El Niño has brought much needed rain. But this doesn’t mean the state should stop talking about water. The next drought could have far more profound impacts on the state’s economy, unless California starts using its water wisely.
Unfortunately the agricultural industry, user of 80 percent of the state’s consumable water, is doing everything but.
The California Department of Food and Agriculture reports California farms earned record revenue in 2014, $54 billion. More recent data suggest 2015 will be equally prosperous. Large though that is, the agriculture industry makes up only 1.7 percent of California’s economy. And yet it used four times the water used by all California urban areas combined.
Such statistics call into question Gov. Jerry Brown’s decision to place sharp water-usage cutbacks solely on urban areas while leaving agriculture untouched. A 25 percent cutback for urban areas represents only a 6 percent cutback for farms, roughly the same increase in revenue as the industry experienced from 2013 to 2014.
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But what is vexing is not that the industry is making record revenues, but rather how. One of the biggest crops is forage for animal feed – hay, alfalfa, and similar grasses. According to the agriculture department, more than 1.3 million acres were planted in this water-intensive, low-value product in California in 2014.
This crop consumed 6 million to 7 million acre-feet of water, 16 percent of all agriculture consumption and 70 percent of total urban consumption. Yet it earned the industry a mere $1.7 billion – 3 percent of total agricultural revenues. In other words, if this one crop was halved, the water savings would be substantially more than the aggregate cutbacks being imposed on urban areas and would only reduce industry earnings by 1.5 percent.
The standard refrain from agriculture industry advocates is that this water usage is justified because the feed is used by the far-higher-value dairy and meat industries. This argument fails both logically and factually.
The argument presumes that but for the local supply of feed these other industries could not operate in the state. Of course they could, by bringing in needed supplies from other parts of the nation where water is far more plentiful.
Hay trucked in would cost more, but even if the price were doubled, the cost would be far less than all the efforts in the state to conserve, reclaim, desalinate and store water. The $14 billion Delta tunnels might be unnecessary if the state decided to grow less hay on the desert.
The argument is also factually incorrect. Much of California’s hay is not used by California dairy and meat operations. According to federal data, 1.8 million tons of hay and alfalfa – over 25 percent of the harvest – was shipped in 2015 to other parts of the world. China, Japan, the UAE, and Korea are the four largest buyers of hay grown in California.
In other words, California functionally exported record amounts of water to other nations at discount prices during the drought. These exports represent 1.5 million acre-feet of water sold for a profit of roughly $40 to $50 per acre-foot of water used. To put that in context, the typical California household is paying $1,100 per acre-foot of water. San Diego’s new desalination plant costs $1,700 per acre-foot.
While hay represents the worst abuse of California’s antiquated water rights system, it isn’t the only one. Cotton and rice are grown for similarly low profits and shipped to other parts of the nation or world.
If even a modicum of basic market forces were allowed to enter the industry – forcing farmers to pay a greater but still small fraction of what urban users pay or allowing farmers to sell their water rather than using it for free – would change the dynamics of this problem almost immediately.
It doesn’t have to be a direct fee on farmers – allowing them to sell their water directly to urban areas or for environmental needs would work as well. California and its agriculture industry have plenty of water to grow and prosper. But we have to recognize, in practice, that water is a scarce resource and needs to be allocated in an economically efficient way.
Christopher Thornberg is founding partner of Beacon Economics and director of the UC Riverside Center for Economic Forecasting and Development at the School of Business Administration. He can be reached at firstname.lastname@example.org.