The Economics of California's Drought

As the U.S. Northeast emerges from yet another snowstorm, California has just concluded its hottest winter ever, registering average temperatures 4.4 degrees warmer than the state's 20th-century average. Warm temperatures and clear skies may strike a beleaguered Bostonian as the cause for celebration. But in California, the dry conditions mean that the state's drought has only grown more devastating. How devastating? Earlier this month, the title of a Los Angeles Times op-ed published by Jay Famiglietti, senior water scientist at NASA's Jet Propulsion Laboratory and a professor at UC Irvine, got right to the point: California would run out of water in a year.

This headline—as Famiglietti himself pointed out—isn't exactly accurate: The one-year limit pertains only to California's reservoirs, which account for only part of the state's water supply. Nevertheless, the state is taking action. Last week, Governor Jerry Brown announced a $1 billion plan to aid communities most affected by the drought, and imposed restrictions on some aspects of personal use. With the state's snowpack at just 12 percent of normal, Californians figure to struggle more during the traditional dry summer months.

California is known globally for its coastal beaches, mountains, and desert. But the state's most important economic region may be its Central Valley, one of the world's most productive agricultural areas. Virtually all of the almonds, artichokes, lemons, pistachios, and processed tomatoes grown in the United States originate from the valley, whose productive soil is unmatched elsewhere in the country. California's spinach yield, for example is 60 percent more per acre than in the rest of the United States. The state's marine climate allows it to grow crops like broccoli that wilt in humid climates. California is the world's fifth-largest supplier of food, a big reason why the state would, if an independent country, be the 7th largest economy in the world.

But California's agricultural output demands a lot of water. Irrigation claims up to 41 percent of the state's water supply, while cities such as Los Angeles and San Francisco demand comparatively little. Crops such as almonds, grown exclusively in California in the United States, consume 600 gallons of water per pound of nuts, more than 25 times the water needed per pound of tomato. These water-intensive crops tend to have high profit margins, providing farmers with an incentive to plant them.

Given the scarcity of fresh water resources, farms have begun drilling deeper into the earth in search for groundwater. This activity is expensive and environmentally damaging. In November, Governor Jerry Brown signed the first law regulating groundwater extraction in California's history, but have given local government agencies a leisurely 26 years to implement these regulations. Meanwhile, farmers desperate to irrigate their crops will continue to deplete California's precious groundwater supply—with little short-term relief in sight.

For Californian agriculture, the future does not look bright. The current drought cost the sector an estimated $2.2 billion last year, and nearly 17,000 farmers lost their jobs in 2014. Given the importance of California's agriculture to the food supply of the United States—and the rest of the world—the state's drought is far from just a local concern.

"California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain," wrote Famiglietti. Residents across the country might want to join them.