Economic Analysis: Farmers, Water Districts Show Resilience in Handling Drought

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WaterCalifornia agriculture is showing more resilience to the state’s historic drought than many had anticipated, according to an analysis released this week.

The report from researchers at the Center for Watershed Sciences at the University of California, Davis, points out that crop fallowing and job losses have been reduced by groundwater substitution, water trading and operational flexibility.

Preserving the most valuable crops has helped offset the economic impact of the drought, according to the analysis, which still pegs direct agricultural costs of the drought at about $1.84 billion and 10,120 jobs, including part-time jobs.

Taking multiplier effects into consideration, total agricultural output losses for 2015 will be as high as $2.74 billion and nearly 21,000 jobs, the analysis projects.

In 2013, California’s 77,900 farms and ranches received $46.4 billion for their output, according to the website of the California Department of Food and Agriculture.

Uneven Effects

The analysis finds that the effects of drought are distributed unevenly. In some regions with limited groundwater reserves the economic and employment impacts are very severe, while in others the increased cost of expanded groundwater use is partially offset by high crop prices.

If the drought continues to 2016 or beyond with similar intensity, it is likely “to slowly erode the state’s agricultural production and employment.”

The analysis predicts that California agriculture’s resilience to surface water shortages is likely to continue through 2015. Being able to irrigate permanent crops with groundwater or marketed water will largely prevent the sector from more expensive fallowing of higher-valued and permanent crops.

Methodology

In estimating the economic impact of the drought, the researchers used changes in irrigation water deliveries, derived from reported deliveries and a survey of irrigation districts, to estimate farmers’ responses, including additional groundwater pumping, water market purchases, and planting and fallowing decisions.

Using the changes in water availability to estimate economic impacts, the researchers said, avoided problems from ascribing all changes in aggregate economic production and employment to the drought.

The analysis notes that changes in business conditions, commodity prices and other factors also affect agricultural revenues and employment, regardless of hydrologic conditions.

Other Conclusions

• Surface water shortages of nearly 8.7 million acre-feet will be mostly offset by increased groundwater pumping of 6 million acre-feet. Groundwater offsets almost 70% of the drought water shortage. Virtually all water shortages will be in the Central Valley.

• Net water shortages of 2.7 million acre-feet will cause roughly 542,000 acres to be idled—114,000 more acres than the 2014 drought estimate. Most idled land is in the Tulare Basin.

• The effects of continued drought through 2017 (assuming continued 2014 water supplies) will likely be 6% worse than in 2015. Gradual decline in groundwater pumping capacity and water elevations will add to the incremental costs of a prolonged drought.

• Increased groundwater overdraft will slowly deplete groundwater reserves at an incremental cost. New groundwater regulations could eventually reverse this trend and force groundwater basins toward sustainable yields. The transition will cause some increased fallowing or longer crop rotations, but will preserve California’s ability to support more profitable permanent and vegetable crops through drought.

Staff Contact: Valerie Nera

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Valerie Nera
About Valerie Nera
Valerie Nera specializes in advocacy on agriculture, water, resources, crime, and banking and finance issues for the CalChamber. She joined the CalChamber staff in 1978 as a legislative assistant on agricultural issues. She also has lobbied air, environmental and privacy issues for the CalChamber. She earned a B.A. with honors from the University of California, Berkeley, and a J.D. from the McGeorge School of Law, University of the Pacific.