Food, Nutrition & Science

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Wednesday August 27, 2014

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The Economic Impact of the California Drought

In The News

The 2014 California drought will result in a 6.6 million acre-foot reduction in surface water available to agriculture, resulting in losses of $810 million in crop revenue, according to a recent report from the Center for Watershed Sciences at the University of California at Davis. The resulting net water shortage of 1.5 million acre-feet will also cause loses of $203 million in dairy and other livestock value, plus additional groundwater pumping costs. Direct costs to agriculture will total $1.5 billion.

At this point, almost 60% of the state of California is experiencing “Exceptional Drought”, the driest status rating. Now in its third driest year on record, California’s demands for water (agriculture, urban and environmental) are at an all-time high, with the majority of crop and dairy loses expected to occur in the San Joaquin Valley. Coastal farms will fare slightly better because they have access to water supplies from both the Colorado River and groundwater. 

Still, coastal farms will still experience crop revenue losses of $10 million. And the drought isn’t going away anytime soon. If 2015 and 2016 continue to be as dry as 2014, Central Valley crop farming could lose an estimated total of $1 billion a year. Water availability is now only one-third of normal for California agriculture.

Meanwhile, ranchers in some of the hardest hit regions of the state, who have experienced multiple years of drought recently, have already made substantial reductions to their cow herds. Reductions of 30 to 50% are commonly reported, and total liquidation has occurred in some cases. Many who have been able to keep reductions to a minimum will have to make substantial reductions if this coming growing season (Fall-Winter 2014/15) is dry.

Livestock ranchers who rely on forage grown from Fall and Winter rains were among the first in agriculture impacted by this drought. The scope and severity of those impacts have been mounting, and continue to mount, for ranchers across the state since Fall of 2013. Preliminary findings from the Ranch Decision Making Survey (mail survey of over 500 CA ranchers) and California Ranch Stewardship Project (in-person interviews of over 100 CA ranchers) found that 76% of ranchers interviewed expected to see serious impacts to their operations if drought conditions persisted into the coming year – and 35% of those interviewed expected devastating impacts to the viability of their operations. Common impacts include inadequate forage for their livestock, shortage of drinking water for livestock on rangeland pastures, and lost profit due to smaller and fewer calf and lamb crops.

Dr. Daniel Sumner, Director of the Agricultural Issues Center at UC Davis, says that there were other severe droughts in the late 1970’s, 1980’s and early 1990’s but that this drought is the worst in the state’s history, for several reasons. The state’s population is larger than ever before, we are demanding more of our water resources than ever before, increased planting of trees and vines allows less flexibility in water demand and recent increases in crop and livestock product prices increase losses from lower product production. Past experiences with drought (California tends to experience a drought of this magnitude about every 20 to 30 years) have helped California farmers and ranchers to somewhat prepare for what is taking place today. Even so, this current drought has highlighted some weaknesses in drought preparation that could be improved for future drought scenarios.

For example, California relies heavily on groundwater (water found in the cracks and spaces in soil, and rock) to cope with drought, which means groundwater must be replenished in wet years, or water tables fall. Sumner says that while their aggregate measures of groundwater depth over time and space are good, their estimates of regional groundwater use are poor, and need improvement. At the same time, water markets (prices paid for water) are operating in an informal manner, with high prices being paid in the Central Valley (at least three times those seen in the 2009 drought). A central clearinghouse for water trade information could be useful in helping buyers and sellers coordinate water movement more affordably and efficiently.

“Water conservation has been front and center for a long time. One difference this time around is that farmers are worried that no matter what they do the remaining water will be diverted away from agriculture. Additionally, with more conservation comes less available groundwater recharge and less water stored for next time,” says Sumner.

Population growth, climate change, supply disruptions and water quality issues are all of deep concern, but improved management of groundwater basins will be key to securing California’s agriculture in the future, says Sumner. Some are urging adoption of the controversial California Water Action Plan, a plan that attempts to strike a balance between public health and safety, environmental needs and a balanced California economy, and specifically identities strategies to move California toward more sustainable management of groundwater resources while mapping out strategies to deal with many other water resource challenges. However, this plan does not satisfy everyone's concerns.

For ranchers, there are additional challenges. Some key proactive measures for ranchers for coping with drought include using conservative livestock numbers relative to the forage their ranch can grow, to create a buffer against drought years; and resting pastures from grazing to enhance forage growth and storage. Primary reactive measures to drought include reducing livestock numbers (i.e., selling breeding stock, weaning and selling calf crop early), purchasing feed from off the ranch (i.e., hay, corn, by-products such as almond husks), and making use of drought insurance programs.

Many California ranching families have already survived exceptional droughts (such as in the mid 1920’s and mid 1970’s), so they have substantial capacity to adapt and sustain the enterprise and ranch resources during drought, says Dr. Leslie Roche, Postdoctoral Researcher in the Department of Plant Sciences at UC Davis. Nevertheless, drought leads to less product to market and increased input costs, so there are direct short-term negative impacts on ranch sustainability. Also, with economic survival becoming an essential ranch management objective during drought, conservation goals and objectives can be negatively impacted – or at least not advanced – during dry times.

“This drought will have lasting impacts on how today’s ranchers plan and prepare for future droughts. How much so depends on how this drought plays out in the next 6 to 12 months. One of the questions we ask ranchers is – ‘if this drought continues, and/or the frequency of drought increases in the coming years, do you think your current drought strategies would be sufficient?’ The vast majority of ranchers do not feel their current strategies would be sufficient in either event. Most indicate that they would need to permanently reduce their breeding stock herd size. This has long-term consequences for production, profitability, and thus the sustainability of ranching in California,” says Roche.

According to the California Department of Food and Agriculture, California produces nearly half of U.S.-grown fruits, nuts and vegetables and nearly a quarter of the nation’s milk and cream. The state also accounts for 7% of the U.S revenue for livestock and livestock products. For now, consumer prices for most items are unlikely to be dramatically affected, with the exception of some commodities like almonds and pistachios, which have a large enough share of the market to affect global and national price tags. 

“There is a deep undercurrent of concern within the ranching community that this drought will persist, and that practical options to maintain productivity in that event are very limited. This is true throughout all quarters of California’s agricultural community,” adds Roche.