Nuts over Water in California

California’s worsening drought has gained national and international attention. But what most reporting fails to convey is that California has the all water it needs for double, if not triple, its present population of 40 million – even in the worst drought in recorded history. That’s because the water shortage is not driven by the demands of the resident population, nor by industry generally. California’s water problem is an agriculture problem. Parsing it further, it is an almond and alfalfa problem.

As a matter of economics, the government is treating water like a public good, instead of like the commodity and production factor it truly is. Though water in California is getting scarcer, the price farmers pay for it is holding steady. And so instead of adapting to less water-intensive crops, they have gone right on producing the most water-intensive crops on the planet, planting more and more acres of them.

California’s 40 million people and non-farm businesses combined consume just 20% of the state’s water supply. The rest goes to agriculture. 10% of the entire California water supply goes to almonds alone. Another 10-15% goes to alfalfa. The math could not be weirder: alfalfa and almond production use more water than all of California’s residents and non-farm businesses combined. If Sacramento passed a law that made it illegal to water almond orchards or alfalfa fields, the water crisis would end that same day. You could double the size of Los Angeles too, and you’d still have enough water for every other purpose.

The problem with almond trees is that they are especially thirsty: it takes about 2100 gallons to make a pound of shelled almonds. By comparison, it takes just 300 gallons to get a pound of chicken, or 160 gallons for a pound of corn. In a healthy market economy, as water becomes more scarce, it will also get more expensive. Almond production should become less and less profitable, and shift to locales with cheaper water supplies. Water-stressed areas will adapt by planting crops that need less water. But California farmers are not asked to pay market prices for the water they consume. When deciding which crop to plant on a given field, the price of water simply doesnt factor in. And so, perversely, as the drought has worsened, almond production has increased – to nearly double what it was 20 years ago.

The State Water Project (SWP) is a massive state-run complex of reservoirs, aqueducts and dams that distributes water throughout the state, to cities and farmers alike. Its pricing scheme tells the whole story. Farmers in the central valley pay SWP about $50 per acre-foot of water. (3 acre feet are about one million gallons.) As water becomes more scarce, SWP does not auction it off to ensure that it goes to its most productive use. Instead, farmers either get water at a fixed price, or they dont, based on seniority. And so farmers keep on planting almond trees because they yield the best return per acre – because SWP makes water cheap for them. By comparison, Los Angeles pays SWP about $300 per acre-foot of water out of the same system. At that price, almonds cannot be grown. Desalinization plants produce water for about $2000 per acre-foot. At that price, farming is impossible.

It is fairly observed that almonds are California’s top agricultural export, more than double wine by gross sales. But agriculture is a very small part of a large, diverse state economy, accounting for less than 2% of California’s gross state product (GSP). Almond production itself is just 0.2% of GSP. But politicians are timid in their dealings with the powerful agribusiness lobby. People on the coasts are instead asked to conserve and pay for outrageously expensive desal projects and-or environmentally messy new dams and reservoirs, simply because politicians are afraid to ask farmers to pay the true price of the water they are using.

Agriculture in the Central Valley doesnt need to come to a dramatic end. But it does need to change, simply because the present practice is unsustainable. Taking shorter showers and washing your car less often is not going to do it. Spending billions on desal so that farmers can send almonds to China and alfalfa to Japan is sheer foolishness. We can be heartened that even in the worst drought in California history, there is still plenty of water to go around. It seems almost too obvious to observe that, particularly in California, water has value – and the state must let the markets reflect that value, to let economic actors make decisions based on real-world scarcities. Water welfare for farmers must end.


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