Santa Cruz County farmers raise prices due to soaring diesel, fertilizer costs

Surging fuel and fertilizer costs are forcing Santa Cruz County’s farmers to raise produce prices. That is likely to pressure grocery bills in the months ahead. 

The energy shock, an effect of the Iran War, is hitting Central Coast farmers during the busy spring-to-summer season, when they are spraying fertilizer and running diesel-powered tractors and other equipment to grow crops such as strawberries, artichokes and lettuce.

“Fuel is a huge cost,” said Dick Peixoto, owner of Lakeside Organic Gardens. “It affects everything we do.”

“Putting the war to an end would be a good thing for a lot of reasons,” he said.

The closure of the Strait of Hormuz, a crucial waterway for shipping energy in the Persian Gulf, has sent the prices of diesel and petroleum-based fertilizer – key farming resources – soaring globally. About one-third of the world’s fertilizer and one-fifth of crude oil, which is refined into diesel, traversed the chokepoint before the U.S. and Israel struck Iran on Feb. 28.

Now, the supply crunch is coming home to roost in agrarian communities like Santa Cruz. The county says its agriculture industry, which is among California’s biggest, contributes more than $1.5 billion a year to the local economy.

Lakeside has 3,000 acres in Watsonville and 65 locations in California, making it one of America’s biggest organic vegetable companies. Local grocery stores including New Leaf Community Markets, Staff of Life and Whole Foods sell its produce.

Organic farmers like Lakeside, who don’t use petroleum-based fertilizers, are having to hike their prices because of the higher cost of diesel alone.

California’s diesel prices have climbed to their highest level in history, peaking at an average weekly price of $7.57 a gallon in early April, according to the U.S. Energy Information Administration. Farmers get some relief thanks to untaxed off-road diesel that is typically 90 cents cheaper a gallon.

Peixoto said he is raising prices by 10% in upcoming contracts due to diesel. Until then, he’s stuck with lower prices in existing yearlong agreements.

“Some of them are going to kick in a month, some of them are going to kick in six months, some of them kick in a year,” he said. 

Recently, Peixoto said he signed a contract with a clause that vegetable prices could rise or fall depending on fuel costs. Some customers have also voluntarily agreed to fuel surcharges on previous agreements. 

“Because we’re organic, we probably use more fuel,” Peixoto said. For example, organic farmers remove weeds mechanically instead of chemically. The industry’s fuel costs per acre are typically higher than conventional agriculture.

A tractor now costs more than $100 an hour to run at current diesel prices, Peixoto said. Lakeside has about 200 tractors running every day all summer. Diesel trucks also transport goods across the country, including the East Coast.

Smaller organic farmers face the same struggle. Live Earth Farm, which has about 65 acres in Watsonville, is raising prices by 20% to 30% largely because of diesel, said owner Thomas Broz. “Right now is when diesel is used the most,” he said.

“We are just dependent on it,” Broz said, pointing to how electric tractors haven’t reached commercial scale or become capable of heavy-duty tasks. “There’s no alternative.”

Live Earth’s produce is sold at farmers markets and to about 1,000 subscribers who pick up at partner locations, such as Companion Bakeshop. “Most people have been very understanding,” Broz said.

Non-organic farmers are being hit by both high fuel and fertilizer costs.

Average U.S. prices for urea, the most common fertilizer, shot up to $858 a ton in mid-April, up 49% from a year ago, according to DTN, an agriculture trade publication. Another common fertilizer, anhydrous ammonia, went even higher at $1,114 a ton.

Coastline Berry Farms, which has 80 acres growing strawberries in Watsonville, is looking at cutting back on fertilizer, said owner Peter Navarro.

“Now you need to think twice,” he said. “If the plant needs it, you have to do it.”

Navarro also said that costs for plastic equipment, such as drip lines and crop coverings, have gone up between 20% to 40%. Sellers are now asking for deposits, which can be as much as half upfront, to guarantee a price that could spike in days.

“They’ve gone up and they continue to,” he said. “It can change within a week, 10 days. It’s unstable.”

Navarro said he hopes his strawberries will fetch higher prices in the weeks ahead, but that’s out of his control. 

Coastline Berry Farms supplies its strawberries to shipper California Giant Berry Farms, which sells to grocers based on supply and demand. California Giant didn’t immediately respond to Lookout’s emailed request for comment.

“You have to see how the year pans out,” Navarro said. “Hopefully the supermarkets out there will agree.”

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