Barron’s Donlan explains how markets could address California’s drought

Thomas Donlan, editorial page editor of Barron’s, explains in his latest column how market forces could help address California’s debilitating drought.

The governor’s 25% consumption cut makes for good headlines, but not for good conservation. It applies to households, which tap only 20% of the state’s developed water supply. The other 80% of California’s usable water is allocated to agriculture. Still more water isn’t consumed at all: The state reserves it to keep the rivers full enough to support fisheries and wetlands downstream.

Instead of worrying about lawns, Brown should be thinking about alfalfa, rice, cotton, pistachios, almonds, and other thirsty crops. In a good year, California farmers irrigate about eight million acres, most of which were too dry to farm naturally before the state and federal governments built dams and irrigation canals and aqueducts.

With rich soil and lots of sunshine, California was a sparsely settled land of ranches. With abundant water, California leads the nation in farm income, producing $42 billion in revenue in the most recent normal year.

But that’s an insignificant part of California’s $2 trillion GDP. The rest of the country would greatly miss the state’s agricultural products, but the California economy would keep on producing wealth, even if there were no farms at all.

Using 1,000 acre-feet of water (about 325,000 gallons) to grow a grain crop might generate $400,000 in net returns. Using the same amount of water in a high-tech factory could generate $400 million. More importantly, consider the low price of agricultural water: If cotton farmers paid the retail prices charged to households, they would pay $750 for the water needed to grow $150 worth of cotton.

The real problem isn’t lawns or farms and the real solution isn’t to issue conservation orders. The real problem is water made plentiful and cheap by tax-supported investment. Water, like any commodity, should be priced according to demand, not according to politics. …

… Keep calm, California: At the right price for water, determined by supply and demand, the state can survive any drought.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...