Economic Analysis of the 2016 California Drought for Agriculture

by Josué Medellín-Azuara, Duncan MacEwan, Richard E. Howitt, Daniel A. Sumner, and Jay R. Lund

The drought continues for California’s agriculture in 2016, but with much less severe and widespread impacts than in the two previous drought years, 2014 and 2015.  Winter and spring were wetter in the Sacramento Valley, to the extent of several reservoirs being required to spill water for flood control, but south of the Delta was unusually dry.  The much-heralded El Nino brought largely average precipitation north of the Delta, replenishing some groundwater, and drier than average conditions to the southern Central Valley and southern California.  The historical pattern of increasing water exports from the Sacramento-San Joaquin Delta in these circumstances was less available due to environmental restrictions on Delta pumping.  Some concerns also remain for water supplies north of the Delta regarding temperature releases from Shasta reservoir.  The overall estimated impacts of the 2016 drought on agriculture are summarized in the table below.

 Survey work on expected surface water deliveries to agricultural water districts, and public announcement from main water contractors indicate a surface water shortage of 2.6 million acre-foot of water for agriculture during the 2016 irrigation season mostly for the Central Valley. This is roughly 14 percent less than a normal statewide surface water supply for crops.  This shortage is reduced with nearly 1.9 million acre-foot of additional groundwater pumping for a net water shortage of 0.7 million acre foot or 2.6% of the estimated applied water in agriculture.

 With this water shortage, about 78,800 acres of land could be idled due to drought, a small proportion of California’s 9.3 million acres of irrigated crops. Almost all fallowed land due to drought is projected to be on the west side of the San Joaquin Basin which relies heavily on water imports. No significant drought related impacts are expected for livestock and dairies this year as this sector is more affected by market conditions than drought this year. Net water shortages will cost about $247 million dollars in forgone gross crop revenues plus $303 million in additional pumping costs for a total of $550 million in direct costs and 1,815 jobs lost in agriculture due to drought. Region-wide effects which include sectors supporting agriculture face gross revenue losses and households lost income of an estimated $603 million and 4,700 jobs statewide.

2016 ag drought table

Groundwater is responsible for offsetting about 70 percent of the statewide surface water shortage for agriculture. The energy cost of this additional pumping equals $300 million, exceeding estimated crop losses due to drought. The progressive depletion of groundwater during the drought also has increased costs for rehabilitation and replacement of domestic and agricultural wells.

 Environmental issues from fish stocks further weakened by earlier years of drought have left irrigation district managers concerned about the potential for late-season curtailments to manage reservoir water temperatures for fish habitat.  Delta environmental water operation constraints this year have prevented additional through-Delta water transfers, effectively shutting down the 2016 water market across the Delta.  Water transfers from the Sacramento Valley to the San Joaquin Valley helped offset some of the economic cost of the 2014 and 2015 drought.

 Pasture conditions and feed market conditions have improved for livestock producers, but low cattle and milk prices place intense economic pressure on producers.

 Groundwater reserves and national and global market conditions continue to support the health and robustness of areas of California’s agriculture still affected by water shortages. Modest recovery in contract labor growth from 2014 to 2015 is apparent from labor statistics due to favorable market conditions for California’s commodities. Water management in the Sacramento San Joaquin Delta for protecting endangered species and access to groundwater remain important for sustaining water supply for California’s agriculture and related sectors. A better accounting of water use and water reserves along with other management tools will facilitate groundwater management, water market transfers, and overall water management and policy for drought.

 These results were developed by this team of researchers from UC Davis Center for Watershed Sciences, ERA Economics and the UC Agricultural Issues Center for their third drought economic impact assessment on agriculture commissioned by the California Department of Food and Agriculture.

 Further Reading

Josué MedellínAzuara, Duncan MacEwan, Richard E. Howitt, Daniel A. Sumner, and Jay R. Lund (2016), Economic Analysis of the 2016 California Drought on Agriculture, A report for the California Department of Food and Agriculture, with research support from Jennifer Scheer, Robert Gailey, Quinn Hart, Nadya D. Alexander, Brad Arnold, Angela Kwon, Andrew Bell and William Li, Center for Watershed Sciences, University of California – Davis, August 11, 2016.


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13 Responses to Economic Analysis of the 2016 California Drought for Agriculture

  1. Tom Arthur says:

    Why is farming analyzed as a single consumer of water?
    Why is fallow ground analyzed as an opportunity cost? Don’t you have to assume there is some coincidence that there is enough sustainable water in CA to farm all land to make that statistic relevant?
    Why not divide farming into at least 2 markets, domestic consumption and exports? How much water is actually exported out of the country? How does that consumption compare to other consumers of water?
    What are the CA GDP and employment figures in non-farming industries and how much water does each require/job as compared to farming?

  2. Korrigan says:

    You do these forecasts every year, yet you never go back to examine previous years’ forecasts. Why not?

    • jaylund says:

      It takes more than a year for the county cropping reports to come in. In 2014 our rice fallow estimates were low because we missed some rice fallowing or water transfers. Also, we are looking at just drought effects. As we point out in the reports, there is often much more affecting agriculture in California than drought, such as market conditions. This has dampened the economic impacts and some of the water market transactions.

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  5. Stephen Patricio says:

    Your estimates are not even close. The Westside of the Central San Joaquin Valley has at least 300,000 acres idle due to drought and the regulatory impact of ESA. Federal CVP contractors were given a 5% of contract allocation with restrictions on months of usage.

    • jaylund says:

      This report looks at the effects of drought on agriculture, not ESA. We estimate the drought is responsible for a bit less than 80,000 acres of crop idling in 2016. Without drought, we would still have about 1.2 million acres of fallowed crop land, much of it due to normal crop rotations and some of it due to non-drought restrictions on water availability, such as ESA.

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  10. Gabriel Rowell says:

    This article just shows us a resource like water, something that we see as a common pool resource or even a right can negatively affect other industries. This may seem obvious, but I think the way we use and think of water as a never ending resource is why we are experiencing problems like droughts. We don’t worry about water scarcity until it is a very real tangible human problem. According to this article we are using aquifers as short term solutions for water during droughts. This is obviously going to give at some point. What happens when the aquifers are gone? This also brings up the interesting idea that maybe some of our cities or even small towns are put in places that are not sustainable to live in. A city like Phoenix, which is in the middle of the desert, should not have home with lush green lawns. It’s just not responsible water usage.

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