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Water: What Does It Mean To Have A Shortage Of Something That Sells For Less Than A Penny A Gallon? Can We Secure Farmer’s Rights To Ground And River Water? Why Raising Price Is Better Than Restricting Usage. 

The New York Times ran a lengthy piece, titled The End of California? — written by Timothy Egan, and for the most part it is about the ”great drought” and, in his telling, it is not going to come out very good for agriculture:

The morality tale behind California’s verdant prosperity will most certainly change. In the old narrative, the evil city took water from powerless farmers. Swimming pools in greater Los Angeles were filled with liquid that could have kept orchards alive in the Owens Valley, to the north.

It was hubris, born in the words of the city’s chief water engineer, William Mulholland, when he opened the gates of the Los Angeles Aqueduct in 1913 with an immortal proclamation: “There it is. Take it.”

But now, just about everyone in California knows that it requires a gallon of water to grow a single almond, or that agriculture accounts for 80 percent of the water used by humans here. Meanwhile, the cities have become leaders in conservation. It takes 106 gallons of water to produce an ounce of beef — which is more than the average San Francisco Bay Area resident uses in a day. Mayor Eric Garcetti of Los Angeles wants to reduce the amount of water the city purchases by 50 percent in the next decade, cutting back through aggressive use of wastewater and conservation.

It’s outlandish, urban critics note, for big farm units to be growing alfalfa — which consumes about 20 percent of the state’s irrigation water — or raising cattle, in a place with a third of the rainfall of other states. And by exporting that alfalfa and other thirsty crops overseas, the state is essentially shipping its precious water to China.

Still, casting California farmers — who produce about half of the nation’s fruits, nuts and vegetables — as crony capitalist water gluttons may not be entirely fair. Yes, the water is subsidized, through taxpayer-funded dams, canals and pumping systems. But that water, in some cases, ends up as habitat for birds and wildlife. As it drains away, it can recharge badly depleted underground aquifers. Farmers have already let more than 400,000 acres go fallow and took a $2 billion hit last year. They may add 600,000 acres to that total this year. Almonds, after all, are a healthy food source.

The new morality tale becomes further muddled when you consider that San Francisco, praised for its penurious water ways, gets its life-supporting liquid from the Hetch Hetchy dam, in Yosemite. Many people, dating from the sainted John Muir, believe that flooding that mountain valley was one of the bigger crimes against nature in California history.

And not every city is Spartan with its water. On any given day you can find, as I did in a new housing development in the foothills east of Sacramento, water running down the street — at a flow rate that looked bigger than that coming from the anemic Merced River. It was pouring onto a grass median strip, and then spilling over, in a development called the Estates at Blackstone.

Or consider that wealthy communities — say, Portola Valley, woodsy home to many an environmentally conscious tech multimillionaire — use far more water per capita than do the poor of Compton, in the Los Angeles area. When cost is no object, there is very little incentive to cut back.

But there is no getting around the fact that agriculture, for all its water needs, still produces barely 2 percent of the state’s gross product, and employs only about 3 percent of its workers.

Fair or not, it seems incongruous that farmers in the San Joaquin Valley are still planting new almond trees — they’ve nearly doubled the crop since 2005 — while people in the cities kill their lawns and dash in and out of low-flow showers.

The idea that California could have it all — a pool in every suburban backyard, new crops in a drought, wild salmon in rivers now starved of oxygen — is fading fast. There is only so much more “pop per drop,” as Ms. Marcus, the State Water Resources Control Board chairwoman, said, or neighbor snitching on neighbor, until the urban majority resists and demands a change in allocation.

What will come, then, from this disrupting drought is likely to be a shift of power. The urban “almond shaming” chorus is quick to note that the crop uses enough water to support 75 percent of the state’s population. In other words, there would be no water shortage in San Diego or Los Angeles if nut growers shut off the pumps.

“Imagine if somebody ever said, ‘Let’s have a vote on how to use California’s water,’ ” said Daniel Beard, a former Bureau of Recreation commissioner and a critic of federal dam building. “That’s the last thing big agricultural interests would want.”

The food industry is ripe for disruption. The land that has been left fallow now in the Central Valley is still less than 5 percent of all the irrigation acreage in California. Another 5 percent would leave most of the industry standing, and leaner. Low-value, high-water crops would disappear, as is already happening.

Absent a vote of the people, the free market could end up as the decider. The big city water districts have more than enough money to buy farm water in a freewheeling exchange. Indeed, they’ve been making numerous purchases for years — though limited by complex water contracts and infrastructure that makes it difficult to pipe large amounts from one place to the other.

Much of this just silly. Think of the size of an almond – how could it possibly hold a gallon of water? It doesn’t. These calculations of “water use” by agriculture include water that shrinks back in the ground and replenishes ground water stores and that evaporates in the air and winds up coming back somewhere as rain and snow.

Some of it is intellectually dishonest. It may be true that agriculture uses 80% of the water used by humans, but the implication left hanging in the air is that the water supply is divvied up between farms and cities and the split is 80/20. In fact, most water is reserved for environmental uses.

According to information gathered by Southern California Public Radio:

• Wild and scenic rivers protected under federal law get 31 percent.

• In other rivers, we keep water flowing at a certain rate for recreation, environmental reasons or both. Maintaining such “instream flows” takes around 9 percent.

• Keeping seawater out of the Sacramento-San Joaquin River Delta — the source of much of the state’s drinking water — uses about 7 percent.

• Managed wetlands get 2 percent.

• Cities and towns get 10 percent.

• What that means is that agricultural irrigation accounts for around 41 percent of the state’s water pie. 

