California’s Drought and Its Effect on the Economy

The current California Drought will not significantly impact the state’s economy, according to a recent blog posted to the Legislative Analyst’s Office (LAO) website. This is surprising, because commentators insist that California is in trouble with worsening drought conditions. While the State’s Central Valley production and export makes California the fifth largest food supplier in the world, it comes at a price; 41 percent of the State’s water consumption results from agriculture. Almond trees alone require 600 gallons of water per pound of nuts. Central Valley farmers who are economically impacted by the drought resort to drilling deeper into groundwater reservoirs, a costly and environmentally damaging activity that decrease agricultural jobs – by 17,000 last year alone. Furthermore, increased productions costs may reduce spending on equipment.

How can the LAO make such an inflammatory claim? Central Valley farmers and farm towns depend entirely on the success of agriculture, and the drought has potentially severe economic effects in these cities. Future changes, such as the recent restriction on groundwater extraction, can reduce the region’s exporting activity, negatively affecting employment in the agricultural sector.

In addition, possible water use restrictions may simply be another requirement added to the list of existing water efficiency requirements. However, if new restrictions are significant barriers to project completion, the drought can negatively affect development. This could affect construction, consumption, business expansion and state and local revenue while causing consumers to buy less.

Perhaps, in the bigger picture, the drought will not severely impact California’s economic health, But those small agricultural communities along California 99 are becoming dehydrated. Those of us in urban areas will adapt to drought conditions; our livelihoods do not depend on agricultural output. Central Valley cities depend on water in a way only agricultural communities can understand. Adapting to drought conditions for them means a complete change in lifestyle. The drought may not significantly affect California’s overall economy, but it has affected its agricultural economy, local economies and personal economic decisions.

Written by Nicole Miller, Research Assistant at RSG.

http://www.lao.ca.gov/LAOEconTax/Article/Detail/86

http://www.theatlantic.com/business/archive/2015/03/the-economics-of-californias-drought/388375/