By Richard Howitt, Duncan MacEwan, Josué Medellín-Azuara and Jay Lund
Today we release our second annual report estimating the economic impacts from prolonged drought.
More than anything, the results of our 16-page analysis of the current growing season speak to agriculture’s remarkable resilience to multiyear surface water shortages. They also show that the industry’s ability to continue growing in revenue and jobs is coming at increasingly higher costs.
Overall, California’s $46 billion-a-year agricultural output remains robust in this fourth year of severe drought, mostly because of the state’s vast reserves of groundwater. Drawing on these reserves will replace an estimated 70 percent of the surface water shortage this year, compared with a 75 percent offset in 2014.
Continued strong global demand has driven high prices for many of California-grown fruits, nuts and vegetables also has helped sustain the farm economy along with water transfers and shifts in growing locations.
Our survey of more than 70 irrigation districts earlier this summer and spring indicates an increase in water transfer activity over the previous year. The average water transfer price is more than $650 an acre-foot, compared with $500 an acre-foot in 2014. Water transfers and shifts in crop contracts can significantly temper the economic impacts of drought throughout the Central Valley, particularly on perennial fruit and nut orchards and grape vines and higher-value vegetables.
These factors are having their largest effect in the Sacramento Valley. Strong prices have shifted contracts for tomatoes grown for canning north, from the San Joaquin Valley to areas in the Sacramento Valley with better access to water. In addition, farmers statewide have been moving from field crops to higher-value almonds and walnuts, with more than 200,000 acres of new orchards planted since 2010.
Taken together, these adjustments blunt much of the economic blow of drought to agricultural communities and food consumers.
That said, several small rural communities continue to suffer from high unemployment and drying up of domestic wells because of the drought, particularly in the Tulare Basin.
Further, the heavy reliance on groundwater comes at ever-increasing energy costs as farmers pump deeper and drill more wells. Some of the heavy pumping is in basins already in severe overdraft, inviting further land subsidence and water quality problems, and diminishing reserves needed for future droughts.
If the drought persists beyond 2015 at its current intensity, California’s agricultural production and employment will face further reductions.
As with our 2014 analysis, this year’s study was prepared at the request of the California Department of Food and Agriculture using computer models and the latest estimates of surface water availability from state and federal water projects and local water districts.
Our key findings:
- The total impact of the 2015 drought to all economic sectors is an estimated $2.74 billion, compared with $2.2 billion in 2014. About $1.84 billion of that are drought-related costs to the agriculture industry. (The state’s farmers and ranchers currently generate more than $46 billion annually in gross revenues, a small fraction of California’s $1.9 trillion-a-year economy.)
- The loss of about 10,100 seasonal jobs directly related to farm production, compared with the researchers’ 2014 drought estimate of 7,500 jobs. When considering the spillover effects of the farm losses on all other economic sectors, the employment impact of the 2015 drought more than doubles to 21,000 lost jobs.
- Surface water shortages will reach nearly 8.7 million acre-feet, which will be mostly offset by increased groundwater pumping of 6 million acre-feet.
- Net water shortages of 2.7 million acre-feet will cause roughly 542,000 acres to be idled – 114,000 more acres than the researchers’ 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 percent worse than in 2015, with the net water shortage increasing to 2.9 million acre-feet a year. Gradual decline in groundwater pumping capacity and water elevations will add to the incremental costs of a prolonged drought.
The state’s new groundwater law requiring local agencies to attain sustainable yields could eventually reverse the depletion of underground reserves. The transition will cause some increased fallowing of cropland or longer crop rotations but will help preserve California’s ability to support more profitable permanent and vegetable crops during drought.
Overall, our results show California agriculture faring much better this year than many had predicted.
In a recent commentary for the New York Times, journalist Charles Fishman observed that, “amid all the nervous news, the most important California drought story is the one we aren’t noticing. California is weathering the drought with remarkable resilience.”
Richard Howitt, Josué Medellín-Azuara and Jay Lund are researchers with the UC Davis Center for Watershed Sciences. Duncan MacEwan is with ERA Economics of Davis, Calif. They co-authored the report, “Economic Analysis of the 2015 Drought for California Agriculture,” which was released Aug. 18, 2015.
Downloads of 2015 report:
Fishman C. (2015). “How California is Winning the Drought.” New York Times. Aug. 14, 2015
Howitt R, Medellín-Azuara J, MacEwan D, Lund J and Sumner D. (2015) “Economic Analysis of the 2015 Drought for California Agriculture.” Center for Watershed Sciences, UC Davis. 16 pp
Howitt R, Medellín-Azuara J, MacEwan D, Lund J and Sumner D. (2014). “Economic Analysis of the 2014 Drought for California Agriculture.” Center for Watershed Sciences, UC Davis. 20pp
Howitt R, Medellín-Azuara J, MacEwan D, Lund J. (2014). “Weathering the drought by drawing down the bank.” California WaterBlog. July 15, 2014
Lund J. (2014) “Could California Weather a Mega-Drought?” California WaterBlog. June 29, 2014
Medellín-Azuara J. (2015). “Drought killing farm jobs even as they grow.” California WaterBlog. June 8, 2015
Medellín-Azuara J. (2015). Jobs per drop irrigating California crops.” California WaterBlog. April 28, 2015
Sumner, D. (2015) “Food prices and the California drought.” California WaterBlog. April 22, 2015