Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Monday, February 23, 2009

The Problem With The Central Valley

Hi Everyone,


I was going to post this as a response to Pombat's questions and to LTG's passionate defense of farmers in California against the market and nature.  But there were so many good links that I found that I thought I would just start a new post.  

I won't reprise my basic arguments in detail.  If you are interested you can see the comment stream on LTG's thread about "Rain Rain Went Away."  There is also this excellent Q&A with an economist about agricultural subsidies here.  His short answer to "Are there any good reasons to have agriculture subsidies?" is "No."  

Also, Pombat raised several good points.  How much of the water is being used by farmers as opposed to cities.  According to this link, the national proportion in the USA is that farmers use 75% of the water and everyone uses the rest.  According to this story in the SF Chronicle, California farmers use 80% of the water so they are relatively thirstier than the national average.  

That first link also points out that pricing is the critical problem.  Farmers everywhere pay about $20/acre foot of water.  Residential consumers pay $1000/acre foot.  This is what I was alluding to when I said that California farmers have less incentive to select less thirsty crops, more efficient crop rotations or take other steps to conserve water.  Indeed, the story in the SF Chronicle includes some rather defensive statements from California agribusiness lobbyists opposing improving the efficiency of the irrigation system in the Central Valley.  Instead, they want the taxpayers to build more dams up in the mountains to increase storage capacity.

This is now in the realm of basic economics.  When you have people arguably paying about 2% of the market price for a commodity they will over consume it and this will lead to shortages.  The reason this is a bigger problem in California than in places like Iowa is not because of some snobbishness on my part.  Rather it is because, in Iowa, farmers get their water from natural rain fall and ground water pumped up locally with small scale windmills and powered wells.  In California the farmers get the overwhelming majority of their water from publicly funded irrigations projects that bring water from melting snow packs many miles away or divert rivers.  For this water the California farmers are paying 2% of the market price.  
So we have a region where farmers are dependent on government funded irrigation for the overwhelming majority of their water.  They only pay a minute fraction of the cost for that water.  Is it surprising that they over use it?  That they have developed too many farms on marginal land?  

And how have these poor suffering farmers thanked their urban benefactors?  They rail against racial minorities, push racist policies designed to keep Latinos poor and exploitable, provide the core of the votes for Prop 8, Prop 13, and others.  And their representatives veto budgets for months until the state is in a nearly perpetual fiscal crisis.  We're talking about a part of the state that is so political anti-progressive that the term "Calibama" fits all too well.  And they're completely dependent on cash payouts in the form of nearly free water for their ability to do all this.

This is system is extremely vulnerable.  As the available supply decreased relative to farming demand, the price should have gone up - thus discouraging additional development.  But instead, California's farmers were carried "on the cuff" so to speak by the taxpayers.  So when we have a temporary - although with global climate change this drought may be increasingly common - shock, the effect is enormous.  I'm sorry but given the political economy of this whole situation I won't be shedding too many tears for the Central Valley on this one.  

BTW:  Australia has no ag subsidies.  GOOD ON YA!  I do have a question for Pombat and Spotted Handfish...do you guys know if Australian farmers pay market rates for their water?

11 comments:

USwest said...

The article that RBR linked to in the Chronicle is good and quite true. The problem with subsidies as they currently exist is that the discourage good farming practices and encourage bad ones.

A good policy change would be to offer incentives to farmers to use new technologies and who employ sustainable farming techniques. Those are the types of subsidies that we should be giving. If you want farm subsidizes, then use them properly to encourage right action, otherwise as Secretary Chusays, California may loose all its farming. (see www.reuters.com/article/environmentNews/idUSTRE5135OY20090204)

The article says, "Under the law, users with the earliest water claims have the highest priority for receiving water. But with the dire situation in the delta, a record-breaking dry spell and some communities under mandatory restrictions, experts say it may be time to re-evaluate how and to whom water is allocated."

