermore, production of many of the food and beverage items that constitute part of the basket of goods used to define the Consumer Price Index is not dominated by California farmers to the same extent as fresh produce.

Milk prices

The fact that milk costs more in San Francisco than Washington, D.C., might, on the surface, be the most surprising finding. California, after all, produces more milk than any other state, and milk is highly perishable, meaning timing and temperature during transport are critical.

However, only a small fraction of California's milk supply is kept fluid, with the vast majority converted to frozen or soft products like ice cream, yogurt, cheese and butter that can be more easily exported.

And because milk prices are regulated and the commodity is relatively inexpensive, retail stores in California generally don't attempt to compete aggressively on the basis of milk prices.

Milk is just one example. Ultimately, there's no clear across-the-board link between farms and end prices to consumers.

"It's certainly true that retail prices do not map farm prices," said Dan Sumner, director of the University of California Agricultural Issues Center at Davis.

"The marketing margins themselves between the farm and the retail price, we have data, and there's some broad regularities, but it's really not well understood exactly what those patterns are."

Sumner downplays the role that some factors play in the final cost - "Transport costs are tiny per unit of food" - and points to others, like California's high rents, high labor costs and high cost of living, as clearly important. But other variables are difficult to measure.

New regulations

One confounding example is that of new regulations on the sale of eggs, set to take effect in 2015. It's generally accepted that the rule, which will require more space for each egg-laying hen, will add costs at the farm level. But it remains to be seen what will happen to egg prices when what is currently a specialty product becomes the standard for everybody.

"Stores are balancing all of those prices to try to make a living running the store. It may be the case that conventional eggs are a loss leader, so I promote those if I think they'll bring people into the store, and I might charge more for breakfast cereals," Sumner said.

"There are lots of ways to slice that question, and we're working on it, but we don't have a definitive answer."