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June 10, 2015  |  Written by Lauren D. Bernadett

University of California at Davis Releases Preliminary Analysis of Economic Impacts of Drought on Agriculture and Related Industries

University of California at Davis and ERA Economics released a preliminary analysis of the economic impacts of the 2015 drought on agriculture and related industries.  The analysis is based on estimates of water availability in 2015 compared to a normal water year.  The study also highlights that the impacts from the drought in 2015 are greater that the impacts that were seen in 2014.  As the authors point out, this study captures only the 2015 effects.  Additionally, the authors clarify that “[t]his study does not address long-term costs of groundwater overdraft, such as higher pumping costs and greater water scarcity.  The socioeconomic impacts of an extended drought, in 2016 and beyond, could be much more severe.”

The preliminary analysis estimates crop, livestock, and dairy revenue loss; the cost of pumping additional groundwater; and job losses.  Importantly, the study shows that while we have average drought statistics for the state, averages do not reflect the deep impacts of the drought experienced in particular regions.  For example, the Tulare region is expected to have the greatest shortages in water delivery, lose over 300,000 acres of irrigated crops, and lose over $620 million in irrigated crop revenues.  Conversely, the Central Coast and Southern California regions are predicted to have a small excess of water deliveries, lose less than one percent of the irrigated crop acreage lost by Tulare, and experience an increase in irrigated crop revenue.

The researchers recognized that not all economic and employment impacts can be ascribed to the drought, and controlled for these factors by making estimates based on changes in irrigation water deliveries and groundwater substitution.  The researchers factored in the known quantity of water that will be delivered by state and federal water projects in 2015.  They also surveyed over seventy irrigation districts to determine this year’s surface water supply and groundwater substitution.  The numbers from districts can change throughout the year based on the result of water allocations, transfers, and deliveries that are yet to be finalized.  The analysis is preliminary and subject to change throughout the year.

Most of the preliminary analysis is driven by the reduced availability of water for agriculture.  The assessment predicts a surface water shortage of 8.7 million acre-feet in 2015, but also predicts that 6.2 million acre-feet will be replaced by increased groundwater pumping.  Groundwater pumping costs in 2015 are predicted to increase by 31 percent over 2014.  The analysis stated that increased groundwater pumping, regional crop shifting, water market transfers, and groundwater transfers mitigate the drought’s impact.  Despite mitigation, the drought is predicted to cause a net water delivery shortage of about 2.5 million acre-feet in 2015.  This shortage is 67 percent greater than in 2014.

The decrease in water supply is predicted to lead to an increase in fallowed crop acreage.  Planted area data was not yet available for the assessment, but models used by the researchers estimated that 564,000 acres, mostly in the Central Valley, are likely to be fallowed in 2015.  The analysis noted that regions with better access to irrigation water and groundwater may experience a small increase in plantings, but not enough to offset all the anticipated fallowed acreage statewide.  The total gross crop revenue losses are estimated to be $856 million, a six percent greater loss than in 2014.

The researchers also predict that the drought will cause the dairy industry’s revenue to decrease by $250 million and the beef industry’s revenue to decrease by $100 million in 2015.  Poultry and eggs are minimally affected by the drought.  By combining the predicted agricultural revenue losses ($1.2 billion), increased pumping costs ($595 million), and other related costs ($900 million), the economic impact to agriculture and related industries is estimated to be $2.7 billion.

The preliminary analysis also predicted job losses directly and indirectly caused by the drought to be approximately 18,600.  The resulting losses in value added agriculture, a measure included in gross domestic product to show the economic benefit of employee efforts, are estimated to be $1.25 billion.  The Employment Development Department reported that overall agricultural employment increased by 2 percent in 2014, but this statistic does not convey the underlying nuances.  Primarily, federal and state labor statistics do not fully reflect agricultural labor.  Additionally, the statistic alone does not capture the deep impacts experienced in particular regions, such as the San Joaquin Valley.  Likewise, the statistic does not capture substantial decreases in contract field work employment during the irrigation growing season.

The analysis will be updated in July to reflect information acquired after this analysis.

For further information please contact Lauren Bernadett at lbernadett@somachlaw.com.

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