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Christopher Thornberg, PhD
Christopher Thornberg founded Beacon Economics LLC in 2006. Under his leadership the firm has become one of the most respected research organizations in California serving public and private sector clients across the United States.
Christopher Thornberg, PhD

Latest posts by Christopher Thornberg, PhD (see all)

Between California’s odd summer storm, rising seawater temperatures, and muggy summer, it’s pretty clear that the El Nino weather phenomena is starting to form out in the Pacific Ocean. This promises to make the next few winters wet ones, and bring on the beginning of the end of the drought that has been plaguing the state.

But that doesn’t mean that California should revert to its old habits. As Einstein once quipped the definition of insanity is doing the same thing over and over again and expecting different results. We know California will experience another drought in the future—one that may well be worse than this one. The current drought has revealed important insufficiencies in state water policy that should be addressed now in order to prevent the next drought from causing even greater problems for California citizens.

Some action has already been taken. For example last year Governor Brown signed a series of rules into law placing new restrictions on the last largely unregulated source of water—groundwater. The so-called Sustainable Groundwater Management Act is designed to enforce rules long associated with surface sources to those sources deep in the aquifer. The Governor also managed to pass a long-stalled water bond issuance, albeit a much smaller plan than many had hoped for.

Another major issue that popped up during the current drought was the fact that some water districts were simply ignoring the cap on their consumption. Just recently California’s State Water Resources Control Board proposed a $1.5 million fine against the Byron-Bethany Irrigation District. Amazingly this is the first time such a penalty has ever been imposed on a water district. In general, policies and regulations without the threat of real punishment are largely useless. We not only hope the state doesn’t back off its eminently reasonable position (as it often tends to do) but makes such punishments mandatory in the face of blatant disregard for mandated reductions in usage.

Unfortunately such actions seem to be the exception rather than the rule and there is little sign that any real, comprehensive water policy reform is going into place. Sadly, this means the state is missing an opportune moment to make California largely drought resistant with little change in the economy or residents’ lifestyles.

The starting place for real reform is acknowledging that any negative economic impact of the current drought is largely a problem of our own making. Dealing with droughts is not complicated. Their occurrence means we have to be smart about saving our water when times are good so that it is available when times are not. And to be clear, I am not referring to Southern Californians’ proclivity for lawns or to the Republican Congressional Majority view that agricultural use should come before environmental needs (H.R. 2898).

Instead, I would argue that that those who claim to be most damaged by the drought are the same ones whose feckless behavior is largely to blame for the shortage the state is experiencing—the agricultural industry itself.

Most of us have heard the statistic that the agricultural industry makes up just 2% of California’s economy, but uses 80% of its consumable water. This seems galling in light of the Governor’s recent foisting of dramatic water usage cutbacks on mostly urban areas. But any economist will explain that it’s not the average impact but the marginal impact that is really important. The question is who would suffer more harm from cutbacks. The governor made clear in his press conference regarding the cutbacks that he felt the agricultural community had suffered enough.

And that’s the rub. While some individual farmers have been hurt financially by the current water situation, overall, the agricultural industry has most certainly not:

  • According to the state’s Employment Development Department, farm employment in California has been running at 400,000 employees for the last two years. That is the highest it has been since 2000.
  • According to the U.S. Bureau of Economic Analysis real agricultural output in California is higher than at any point prior to 2006 (although real agricultural output has fallen since its all-time high peak in 2010).
  • If output is down, earnings are up—way up. Over the last three years farm earnings have been 35% higher than they were from 2004 to 2010.
  • According to the USDA, the government body that provides subsidized crop insurance to farmers, California farmers claimed $250 million in drought damages in 2014. This is an industry that grossed over $30 billion in sales.
  • Despite the claims of catastrophic financial damage being inflicted on the state’s farmers, there is little mention that these losses, unlike those for urban users, are insured through federally subsidized insurance programs.
  • Despite the drought, California’s agricultural producers still managed to grow one million acres of hay last year—a very low value/high water usage crop.

Amazingly, these facts are little known and do not seem to be cited in the press.

Why is the agriculture industry so resilient through dry periods? Because they really don’t need all the water they use when it is available. Farmers have almost no incentive to manage water usage in normal years due to the incredibly cheap price they pay for this scarce resource – and the fact that water rights holders have limited ability to sell water to other users. As such, they continue to use inefficient irrigation systems and grow water intensive crops in the desert. When water availability does decline, there are simple—if annoying and with some cost—changes that can be implemented to make up the difference. But otherwise, no conservation efforts are made.

The agricultural community has shown that it can operate just fine with significantly less water than is typically used. And that’s what matters most.

When the rains do return, California should force agricultural operations to continue operating under their current usage rates, and force others to keep reducing their usage. The extra water should be siphoned off to help areas that have been hit hard by the drought, recharge reservoirs, refill ground water basins, and restore natural habitat.

The beauty of this plan is that it will increase not only the state’s capacity to deal with the next drought, but the agricultural sector’s ability to do the same by increasing storage.

We know that even a hint of such a plan will cause howls of protest from agricultural water districts that hold the vaunted senior water rights based on claims made before 1914. They will defend these rights regardless of negative consequences for urban parts of the state (which constitute the major of the economy and a large portion of agricultural industry revenues), the environment, or other agricultural users with more junior rights.

As a nation of laws, we have to respect property rights. But we also acknowledge that these rights can be taken away with just compensation through eminent domain when warranted by the greater good. This isn’t a new idea. Some cities have already moved to take such action to address local problems. Given reduced supply and increased demand, changing the broken way that water is allocated in California is an enormous public policy priority – one that is being stymied primarily by a bizarre rights system inherited from medieval England.  Yes, this is a situation that warrants legal action.

The benefits of an economically efficient water allocation system to the California economy, to the agricultural industry, and to the environment would create value far beyond the cost of compensation for rights holders.

The first task should be to limit agricultural water consumption in the short term, even when supplies return. Farms have proven an ability to do more with less when the situation warrants it. Forcing them to conserve this scarce resource on a regular basis is good for urban areas, for the environment, and ultimately for farmers who will be able to rely on far more extensive emergency water supplies when the drought inevitably returns.

We now only need a political system with the courage to do the right thing.

The following two tabs change content below.
Christopher Thornberg, PhD
Christopher Thornberg founded Beacon Economics LLC in 2006. Under his leadership the firm has become one of the most respected research organizations in California serving public and private sector clients across the United States.
Christopher Thornberg, PhD

Latest posts by Christopher Thornberg, PhD (see all)

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