California has a legacy problem with it comes to resource allocation, be it water or land. We always have, clear back to the Ranchero days. Many farmers say that they can make more money selling their subsidized water than selling their crops. That's just wrong. Selling subsidized water rubs me the wrong way, especially when I am installing low-flow everything and flushing my toilet once a day. But I can tell you in my hometown in Stanislaus County, they have made efforts to cut back on water usage simply because of the cost and the lack of resources. (See my previous comment on the previous thread)

I agree with RBR about the issue of water use. And LTG, we have redundant crops in California. Why in the hell are we growing water intensive crops like rice, alfalfa, corn, and cotton when these don't help us environmentally and economically? These are all easily imported crops that aren't real time sensitive in terms of shipment. We can still grow veggies, nuts, and fruits if we want, but we can stop growing other stuff that we don't actually eat. I'm happy with potatoes from Idaho and my corn and wheat from the Midwest.

I do know that (see http://news.ucanr.org/newsstorymain.cfm?story=160") farming in CA is changing. Just as fishermen are now using sonar to find fish rather than trawling, farming technology is allowing farmers to pinpoint when and how to water. Drip systems and dry farming are much more common now. Our key crops (like those grown where I grew up) of grapes and nuts are not so water intensive and they have a world market.

Those young folks who do take over their family farms are investing in these technologies. These young'ins are more educated and more tech friendly, and more business savvy than their fathers. They know that they have to make changes. You hear and see bits and pieces of the change here and there. Where I live, organic, sustainable farming is hot. We have three farmers' markets a week in this area and they are always jam packed. Our stores are advertising "locally grown" produce. There is a huge demand for farm-fresh food and a growing trend toward CSAs. So the changes will come.

The Law Talking Guy said...

A couple of things:
1. Many of the water inequities or (iniquities) you mention are not caused by federal or state subsidies for water, but by state water rights going back to the 19th century. Until recently, it was basically illegal to sell these water rights. I mention this because these rules are considered property rights and, therefore, cannot be just destroyed by federal fiat.

2. I would like to see some comparison between the combined cost of flood control along major rivers in Iowa (levies, etc., the whole army corps thing) versus California's irrigation systems. I doubt the feds or the state of CA has spent way more on CA agriculture than in other parts of the country, not with Congress being what it is.

3. The article by Zetland does not talk about water prices in different areas. So it is not clear what it means when it says that Farmers pay $20/acre/ft. Where? (To you aussies with your metric system, keep in mind that an acre is a chain by a furlong, which I'm sure is a helpful description)

4. Generaly, residential water is different from agricultural water in the way it is processed and sent through municipal water treatment systems with sewage return capacity. I would be wary of these comparisons of water prices. The idea that farmers are paying "2% of market price" for their water assumes that (1) it's the same product as residential water and (2) that residential consumers are paying the market price rather than overpaying. I don't know what the market price is for water, nor do I know how to determine it, because there really is no free market for water anywhere in the country.

4. I find it an unpalatable argument that the political conservatism of central valley farmers is a reason to reallocate water resources.

Raised By Republicans said...

LTG, you are right that a lot of the problems go back to the old Spanish real estate law. Good point. But like US West points out, this is making the water issue in the area even more dysfunctional. I would just add this to the list of problems.

As for flood control in the midwest. LTG makes a good point there. It is a problem and I would say that without looking at the costs, the scale of the problem and "moral" issues are analogous. But to that region's credit there has been a great deal of renewed interest in "natural river banks" and actually downscaling the levee systems since the 1993 and 2008 floods. All the local papers were full of stories blaming a local dam for the severity of the flood - but crediting it with delaying the flood for a week. So there are annual maintenance costs for these levees but they are decreasing in favor of a more natural approach.

The costs of the 1993 and 2008 floods themselves were quite high. But 1993 cost (according to wiki) $15 Billion. The 2008 flood cost are still being tallies but will likely end up being comparable to 1993. So let's say both floods together cost a one time $30 Billion - much of which is covered by private insurance.

I can't find a good clean source on the costs of the water subsidies in California including the annual maintenance costs of the system. But I have seen national numbers for direct ag subsidies that in the neighborhood of $80 Billion (see wiki for example). That's $80 Billion every year.

Think about what other policies we use that money for. According to the CIA world fact book farming employs 0.6% of our workforce. It doesn't say how big the work force is so let's just use population. Let's assume that the proportion of the workforce that depends on farming is representative of the proportion of the population that depends on farm incomes (not a great assumption but it's not the worst I've heard lately). That would give us about 1.8 million farm dependent people out of a population of roughly 308 million. With that $80 Billion, we could give every man, woman and child that depends on farming an annual check for $43,884. Or we could give them all checks for half that (so a family of four would have a welfare income of about $80,000/year which is higher than the national household average income) and put the other $40 Billion a year into other things - like education or Green Tech subsidies. Think about that. We could give these farmers the Mother of All Welfare Checks and still save $40 Billion a year!

