Stephen Levy, director and staff economist at the Center for Continuing Study of the California Economy in Palo Alto argues that the market will correct a water imbalance. The state can eventually draw from new sources — desalination plants, diversions from Canada, and Washington and Oregon, to name a couple states. Some state crops including cotton and alfalfa will likely be phased out.
As for prices, “the big price moves have had to do with housing and energy,” Levy said. “Food is a relatively small impact when moving the index [Consumer Price Index, or CPI].”
Likewise, Daniel A. Sumner, an economist at the University of California, Davis, doesn’t think price increases are imminent. He points out that California agriculture is just a part of the national food supply and that food prices are subject to much shifting global demand. He also notes that farmers have invested in wells to offset shortages. It’s working as a stopgap for price increases in a gap that’s growing shorter.
“Even a 10% price increase — larger than I think is likely — the effect on the CPI will be very small,” Sumner said.
It’s silly to think that California will shed industry, population and food production even with a prolonged drought.
Sumner puts a 10% increase in California food prices at 0.06% of CPI. But should the drought continue, and prices rise 20%, it would add 0.12% to CPI.
It all sounds very reassuring. After all, so what if a quart of strawberries that used to cost $5 now costs $6?
No big deal — unless these economists are wrong. And, frankly, there’s a pretty strong case that should the drought persist, say another two to three years or more, prices will skyrocket. Remember, California is the biggest farm state in the nation, producing more than Iowa, Nebraska and Minnesota combined.
Sumner concede: “If this sort of unprecedented lack of water continues, then each year more cropland and more crops will face reductions in supply and prices will be more affected.”
And despite Gov. Jerry Brown’s for the state’s water authorities to cut consumption by 25%, that effort is far short from being meaningful. Agriculture, which is exempt from Brown’s order, uses 80% of California’s water.
How California delivers water to agriculture is a byzantine process full of agencies, contracts and systems. Some farmers will get more water than others. But two general policies show how dire the situation is: The federal Central Valley Project, the state’s biggest agricultural water authority, told its local districts that it would not allocate any water for 1 million acres of farmland it serves this year, about 10% of the state’s farmland being used for crops. The state water system expects to deliver 20% of the water it promised.
Already some economists are predicting sharp increases of 28% and 34% for many crops including lettuce, berries, broccoli, grapes, melons, tomatoes, peppers and packaged salads. Nuts — almonds, walnuts and pistachios — are almost all grown in California, and are intensive water users. California produces 90% or more of the nation’s supplies in those crops, according to the Department of Agriculture.