California Drought Crisis: A $5B Hit to the Economy
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California Drought Crisis: A $5B Hit to the Economy


Drought-stricken California farmers facing drastic cutbacks in irrigation water are expected to idle some 500,000 acres (200,000 hectares) of cropland this year in a record production loss that could cause billions of dollars in economic damage, industry officials said.

Large-scale crop losses in California, the No. 1 U.S. farm state producing half the nation's fruits and vegetables, would undoubtedly lead to higher consumer prices, especially for tree and vine produce grown only there. But experts say it is too soon to quantify the effect.

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Coming off its driest year on record, California is gripped in a drought that threatens to inflict the worst water crisis in state history, prompting Governor Jerry Brown last month to declare a state of emergency. He urged citizens to reduce their water consumption by 20 percent voluntarily.

California water managers later said the drought would force an unprecedented cutoff in state-supplied water sold to 29 irrigation districts, public water agencies and municipalities, barring an unexpected turnaround.

Irrigation deliveries to another group of agricultural districts served by the state are expected to be reduced by half, and an even larger group of farmers who get water from the federally operated Central Valley Project are likewise bracing for sharp cutbacks this year. "We're in a dire situation that we've never been in before," said Paul Wenger, president of the California Farm Bureau Federation.

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The state's network of reservoirs that collect runoff of rainfall and snow melt from the Sierra Nevada mountain range - the state's biggest source of fresh water - is badly depleted. So too are the underground aquifers that have provided farmers reserves when water was otherwise scarce.

"Some farmers may still grow crops on some of their land. Some farmers may face bankruptcy because of this," said Mike Wade, executive director of another industry group, the California Farm Water Coalition.

Democrats and Republicans in the state are sharply divided on how to deal with the crisis, and there is also division within the ranks of each party. At the GOP-led U.S. House of Representatives, an emergency bill by several California representatives that would roll back environmental protections for fish in the fragile Sacramento-San Joaquin River Delta in order to allow more water to be pumped out in dry years passed on Wednesday roughly along party lines, 229-191. The bill, which will be immediately sent to the U.S. Senate, has been harshly criticized by Brown, who called it "unwelcome and intrusive."

But supporters say environmental regulations caused the water shortages in the first place by limiting the amounts that can be pumped out of the delta when fish are threatened in drier years.

"It is unacceptable that vital water supplies are being forced out to the ocean instead of going to our cities," said Representative Kevin McCarthy, who represents agricultural and desert areas north of L.A. "The issue demands immediate attention and today's vote represents House Republicans' commitment to putting California families over fish."

Ironically, the crisis is unfolding after an all-time banner year for California agriculture, with statewide production valued at $43.5 billion in 2012. Most of that comes from California's Central Valley, a flat, fertile region stretching 450 miles (720 km) north-south from Redding to Bakersfield.

Farm districts representing about half of irrigated agriculture in that region have reported that they already expect to fallow 385,000 acres (156,000 hectares) this year because of the water shortage, Wade said. Extrapolating to the remainder of the Central Valley, Wade said his organization expects the full amount of irrigated land removed from production this year will easily top 500,000 acres (200,000 hectares) of the region's total of approximately 6 million acres (2.4 million hectares).

The Farm Bureau is similarly projecting between 400,000 and 500,000 acres of irrigated land being fallowed, Wenger said.

Broccoli and Cantaloupes Hit Hard
Hardest hit would be such annual row crops as tomatoes, broccoli, lettuce, cantaloupes, garlic, peppers and corn. Wade said consumers can also expect higher prices and reduced selection at grocery stores, particularly for products such as almonds, raisins, walnuts and olives.

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He said the potential total value of unplanted crops was hard to calculate. But his group estimates the overall impact of idled farmland will run roughly $5 billion in direct costs of lost production and indirect effects through the region's economy.

An economic toll of that magnitude would put about 40 percent of all agricultural jobs in the Central Valley at risk, or about 117,000 people directly employed in farm production, processing and transportation, he said. Wenger declined to venture an estimate of economic losses. But he said, "It's going to be a sizable number that we've never seen before, and it's going to ripple through the local economies, especially where agriculture is the name of the game."

By contrast, a California drought in 2009 resulted in an estimated 269,000 acres (109,000 hectares) of cropland idled, $368 million in lost farm revenues and total reduced economic output of $796 million, according to a study from the University of California at Davis cited by Wade. Nearly 10,000 jobs were lost.

Steve Lyle, a spokesman for the state Department of Food and Agriculture, said the agency is working with UC Davis to develop real-time impact assessments. "We are anticipating significantly higher economic impacts, compared to the 2009 drought, for the agricultural sector," he said.

The current water shortage could be made worse by the fact that many farmers have switched from annual field crops to orchard-style produce, such as almonds and olives, which cannot simply be left fallow from one year to the next.

Many growers face the choice of either shutting off irrigation to their older, less-producing trees to save the younger ones, or spreading less water across their groves and accepting smaller overall yields. Orange and lemon growers, who just weathered a damaging week-long blast of sub-freezing temperatures in December, are fairly safe for now but worried about running short of water for next year's crop, said Joel Nelsen, president of California Citrus Mutual.

The cold snap cost the Central Valley growers, who account for most of the nation's fresh citrus fruit, about $441 million in lost revenues, out of about $1.5 billion in annual production, the trade group said. Still, the losses paled in comparison with a severe freeze in December 1990 that damaged citrus trees so badly that growers lost two years of production.

Livestock producers are facing their own drought-related difficulties, including scant winter rain they rely on to grow grass for grazing their herds, industry officials say. Beef producers are being forced to ship much of their stock back East, while dairy producers face higher costs to purchase hay and feed.

With additional reporting by Sharon Bernstein of Reuters.