ARE Update: Special Issue-The Economics of the Drought for California Food and Agriculture
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ARE Update: Special Issue-The Economics of the Drought for California Food and Agriculture


1.Putting California's Latest Drought in Context.

California's latest drought has focused attention on water management practices and policies. This article describes how the system has adapted to managing water scarcity and recurring droughts. It identifies some of the early lessons learned, including promising ways to adapt to water scarcity and areas of continued vulnerability.

2. Agricultural Irrigation in This Drought: Where Is the Water and Where Is It Going?

In the midst of its fourth year of drought, California now faces an estimated reduction in surface-water availability of 8.8 million acre-feet (maf) out of 29 maf in agricultural applied water statewide. However, groundwater, the buffer water supply during drought, is replacing about 6.2 maf of surface water via additional pumping. This increased groundwater pumping is in addition to the 1.5 maf of annual average groundwater overdraft in the Central Valley. The net reduction of 2.6 maf in the total supply in 2015 may result in about 564,000 acres fallowed statewide, or about 120,000 more acres than last year's fallowing estimates.

3. Economic Impact of the 2015 Drought on Farm Revenue and Employment

We estimate that a net water shortage of 2.6 million-acre feet could cause 564,000 acres to be fallowed and result in a loss of $850 million in crop production value. The surface water shortage of 8.8 million acre-feet will be replaced by about 6.2 million acre-feet of increased groundwater pumping, at a cost of about $600 million. We estimate the dairy and cattle industries will lose $350 million in revenues. We estimate the direct economic cost of the 2015 drought will be $1.8 billion, with a loss of 8,550 direct farm jobs. Including spillover effects, statewide losses are close to $2.7 billion in output and 18,600 full-time and part-time jobs.

4. California's Severe Drought Has Only Marginal Impacts on Food Prices

Flexibility and resourcefulness by California farmers have minimized drought-induced supply reductions for tree, vine and vegetable crops, for which California has large market shares and for which retail prices would be sensitive to California disruptions. Water is being shifted away from field crops that enter the food supply indirectly and for which California is not a dominant producer. These facts mean that even a severe drought is having only slight impacts on supplies to consumers and thus only slight impacts on consumer food prices. Of course, the longer the drought lasts, the larger the impacts.

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