Now, I suspect that LTG suspects that I think midwestern farmers should be subsidized and California farmers should not be. I don't think any of them should be subsidized. I am, however, confident that midwestern farms will continue to be profitable - not because Midwestern PEOPLE are better but because Midwestern LAND is better (and cheaper!).

The Law Talking Guy said...

The Environmental Working Group (no friend of farms) says that 91% of CA farmers get no subisides, and that subsidies for 1995-2006 totaled $6.2b. It further adds that 85% of the subsidies for CA were for cotton, rice, and disaster (flood) payments. http://farm.ewg.org/farm/region.php?fips=06000

Of course, these figures do not include the expansion of farm subsidies in 2006 to include fruit/nut farmers for the first time ever.

Another article quotes the EWG as saying that cash *and water* subsidies for 2002 were $538m.

The US bureau of Reclamation says that the *total* cost of the Central Valley Project was $3 billion and it now makes a profit of $100m annually due to water sales and
hydro power sales.

The CA government water estimates are calling for $5billino over the next several years to deal with fixing the existing system and preparing for global warming, but this is for both residential and ag use.
http://www.waterplan.water.ca.gov/docs/cwpu2009/1208prd/vol1/1-4_CAWaterToday_PRD_(01-05-09).pdf

All of these figures - even if off by a bit - strongly suggest that the vast majority of the $80 billion figure are not going to California.

RBR, you may want to rethink the perhaps unfounded assumptions about how expensive water projects in CA agriculture really are. It sounds to me like they are of relatively small ongoing cost.

Raised By Republicans said...

But LTG, the EWG is ignoring the biggest subsidy that they get - the free water. Also, "91% of farmers" may not mean 91% farm land. I'm just guessing here but I would bet that a small number of companies own a disproportionate share of the land. So it may well be true that the small farmers aren't getting any direct subsidies but if some big agribusiness concern is, my point would still hold.

Also, my argument about the water projects is not just about the direct annual costs to maintain the actual plumbing. It is an argument about pricing - one which you have not addressed at all. California farmers are facing a catastrophe right now because of shortages of water from these irrigation projects. I have pointed out that they are probably paying a tiny percentage of what every other consumer of water in the state pays. Shortages are an inevitable consequence of price controls like that.

When you do mention the water subsidy you minimize it by talking about the $538 million like that's a small number. Also, was there any indication of whether the $538 million included the difference in prices farmers pay vs residential consumers? What I'm thinking here is that it is possible that there are "subisidies" which are checks paid to farmers to help pay their water bills and then there are price controls that they don't count as "subsidies" that say "The price for agricultural consumers is X and the price for residential consumers is 50X."

Also, the Central Valley Project numbers may be correct and still not address the pricing problems I'm talking about. If the farmers are getting their water for pennies on the dollar, they will over consume. Also, if they had to pay the same rate you pay, would their big farms be profitable?

You also have not addressed the larger picture of ag subsidies generally. Which state gets more of them has never been my point. I'm opposed to all of them regardless of which state they are in.

My point about California is that farms there seem to be much more dependent on government support. That is, in its natural state, the land will not support anything like the ag production it currently does. Altering the natural state of an area of land the size of inland California has financial and environmental costs.

In the interest of exhange of ideas, why do you support agricultural subsidies? Could you perhaps put up a post in which you identify the handful of best reasons to support ag subsidies generally? NOTE: Not just in California (although you would like to focus on California that's fine I suppose). Also, ag subsidies broadly defined to include price supports for products and price controls for inputs like labor, water, land etc.

USwest said...

RBR, over 90% of CA farms are family owned and the average size is 346 acres. Granted, many of these farmers sell products to industrial food producers.

Some additional fun facts from the CA farm Bureau.

1. "Methane digesters on
California dairies are
helping generate about
$1.6 million in electricity
and diverting more than
400,000 tons of manure."

2.The state’s water delivery
system, completed in the
1970s, was designed to
serve a state-wide population
of 12 million people
and will have to serve a
population of nearly 60
million in 2020.

