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Lemon prices leap as California drought deepens

When diners at any of the 500 restaurants owned by Landry's Inc. order an ice tea, they usually get a slice of lemon automatically. But now they'll be asked if they want one. It isn't just a matter of trying to personalize the service.

According Bloomberg News, wholesale prices for the tart citrus fruit have more than doubled over the past year as a drought hammers California, which produces 91 percent of the lemons sold in the U.S. That constraint on supplies caused retail prices to jump 36 percent.

What’s behind the rise in food prices?

But Landry's, parent company of popular restaurant chains such as McCormick & Schmick's seafood, Bubba Gump Shrimp and Rainforest Café, isn't passing the additional costs to consumers.

"This is one of those things that you just have to live with," said Rick Liem, chief financial officer of closely held Landry's, which buys 50,000 cases of lemons annually. He noted that lemons are essential for seafood. "The Mexican crop is starting to come on-line now. That is starting to mitigate some of the pricing pressure from California. Everybody who eats would like California to get some rain."

Data from the U.S. Department of Agriculture cited by the Bloomberg shows farmers harvested 832,000 "short tons" of lemons in the fiscal year ended July, a drop of 8.8 percent. Although tonnage fell, the crop's value surged by 6.2 percent to $647.7 million, thanks to the price rise.

"Current demand for lemons is very high," said Joan Wickham, a spokeswoman for Sunkist Growers, a California-based citrus growers cooperative, in an email. "According to Technomic, a menu research company, fresh lemon usage in restaurants for entrees has increased by 20% since last year alone. Seafood and salads list fresh lemon in their menu descriptions most often."

Sunkist also is marketing lemons as healthier alternative to salt. Research the cooperative did in conjunction with Johnson & Wales University showed lemons could reduce salt use by 75 percent without sacrificing flavor. Lemons are also widely used in household cleaning products.

"California farmers harvest lemons almost year-round, with the majority coming from coastal counties including Ventura, north of Los Angeles, and prices tend to rally in the warmer summer months when demand increases for lemonade and citrus flavors in grilling and salad dressings," according to Bloomberg.

Lemons aren't the only ingredient squeezing the profits of restaurants and food companies. Prices for limes have risen so high that some bartenders are squeezing less of the fruit into drinks. Mexican restaurants, in particular, are feeling the pinch. The lime shortage also bolstered demand for lemons, which were used as a substitute.

The lime and lemon shortages are hitting consumers while they're spending more on beef, pork and eggs as well. Food prices overall are forecast to rise as much as 3.5 percent this year, the Department of Agriculture says.

Added Landry's CFO Liem: "It's a bad commodity time in my business."