Policy Brief: Drought and California’s Agriculture

Highlights

  • California’s agricultural sector—the nation’s largest—generates more than $50 billion dollars in annual revenue and employs more than 420,000 people.
  • The ongoing drought is reducing water availability and increasing crop water demands, taking a toll on agriculture and related sectors.
  • Economic impacts of the drought in 2021 were modest statewide, but more costly in the Sacramento and North Coast regions. Dry conditions will persist in 2022, increasing impacts.
  • Addressing the negative impacts of pumping, accelerating water demand management, and improving storage would increase agriculture’s resilience.

California’s agricultural sector is the nation’s largest, but water is a concern

The industry employs over 420,000 people and generates more than $50 billion in annual revenue. Farmers have steadily improved productivity, shifting to crops that generate more profit and jobs per unit of water—like fruits, nuts, and vegetables—while maintaining a sizeable share of the nation’s dairy and beef cattle production.

However, California farms rely heavily on irrigation, and water availability is an enduring concern despite ongoing improvements in irrigation efficiency. Climatic and regulatory constraints have limited surface water in recent decades. Chronic overpumping of groundwater has dried up wells and damaged infrastructure, prompting the enactment of the Sustainable Groundwater Management Act (SGMA) in 2014.

A fast-paced drought—fueled by climate change—is constraining water availability and increasing crop water demands

Climate change is making California’s variable climate even more volatile, with dramatic swings between wet and dry conditions—or “precipitation whiplash.” At the same time, California is experiencing a megadrought along with much of the West, with chronic low precipitation and higher temperatures.

The 2020 and 2021 water years constituted the second-driest two-year period since records began in 1895, and the driest since the 1976–77 drought. We estimate that unusually warm temperatures in 2021—nearly 3.5 degrees Fahrenheit above the 20th-century average—created an additional 3–4 inches of evaporative demand, or about an 8 percent increase in crop water demands.

Drought is raising costs and reducing farm revenue

  • Drought reduced surface water deliveries to farms in 2021. Low storage levels and water right curtailments—cutbacks introduced to protect other users and the environment—reduced local deliveries. Allocations from the Central Valley Project and State Water Project dropped to zero for some growers. Total surface water deliveries for Central Valley and North Coast farms dropped by about 5.5 million acre-feet (maf) in 2021 (41% below the 2002–16 average).
  • Surface water shortages increased groundwater pumping and other production costs. To lessen drought impacts, farmers increased pumping by nearly 4.2 maf compared to 2002–16, which was not enough to replace all lost surface water. Not all farmers have groundwater access or pumping infrastructure to make up the difference. Net water shortages were about 1.4 maf—or 6.3 percent of normal water use (see figure below). Production costs rose: higher pumping raised farmers’ energy bills by about $184 million, some farmers purchased water from others willing to use less, and animal feed costs rose as well.
  • Water shortages led to idled land and “deficit irrigation,” causing economic impacts. Farmers adapt to water shortages by leaving some irrigated cropland unplanted, also known as idling or fallingowing land. To minimize revenue losses, they usually idle less profitable crops. Farmers regularly fall some land for a range of reasons. We estimate that total land idled because of the 2021 drought was 395,000 acres over and above land already fellowed for other reasons, with the majority in the Sacramento Valley. Some of that land was fallowed to sell water to other users.

    To stretch available supplies, farmers may also reduce watering below crop water needs, which is known as “deficit irrigation.” Reduced irrigation can lower crop yields. In the Russian River Basin, where wine grapes are a major crop, yield declines from drought—along with crop damage from wildfire smoke—decreased revenues by $148 million (almost 24%). Across impacted regions, crop revenue losses and increased pumping costs were estimated at $1.1 billion, with roughly 8,700 full- and part-time jobs lost.

  • Crop earnings losses had broad economic impacts. Crop losses do not occur in a vacuum. For instance, numerous upstream sectors supply goods and services to agriculture. Taking this into account, the drought’s economic impact is estimated at $1.7 billion in revenue losses and 14,600 in lost jobs.

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