3. By 2040, the Central Valley
will become home to nearly
12 million people – double
the 2005 population,
which was already greater
than the populations
of 38 states.

4. Urbanization in the Central
Valley increased by 23 percent
from 1990 to 2002.

5. Nearly 100,000 acres of
California farmland are
permanently committed
to non-farming uses
every year.

Source: http://www.cfbf.com/familyfarms/pdf/FamilyFarms.pdf

The Law Talking Guy said...

I was very straightforward about what the EWG said and didn't say. The point I was making was that the numbers we are talking about for subsidies - indeed the whole cost of the Central Valley irrigation project - is nowhere near the $80 billion annually you are talking about. It is a much smaller figure. So the assumption you are making about HUGE subsidies has to be re-thought. Does irrigation support in CA really cost more, or much more, than the flood control and other supports given to midwestern farmers? Do the benefits of irrigating land available for 2 or even 3 seasons a year - to provide fresh vegetables year-round-- justify the expenditures?

The idea you seem to have firmly in mind, RBR, is that CA agriculture is massively subsidized with huge expensive water projects, much more so than midwestern farms. I don't think the facts bear that out. I think you'll find that even with the cost of irrigation taken out, CA agriculture is as efficient and profitable, if not more so, than agriculture anywhere else in the country.

I also have no idea whether lower water prices for farmers reflect "below market" prices or not, and neither does RBR really.

The Law Talking Guy said...

Why do I support agricultural subsidies? That's a bit of a red herring- I don't.

What I dispute is
(1 that California is somehow being unfairly or unwisely subsidized given the choices generally made by US farm policy.
(2) that California agriculture of fruits, nuts, and vegetables could essentially be replaced by importation without significant losses in quality or seasonality.
(3) that the economic dislocation of pulling the plug on California irrigation projects is worth inflicting for some future free trade gain
(4) that the economic dislocation of pulling the plug on California is justifed because it's just "Calibama" that would suffer.

Ex ante, I would never have established agricultural subsidies and *might* not have created extensive agriculture in the imperial valley (central valley may be different). But ex post, I am not inclined to rip it up by the roots in the name of hard, sour Chilean blueberries.

Pombat said...

The one thing that's stuck in my mind from just reading these comments is that cotton and rice are grown in California. What?! There is no way that they can be profitable, either financially or environmentally. Just as growing cotton/rice would be dumb here in Victoria (no idea if anyone does).

Things like that are why I'm broadly against subsidies, for pretty much anything, not just agriculture (I'm looking at you, Holden and GM) - if something is not subsidised, then the producer will either charge more for it, potentially resulting in a loss of customers, or produce something else that is profitable, because consumers like it at the price. Essential services such as public transport, healthcare, education etc should receive enough funding to make them accessible to all, but no subsidies for anyone else. Oh, especially not the infernal coal lobby - current bugbear, as Krudd is dragging his feet on green industry at what should be the perfect time to establish it.

Raised By Republicans said...

Pombat,

FYI, cotton is the most heavily subsidized crop in the US.

Dr. Strangelove said...

RbR argues that the Midwest is more suitable for farming than California because the Midwest gets more rain. While rainfall is an important factor in determining the suitability of land for agriculture, it is not the only factor: soil, temperatures, sunshine, and accessibility matter. California apparently has all these other factors in abundance, which is what permits (as LTG notes) year-round agriculture on a scale that is not feasible in Midwest greenhouses.

Although Californians subsidize the cost of providing water to our farmers, our farmers still ultimately pay more per bushel produced (or whatever unit you choose) for the water they require than do their counterparts in the Midwest. This is because Midwestern farmers receive most of their water for free directly from the sky, whereas California farmers must irrigate.

But California water policy is not an anti-competitive force in the agricultural sector for the simple reason that California farmers are still at a competitive disadvantage when it comes to their water use. Instead, California's vast system of aqueducts is more like our freeway system or electrical power grid: an state-sponsored, state-regulated investment. And California gets a darned good return on its investment in water, because it lets us leverage our other natural resources: providing that last vital ingredient (water) allows us to make great use of all that good soil, temperature, sunshine, and accessibility that would otherwise go to waste. Unlike protectionist agricultural subsidies, which raise prices for everyone, California's investment in agriculture lowers the price of food for everyone.