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New forecast highlights economic impact of drought

Coalition estimates lost farm revenue in 2014 to reach $5 billion

New forecast highlights economic impact of drought

In 2009, the California Department of Food and Agriculture and University of California reported a $340 million loss in revenue within the San Joaquin Valley due to a prolonged drought, with about ...


POSTED April 4, 2014 7:44 p.m.

The ongoing drought might not dry up the state’s economy, according to an economic forecast report released on Wednesday, but could continue to slow job growth over the next several years should drought conditions persist.

According to the University of California, Los Angeles Anderson Forecast report, California’s ongoing drought could have negative impacts on employment growth in coming years while having a ripple effect on several industries across the state.

Within the quarterly forecast, economists say that the dry conditions throughout 2013, the driest year on record in California, could potentially diminish the fishing and manufacturing sectors in the state, depending on whether the ongoing drought is “normal” or rather the beginning of a “long arid period.”

“We may not be in a normal drought,” said Anderson Senior Economist Jerry Nickelsburg. “If the change in aridity is in part a permanent change in average rainfall, the aggregate impact may well be significant…We will not know until after the fact if this year is an anomaly, or the beginning of a long arid era.”

In the report, Nickelsburg says that aridity and recurrent drought, when expected or normal, are not a detriment to economic growth, as arid states in the U.S. over the past decade have not performed worse than wet states. In a “normal” drought period, the expected impact of the drought would not have much impact on an economy with 16 million jobs.

“While the drought is real, and it will cause economic losses, particularly in certain agricultural quarters, overall the state is not likely to be greatly impacted,” said Nickelsburg in the report.

Although California’s overall economy is not likely to be greatly impacted, economists conducting the Anderson forecast say that the already fragile state of the economy since recovering from the recession should be taken into consideration when estimating the drought’s impacts. Because of this, a prudent estimate would figure the drought’s impact to cause a fractional reduction in the expected rate of job growth, Nickelsburg says.

Overall, the forecast estimates that California’s unemployment rate, which topped 12 percent in the years following the 2008 recession, will dip to 7.8 percent this year, compared with the U.S. rate of 6.4 percent. Employment growth is projected to hover around 2 percent, as it has since 2012, says the forecast, while the projected jobless rates of 6.9 percent next year and 6 percent in 2016 will remain higher than the national average. According to the forecast, however, that gap will shrink substantially as the rate is expected to fall as low as 5.7 percent by the fourth quarter of 2016.

 

Ag-related industries hit harder in drought

The lack of available water this year is still likely to result in higher consumer prices, which are expected to jump 2 percent or more in the next few years. With significantly lowered water allocations this irrigation season, such as Turlock Irrigation District’s historically-low cap of 20 inches of water per acre, California farmers planting fewer crops for lack of water may be getting higher prices for them.

Others, however, have idled hundreds of thousands of acres while seeing a significant reduction in farm-related jobs. While agriculture consumes about 80 percent of all delivered water in the state, the overall economic impact is reduced due to farming representing only about 2.5 percent of the state’s jobs.

But within agriculture-related industries, lost revenue in 2014 from farming and related businesses could reach $5 billion, according to estimates by the California Farm Water Coalition. Additionally, the Sacramento-based organization said that California farmers will probably leave as much as 500,000 acres unplanted, or about 12 percent of last year’s principal crops, due to not having enough water to produce a harvest, meaning fewer choices and higher prices in the produce-aisle.

In 2009, the California Department of Food and Agriculture and University of California reported a $340 million loss in revenue within the San Joaquin Valley due to a prolonged drought, with about 285,000 acres left to fallow throughout the Valley and agriculture-related job losses reaching 9,800. With a more severe lack of water in 2014, such as the State Water Project’s first-ever zero water allocation, experts and farmers have projected the impacts of the current drought on Ag-related sectors to be substantially worse this time around and throughout coming years if drought-conditions continue.

Local Blue Diamond almond grower Brad Abraham says that with the lack of water available, local farmers have been making substantial gains in water conservation efforts such as switching to micro-irrigation, also known as trickle or drip irrigation, practices. With water allocations such as TID’s 20-inch cap, Abraham says that farmers continuing to flood irrigate will likely not have enough water to make it through the irrigation season.

“In our area, projected losses aren’t going to be as bad as down south in places like Kern County where many farmers are taking a 100 percent loss because they can’t get any water,” said Abraham. “Here, it’s still not going to be good, but especially so if you’re still flood irrigating. With lowered water allocations, like TID’s, you’re not going to have enough water to get you all the way through…In the farming world, we’ve come so far with irrigation and have a lot of technology that tells us when our trees need water, which has allowed us to use a different type of irrigation system so that we’re not flooding the whole ground, but instead using less water by utilizing micro irrigation that goes straight to the root system. We’re being more productive with our water than we used to be so that we’re not being wasteful and being good stewards of our water. Being wasteful looks really bad during a drought.”

Although Abraham says that Central Valley growers are still likely to see losses this year due to the drought, the real hit to the local economy could come next year should drought conditions continue and the state continually see a diminishing snowpack. Although recent rainstorms help by pushing back the irrigation season, local growers and irrigation districts heavily depend on snowpack forecasts for water allocations.

“We’re seeing losses in the Central Valley, but nothing like the losses they’re seeing down south. Our Central Valley makes up around 10 to 15 percent of the almonds that get sent to Blue Diamond, but there’s a huge amount of almond growers down there who are not getting any water,” said Abraham. “If next year comes around and we don’t get any water, we’re going to be hurting real bad ourselves. The biggest thing that we really rely on is the snowpack, not just rain, and if that continues to worsen next year, we’re going to have big problems…Almonds are the leading export right now in California, so it could really hurt our economy around here which heavily relies on that industry.”

As one of the largest farm products in the state, and the number two crop in Stanislaus County, almonds generated $4.35 billion in 2012. According to the 2012 Stanislaus County Agricultural Crop Report, California almond growers now produce nearly 100 percent of the domestic almond supply and account for over 75 percent of the worldwide production. Stanislaus continues to be one of California’s top almond producing counties with more than 155,000 acres, 20 percent of the acres in the State. The County also has more than 1,200 almond growers with yields regularly exceeding 2,000 pounds per acre. Additionally, more than 30 local export companies in Stanislaus shipped over 235 million pounds of almonds to international markets in 2012.

According to the Anderson forecast and Nickelsburg, the economic impact of the ongoing drought is complicated, as other factors such as the possibility of nearly $850 million in federal and state drought assistance funds could benefit the state economy. Although the forecast projects that the overall state economy might see minor impacts, it may be a different story for regions dependent on agriculture-based industries, such as Stanislaus, should the drought continue.

Local economist Dr. Gӧkҫe Soydemir, the Foster Farms endowed professor of business economics at California State University, Stanislaus who has provided an analysis of past, current and future trends in the San Joaquin Valley economy over the past few years, says that the impacts of the ongoing drought could continue for a couple of years following the end of the drought.

“Another year into drought would undoubtedly lead to higher food prices in the Valley and around the nation,” said Dr. Soydemir. “An ongoing drought is a negative supply shock, which creates a drastic fall in the production of agricultural goods and services. The resulting fall in the demand for labor increases unemployment and negatively affects job growth. The impact would last into couple of years following the end of drought since it takes time to plant and harvest.”

 

 

 

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