The Public Policy Institute of California helpfully shorthands that to: 50 percent environmental, 40 percent agricultural and 10 percent urban.

Of course, even this is a rather odd calculation as all those agricultural uses are for people — including Californians — to eat. Plus, even California imports quite a bit of food, from table grapes in the winter to processed foods made with Midwest grain. If you are going to count the water used in growing grapes as an expenditure of water, shouldn’t you count the use of water to grow grapes that are imported into California as an increase in the supply of water?

The Times article is better than most, but we wish all reporters, every time they talk about a shortage of water — in fact a shortage of anything — would learn to append this phrase to their sentence: At the present price level, with current governmental restrictions on sale and transfer…

In an economic sense, there is obviously no water shortage. Anyone who desires to can walk into any grocery store and buy all the water they wish — from France, from Fiji, from all over the globe.

There is zero oil in Hawaii, yet there is no shortage of oil. The reason? They bring it in on giant boats from where the oil is, even if it is half way around the world.

The issue with water is that it is mostly very cheap — generally less than 1/10th of a cent per gallon. This means the incentive to conserve is slight, and the incentive to utilize or develop new sources of supply — desalination, imports, etc. — is slight.

This points to the problem with Governor Brown’s Executive Order B-29-15, which mandates a 25% reduction in potable urban water use.

When something happens that disturbs the buy/sell equilibrium in such a way that an item seems scarce, what happens is the price goes up. When the price goes up, four things happen simultaneously:

1) People try to use less of the now-more-expensive product. All things being equal, if gas goes up, people drive less.

2) People adjust their lives in accord with the new reality. If gas goes up, people will not be willing to commute as long a range or will be more inclined to buy a hybrid vehicle or live near a train station.

3) Supply sources that previously were uneconomic can now be profitably tapped, so we can pay to have offshore oil reserves tapped or reserves in the arctic, etc.

4) It now makes sense to invest in more research and development both to find new ways to produce more supply and ways to conserve.

Orders requiring rationing and other restrictions on potable urban water usage are not optimal, partly because they cut off all these supply responses that higher prices bring. So an order not to consume water does nothing to motivate someone to fill a tanker or build a desalination plant.

The other problem with such orders is that the government is simply not able to judge the relative value of different uses of anything — including water. Who knows what value a person places on a clean car or a green lawn. Since water is available, it would make more sense to allow the price of water to rise to a market clearing price. Those who really value a luxurious lawn can water every day, others need not.

As for agriculture, the most important thing is to clarify that farmers own their ground water and their rights to river water, just as they would own the gold, diamonds or oil under their land, and are free to sell the water as they would be free to sell the gold, diamonds or oil . This would create incentives for conservation and, in some low value crops –mostly all non-produce — it may not make sense to grow them in California at all.

As far as environmental uses of water go, the problem, once again, is the lack of a pricing mechanism. It is too easy to just demand that water be used to preserve the life of the Delta smelt — when you won’t have to pay anything toward this. A lot of people feel very strongly about environmental matters; it is not obvious that Carly Fiorina is in the majority when she assumes that people would oppose the diversion of water from farmers to save the fish. In fact, being that the cost is virtually all absorbed by the farmers, we suspect many would be happy to exercise a sense of moral righteousness and demand the fish be saved.

However, things would be different if the water was owned by someone and the government — in order to avoid a case under the Constitution’s ban on the taking of private property without just compensation — had to raise taxes or borrow money to buy water to protect the fish. Voters’ willingness to endorse this path would likely be constrained, requiring deep analysis of the value gained versus the cost expended.

American ecologist Garrett Hardin wrote a famous piece in 1968 called The Tragedy of the Commons. Although he was focused on population issues, he was drawing on a broader pamphlet published in 1883 by William Foster Lloyd. Here is the key section:

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, ‘What is the utility to me of adding one more animal to my herd?’ This utility has one negative and one positive component.

1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of −1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another… But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit — in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

But, of course, this tragedy — the word being used in the sense of an inevitable outcome — is only inevitable because of the way the situation is set up. If we sold off the commons to a private party, lots of good things would happen. First, the new owner would impose a price on use of this resource, and this would encourage others to provide competitive places to graze. Second, this price would discourage or prevent over usage of the resource. Third, with the value of the resource established, the search for new varieties of cattle, alternative foods, etc., could be economically justified.

There is no question that the price mechanism is the best way to resolve all problems of scarcity. It prevents the waste of resources by encouraging just the right amount of conservation and new supply development.

But water is highly politicized, and it is unlikely that politicians will reduce their own power and influence by privatizing these resources and allowing the pricing mechanism to function.

So what is a politically viable perspective?

The reality is that water is much like labor in this matter. There is no shortage of either, unless created by political restrictions. In the end, production agriculture, already constrained by a lack of land, will be more restrained by a lack of water and labor.

This means higher prices and more production moving out of the country.

One doubts the population wants to see farming constrained in this way.

So, perhaps, the most politically reasonable thing to do is to have urban areas adopt a price mechanism for water. Let them supply the cities with expensive desalinated water or imported sources.

Preserve the cheap water for the farms, using this as a kind of subsidy for all food consumers. Since wealthy people spend lower percentages of their income on their food budget than do poorer people, this subsidy would be progressive.

The challenge is that the agricultural industry would lose the price mechanism as a guide for when to invest in conservation. So buyers and peers would have to urge producers to keep waste to a minimum.

We were just in Salinas, and although many fields have invested much in high technology to minimize water use, we also saw a fair number of fields still spraying water in the air. We suspect it makes perfect sense economically for those crops in those places. We know, though, that it makes for very bad PR for the industry.


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