The Economics of California’s Drought

from The Atlantic

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 acrethan 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.

More here.

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3 Comments

  1. The world has grown to be very reliant. In today’s age whenever the internet router malfunctions and the WiFi goes out in someone’s home it seems like the end of the world. Most people can relate. However, we seem to have forgotten that we still very much rely on the natural Earth more than we know. When something so natural and innocent, like rain, suddenly stops it seems that Mother Nature is harshly reminding us that human beings still need to rely on her.

    The drought in California is a harsh reality and imposes many questions and concerns about the future of its water supply and reservoirs. What many regions of the world may take for granted is suddenly exactly what the state of California absolutely needs. The desire for a rainstorm grows daily as the affects of this drought has not been kind. Many reservoirs, natural habitats, and farms have been highly affected and/or damaged due to the drought. Given it is winter season, the article states that the summer months would result in an even more devastating reality of the major lack of water.

    I have realized that water is such a necessity and privilege. I could never imagine life without water. The average person does not even take into account how much water an individual uses on a daily base, it is absurd. Between my morning bottle of water, to the using the bathroom in several ways, to washing hands, drinking water bottles throughout the day, showering, etc. The list goes on. Because of the drought in California, many civilians are subjected to limitations on how much public water they can use. To be restricted from water supply seems simply inhumane. However, maybe this will humble some because we feel for how many other unfortunate countries live. There are still some third-world countries currently still having to fetch water with buckets and walk miles to the closest river supply or well.

    This drought in California affects more than beyond the state’s borders. The article makes clear that California is a major contributor to the world when it comes to food supply. The “Valley” is highly affected with about a $2.2 billion lost. Since many farmers have lost their jobs and are desperate to find water, many parts of the country and most likely the world will see a shortage in food supply. This is tremendous damage to not only the economy but business and food supply in general. It is intriguing that something as simple as rainfall that has naturally occurred for thousands of years just suddenly stops and millions of lives are affected because of it.

    What I take away from this is one: California desperately needs water, and two: Mother Nature is still very much depended on heavily. What most may take for granted, others treasure dearly. It puts into perspective, especially for myself, that there is a reason for everything; especially for things that occur naturally, such as rain. It is substantially evident that without rainfall in the near future for California the turnover will become more difficult when it does reoccur. Is there a solution though? I mean you cannot really make up for lost of food other than regrowing it and then supplying it again. Unfortunately, it seems like a gigantic loss financially for the state of California in more ways than one. Regardless, the world is hoping for rainfall in the near future to come to the rescue.

  2. California seems to be always making headlines. Whether it is about their constant wildfires every year, or even their devastating droughts. California is a huge food source for the United States. If California were a country, it would be the seventh largest economy in the world. If somehow California becomes incapable of supplying food to the United States, we would be in big trouble. The state has been in a drought emergency period for quite some time, leaving production that requires tons of water to crumble such as nuts. You need such a great amount of water to successfully produce nuts. The chances of successful nut production decrease drastically due to the drought. To counter this drought, farmers have been extracting water deep in the earth’s soil. However, I think that this is environmentally dangerous as it is damaging the surface by removing its natural resources that it needs to flourish. If you think about it, so much of the food that you eat has been harvested in California. Almost all of the fruits, vegetable, nuts, and dairy have been grown and originate in California. There is a high probability that you, on a daily basis, are consuming California agricultural products. The concern is not just the United States, but the entire world. California has such a significant influence on the whole rest of the world that it must not be ignored. Just a few years ago, more than 17,000 farmers have lost their jobs. This proves that California’s economic status is on a consistent downslope. This is news not only affecting the United States but the entire world. Meaning, it will change the economy around the globe as well. California has paid an enormous price already, and that is not including the destruction of the wildfires. They have spent an estimated 2.2 billion dollars in just one year due to a terrible drought. As the summer months come closer and closer, residents of the state are going to have to deal with the difficulties that arise with the dryness during this period. Only time will tell how the state of California will resolve the economic crisis that they are in, and to not dig a deeper hole than they are already in.

  3. Interestingly it appears that California has an overall strong degree of resilience to droughts. This is in large part due to droughts that have caused infrastructure changes ever since the 1920s. The drought that lasted from 2012-2016 cost the state some $10 billion. To put that in comparison the state’s economy is 2.3 trillion/year. The cost in dollars is comparatively low despite California losing about 30% of their water supply during the drought.
    The drought caused a 30% reduction in surface water for agriculture. Of this loss 2/3 was replaced with groundwater which cost the state an additional 600 million per year. It is estimated that the drought cost California’s agricultural sector 3.8 billion in losses from 2014-2016. However the state is able to buffer the affects of droughts through very large groundwater storage (https://ascelibrary.org/doi/full/10.1061/%28ASCE%29WR.1943-5452.0000984)
    It is also worth mentioning that despite the drought, California’s economy was able to outperform the national real GDP. (https://www.ppic.org/content/pubs/report/R_0617DMR.pdf).

    Cities have progressively adapted to droughts. The intense 1988-1992 California drought for which urban and agricultural areas were not ready caused cutbacks ranging from 20-30%. Cities made permanent infrastructure changes such as increased underground storage, recycling wastewater, increased the use of water markets, and water conservation and interties. (https://www.ppic.org/content/pubs/report/R_0617DMR.pdf) . One of the biggest reasons attributed to California’s ability to handle droughts is in its economy. Economic growth that has occurred has been in areas that do not have high water demands. In 1920 California’s agricultural industry was 30% of total employment and it is now 4%. So the 17,000 farmer jobs lost that the Atlantic article refers to may be much but in relation to the job market as a whole is very little (https://ascelibrary.org/doi/full/10.1061/%28ASCE%29WR.1943-5452.0000984). In addition with the effects of globalization and water conservation efforts, manufacturing utilizes less water now. The growth of the service economy has also been beneficial because it consumes comparatively less water. The impact of the 2012-2016 drought on the agricultural sector was small because the sector was largely able to cut back on some crop types but continue to concentrate on high profit margin crops such as almonds that continued to maintain good prices throughout the drought.
    The state however does suffer environmental consequences from their water management practices which Matt Schiavenza acknowledges (http://www.theatlantic.com/business/archive/2015/03/the-economics-of-californias-drought/388375/). The water management practices unfortunately harm the native ecosystems starving them of water. This includes the disappearance of wetlands and floodplains, creation of dams which prevent fish migration, and the growth of invasive species.

    While California more than sees several sectors damaged by the drought, if concentrating purely on an economic level, microeconomic effects through several parts of California can be reported for various sectors. However when looking at California from a macroeconomic level, the state is able to persist through droughts without showing any significant effects on the economy which has integrated itself very well into a global economic state.

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