For 15 years, Fabian Grajeda and his family have grown chile peppers on their roughly 600-acre farm in Hatch, New Mexico, an agricultural town along the Rio Grande about an hour north of the Mexican border. For Grajeda, each season is a gamble.
U.S. chile production has steadily declined over the past two decades, as more extreme weather, an unstable water supply, and labor shortages continue to hamper the industry. Production has shrunk more than 50% over the past decade in dollar terms, to $77.1 million in 2022 from $156 million in 2012, according to the U.S. Department of Agriculture.
Those struggles extend to Hatch, which is famous for cultivating green and red chiles thanks to the area’s warm temperatures, nutrient-rich soil, and long growing season. The valley’s home county of Doña Ana produced 32% of the state’s chile peppers in 2021, and thousands of people flock to the Hatch Valley Chile Festival each summer.
In the past two growing seasons, drought and other adverse weather conditions caused chile pepper crop struggles at some farms in high-production states like New Mexico. Production in the state increased slightly in 2022 from a 10-year low in 2021, but was still about 15,000 tons lower than the consistent highs last seen in 2018.
“Hopefully, it doesn’t get harder for us in the future,” Grajeda, 24, said. “You just never know.”
The stakes are high for this year’s chile pepper harvest, which is under way across the southwestern U.S.—New Mexico, California, Texas, and Arizona—and Mexico. These regions provide much of the global supply of chile peppers that are used in salsas, sauces, spices, and dips. So far, the harvest is off to a good start. A lack of severe drought paired with desirable hot temperatures has raised expectations for a successful season, said Travis Day, executive director of the New Mexico Chile Pepper Association.
These spicy crops—whose roughly 4,000 varieties include jalapeño, habanero, serrano, and poblano peppers—thrive in extremely hot weather but are also vulnerable to drought, an increasing risk as weather patterns heat up the world’s warmest areas. Too much moisture also threatens chile pepper harvests by allowing disease to set into the soil. The crops are constantly “looking for a way to die,” Day said. “It is a very finicky plant.”
Of course, chile peppers aren’t the only agricultural crop seeing the effects of extreme weather. A 2021 NASA study found that climate change may affect corn and wheat production as early as 2030. Oregon’s cherry producers are facing “severe hardships due to unprecedented and adverse weather conditions in Oregon such as ice storms, excessive heat, and wildfire smoke impacts caused by a warming climate,” Rep. Jeff Helfrich (R-Hood River) wrote to Gov. Tina Kotek on July 31, asking for disaster funds for cherry farmers.
Chile peppers’ struggles in North America have carried over to the supermarket, with prices for at least one maker’s sriracha sauce skyrocketing amid shrinking harvests. The average annual price for one pound of jalapeño peppers—which are used in sriracha—has increased by about 36% since 2017, according to the USDA.
In July, the average price of one pound of jalapeño peppers was $1.19, up 19% from the same month in 2022. In comparison, food at home prices were 3.6% higher in July than the same month a year ago, according to Consumer Price Index data provided by the Bureau of Labor Statistics.
The timing couldn’t be worse: Agricultural issues have escalated as demand for spicy food products has grown historically high. Consumption of fresh chiles in the U.S. has increased from about three pounds per person in 1980 to nearly eight pounds per person in 2021, according to the USDA.
“More and more people are eating chile peppers, and they’re craving them,” says John Hard, who has more than 20 years of experience in the chile pepper industry and sells hot sauce products in Las Cruces, N.M. “That demand is going up, up, up, but the supply is going down.”
The poster child for rising prices has been Huy Fong Foods’ ultra-popular sriracha hot sauce. A bad harvest of red jalapeños last year in northern Mexico and parts of the U.S. hurt growers’ ability to fulfill their chile pepper contracts. Huy Fong Foods, one of the largest producers of the sauce, told its customers in April 2022 that “due to weather conditions affecting the quality of chile peppers, we now face a more severe shortage of chile.”
The Irwindale, California-based company had to lower production for its sauce, recognizable from its green-tipped plastic squeeze bottle. Since then, prices for a 28-ounce bottle, usually less than $10, have surged to $70 or more online. That left fans with the option of paying up or opting for other sriracha makers.
In a statement to Barron’s, Huy Fong Foods said it still has a “shortage of raw material” and a “limited supply that continues to affect product availability.” Although limited production recently resumed, Huy Fong “has no estimations of when supply will increase.”
So don’t expect to see lower prices soon. It takes about a year for a successful harvest to reach the grocery aisles, Day says, meaning spicy food lovers could feel the heat for sriracha sauce into next summer.
