The year's exceptionally dry spring and the two mild winters that preceded it point toward a potential water shortage next year, and this could heighten competition for water between California's farmers and the rapidly growing urban population, Bank of America said Friday in a new economic survey.
However, now that water conservation programs are functioning throughout the state, California residents, agriculture and industry appear assured of adequate supplies for the rest of 1988, the bank said.
Bank of America also predicted that crop sales will top $15 billion for the first time this year, reaching $15.2 billion, up from an estimated $14.8 billion last year. B of A, the state's leading agricultural lender, also found California agriculture to be in its best financial shape since 1981.
Drought Plus Urbanization
In its latest Economic & Business Outlook, the bank reports that competition for water is increasing as a result of a prolonged period of subnormal rain and snow while the Southland and a number of San Joaquin Valley farming communities are experiencing rapid urbanization, the bank said.
The U.S. Department of Commerce forecast in June that California, with 11 of the nation's fastest growing metropolitan areas, would lead all other states in population growth. Meanwhile, the 1982 defeat of the Peripheral Canal Initiative, which would have increased the flow of fresh water south around the Sacramento-San Joaquin delta, makes it unlikely that new supplies will be tapped anytime soon.
"If we're not going to develop more water, it becomes an issue of allocating water between types of users," Frederick L. Cannon, the B of A economist who wrote the report, said in an interview. "Agriculture uses more than 80% of the state's water, and we're seeing an increasing number of urban dwellers, so some reallocation will have to take place."
Healthier Farm Picture
Because city dwellers pay far more for water than do farmers, reallocation could come either through a change in law or, more flexibly, through sale of water rights, Cannon said. Imperial Valley farmers, for example, pay $10 per acre-foot of water (enough to cover one acre to a depth of 12 inches), while Los Angeles residents pay $270, San Franciscans $225 and residents of fast-growing Contra Costa County $320.
Until recently, discussions of developing a market in water rights has taken place mostly "at the university level," Cannon said. But participants now include the Imperial Irrigation District and the Metropolitan Water District of Southern California. Should successful negotiations follow, not only would Southland city dwellers get water to meet future needs but irrigation districts could use proceeds from selling their unneeded water to improve distribution, drainage and conservation systems, he suggested.
"In cases like this, once a price is negotiated, all the parties involved can be better off," Cannon concluded in the B of A report. "Over time, water marketing is likely to play a greater role in state water policy."
Overall, the bank said, farmers appear to have regained their financial health after the prolonged recession that followed 1981. Cash receipts from crop sales appear likely to climb 2.7% this year to $15.2 billion--nearly 11% of the nation's total. Most of the increase will come from a rapid rise in agricultural exports, which now account for about one-fifth of all crop sales. Since bottoming out at $2.83 billion in 1985, exports climbed to an estimated $3.5 billion last year and will reach $3.8 billion this year.
Moreover, gross farm income will reach $16.1 billion, up 2% over the estimated $15.8 billion last year.
Net farm income will rise to $5.2 billion, up 5.1% from the $4.95 billion estimated for 1987, mainly because of stronger crop prices. This in turn has stabilized farmland values, which fell dramatically in the first half of the 1980s.
Meanwhile, developers are buying up farmland for housing in the fast-growing San Joaquin Valley, Cannon said. "Up in Modesto, for example, where traditionally agriculture has dominated, you see homes going up all over," he said. Such urban encroachment inevitably creates tension between city folks and and farmers.
"It's always a challenge (to farmers)," he explained, "because home owners don't like to see crop-dusters spraying while children are out playing."