The southwestern US has plenty of water

By Scott Sumner.

"Many people are under the impression that the southwestern US suffers from a severe shortage of water.  In one sense that’s true.  The market price of water is set far below equilibrium. And that sort of price control almost always tends to lead to shortages.  If you set prices low enough, even Canada would have water shortages.  (Iraq has fuel shortages.)

But the southwestern US has plenty of water, far more than needed to provide a comfortable lifestyle for its residents.   Most people assume the region’s water problem is due to its climate and rapid population growth.  This is false—there’s plenty of water.

This region is dominated by California, which has a population of nearly 40 million.  It’s also one of American’s most urbanized states.  And yet the vast majority of California’s water is consumed by farmers.

California’s cities and towns have reduced their water use by 30% in the past 15 years, according to research from the Pacific Institute. Farm use dropped 15 percent between 1980 and 2015, according to a report from the Public Policy Institute of California.

But agriculture still consumes about 80% of California’s water.

If you doubled the amount of water going to California’s cities, you would still leave farmers with 60% of the total supply.  So why doesn’t this happen?  It turns out that water is sold to farmers at much lower prices than to city dwellers.  And even within the farm community, there are vast disparities, with Imperial Valley being a prime beneficiary:

Imperial’s water is also dirt cheap. Whereas farmers elsewhere in the state buy water for hundreds of dollars or more per acre-foot, the base rate for Imperial’s farmers is $20 per acre-foot. (An acre-foot is enough to support two to three California households for a year.)

Think about that final parenthetical sentence for a moment.

So why don’t farmers who benefit from cheap water sell it to the highest bidder?  After all, subsidies don’t create shortages where resale is allowed.  Unfortunately, there are legal barriers to reselling surplus water, which removes the incentive for farmers to use the water more efficiently.

Unfortunately, Western water laws can discourage conservation and limit the flexibility to move water to higher-valued uses. In many cases, legal rules can discourage or prevent water-right holders from leasing or selling their conserved water. To encourage greater adaptation, water policies should allow someone who needs water to pay another user to forgo water use or to invest in water conservation. But, in reality, a variety of procedural and regulatory requirements can thwart even the most sensible win–win water trades.

Part of the challenge is that, under the prior-appropriation doctrine, the status of conserved water is often unclear. “If a water user adopts more efficient practices that result in unused water, certain interpretations of the ‘beneficial-use’ requirement could cause that user to lose that portion of their water right,” Bryan Leonard, a natural-resource economist at Arizona State University, said in an interview. In some states, farmers who take steps to save water — perhaps by updating an irrigation system or lining leaky ditches — risk forfeiting the unused amount. “Use it or lose it” rules can also make it difficult to lease or acquire water for nonuse purposes, such as boosting in-stream flows for fish and wildlife habitat. . . .

Suppose the share of California’s water going to farmers fell from 80% to 60%.  How would this affect agriculture?  Some farmers insist that it would lead to land lying fallow, as the climate in places like the Imperial Valley is too dry to support farming without irrigation.  In fact, things are much more complicated—not all crops are equally water intensive:

Farmer Kevin Herman grows figs and almonds in the San Joaquin Valley and until four years ago maintained a small planting of figs in the Imperial Valley. He questioned the wisdom of using so much of a dwindling river for desert agriculture.

“Those farmers down there are putting on 7 and 8 acre-feet of water per year for hay, and I just don’t know if that’s a sustainable model,” Herman said. “There are so many people now needing that water and I just don’t think it’s the highest and best use.”

Some experts say Imperial Valley growers should shift to less water-intensive crops. Alfalfa, its leading crop, is notorious for using lots of water, as much as 10 acre-feet per acre each year. Statewide, “large acreage coupled with a long growing season make alfalfa the largest agricultural user of water,” according to a University of California report.

These last two quotes are from a National Review article discussing the Biden administration’s attempt to wade into this thorny issue.

Each year I drive through the Imperial Valley and southern Arizona along I-8.  I am continually surprised by the vast green fields I see out in the middle of the desert between Yuma and Tucson.  This has become a campaign issue, albeit for the wrong reasons:

Since 2014, the Saudi company Fondomonte has been pumping unlimited amounts of groundwater in the desert west of Phoenix to harvest thousands of acres of alfalfa crops. The alfalfa is then shipped back to Saudi Arabia to feed their cattle.

But a recent investigation from Arizona Central has revealed that Fondomonte, a subsidiary of Riyadh-based Almarai, has the bargain of a lifetime: for only $25 per acre annually, it can pump as much water as it wants. Nearby farmers pay six times more than the Saudi company.

This modern day watergate has become a campaign issue ahead of the contentious midterms but candidates across the ballot appear to agree that this is bad. Democratic candidate Katie Hobbs tweeted that “Our water should be for Arizonans, not for sweetheart deals to foreign corporations to grow crops to then send back to their country.”

It is an outrage, but it is sad that the public doesn’t become upset unless the issue is framed in crude nationalistic terms.  There is nothing wrong with using the Southwest’s water to grow alfalfa for Saudi cattle, if the water is priced correctly.  The real problem is not that Arizona’s precious groundwater is being (implicitly) exported to Saudi Arabia in the form of alfalfa, it’s that our dysfunctional system of water prices causes a grotesque misallocation of resources.

I doubt that we’ll be able to get rid of all water subsidies—farmers have too much political clout.  But at a minimum, we need to raise the opportunity cost of agricultural water use up to urban prices.  That requires efficient markets where farmers can resell water no longer needed because of improved irrigation techniques, such as drip irrigation or shifting to less water intensive crops.  If the price in resale markets is much higher than the subsidized price, then farmers will base decisions on water use on the alternative price for which they could sell the water to urban dwellers–its opportunity cost."