Many growers in the Southwest U.S. and northern Mexico have opted to plant more profitable and drought-resistant crops, such as alfalfa and pecans, rather than take a risk on chile peppers alone. Jay Lillywhite, an agricultural economist at New Mexico State University, predicts prices for chile peppers and their related products will continue to increase because of broader inflation trends and the competition chile peppers face for cropland.
“We have to entice the farmer to say ‘Look, I can make money producing chile because consumers are willing to pay more for chile,’” Lillywhite says.
Chile peppers have different tastes based on their soil makeup and other factors in their geographic region, meaning flavors can vary if one type of pepper is swapped for another. It’s one reason some companies don’t diversify their pepper providers by location. But that can make their businesses vulnerable if there’s a bad harvest in a particular region.
Companies need to source their peppers beyond one agricultural region to lower the risk of complete supply loss, experts say. For producers who want a consistent flavor for their products, that means contracting with farmers for peppers with identical genetic makeups in California, China, India, and Mexico.
“If that [geographical] diversification [of pepper sources] can happen without one sriracha brand capturing the whole market, I think it would be healthier,” says Gary Nabhan, the W.K. Kellogg chair in food and water security for the borderlands at the University of Arizona Southwest Center.
Some well-known chile product makers have already embraced that approach to mitigate price volatility. Tabasco, which makes hot red pepper, sriracha, and BBQ sauces, among other products, hasn’t experienced a shortage of chile peppers in recent years, Christian Brown, the head of agriculture for Tabasco parent McIlhenny Co., said in a statement to Barron’s. A 20-ounce bottle of Tabasco brand sriracha recently had a price tag of $3.98 on Walmart.com.
Brown attributed Tabasco’s ability to avoid product shortages to its “long standing relationships” with chile pepper growers across southern Africa, Central and South America, and parts of the U.S. Until the 1960s, the company produced its entire chile crop on Avery Island in Louisiana, which made it vulnerable to hurricanes and floods.
Beyond its relatively stable supply of chiles, the company has encountered other challenges that have affected the industry in recent years, including “labor shortages, changing weather patterns and price fluctuations,” Brown said.
Two other big-name spicy product producers,
McCormick
(ticker: MKC), the maker of Frank’s RedHot sauce, and
Kraft Heinz
(KHC), which launched a line of spicy ketchups this year, haven’t reported chile pepper supply issues in financial reports or on earnings calls in the past two years. In a statement to Barron’s, a McCormick spokesperson said the company hasn’t experienced supply shortages for its chile pepper products. McCormick has been “making plans for many years” to establish a diverse supply chain and mitigate risks, the spokesperson added. Kraft Heinz didn’t respond to multiple Barron’s requests for comment.
“We really need structural solutions,” Nabhan said. Those solutions can come in many forms. The New Mexico Chile Association is working to include more grant funding and conservation programs for specialty crops like chile peppers in the farm bill—a massive package of federal legislation that is renewed every five years.
The push for industry protection comes as climate change continues to threaten water supplies that are crucial for growing chiles. Chile peppers in the Southwest U.S. and northern Mexico rely on water from the Rio Grande for irrigation, which typically flows during the summer and dries in the fall. But water accumulation in the reservoir at the southern point of the Rio Grande is shrinking because of more frequent droughts—and that can lead to crop failures, says Holly Brause, a research scientist at the New Mexico Water Resources Research Institute.
The crop’s sensitive growing patterns are compounded by its labor-intensive harvest. Many chile varieties still need to be handpicked, and the number of people willing to do the minimum-wage fieldwork is shrinking. For the last few years, Grajeda has contracted with workers from Mexico, and pays them above New Mexico’s minimum wage of $12 an hour. “It’s been a big difference from when I was younger and I saw everyone helping out,” he said. “Now, nobody in the local town wants to do the work.”
Mechanical destemming has existed in the pepper industry for many years and currently harvests some varieties of red chiles. But many machine harvest techniques common in other agricultural sectors are still unreliable for chile peppers. It was less expensive to pay for people to handpick the crop when mechanical destemming was first introduced, says Dr. Stephanie Walker, a New Mexico State University vegetable extension specialist. “At the time, [mechanical destemming] just wasn’t economically viable, but times have changed,” as wages rise for workers in the field, she said.
Much of the harvest process for red chiles used in sriracha, however, is still difficult to accomplish mechanically because the crop grows low to the ground and sporadically on the plant, Walker says. The industry has come a long way in developing mechanization techniques, but is “still not quite there yet,” she says.
In the meantime, growers have to take each year as it comes. So far this season, Grajeda has more water supply, but bouts of excessive heat and even hail are damaging some of the harvest.
“It’s been an up-and-down year so far,” he said. “We’re pretty much having to leave at least a quarter of the chile on the plant because it’s just no good.”
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