January 20, 2020

California Water Restrictions to Become More Severe

 |  By: Fran Howard

Water woes in California’s major dairy shed are likely to get worse. The state will soon begin to implement the Sustainable Groundwater Management Act (SGMA), which could boost the cost of milk production while devaluing dairy farm assets for some producers, says Sarina Sharp, analyst with the Daily Dairy Report

“Over the next two decades, the SGMA will dramatically alter groundwater use throughout the state, especially in the Central Valley, where water shortages are most severe,” Sharp says. California dairy producers will also likely see production costs rise as feed crops lose acreage to cash crops.

“Feed crops are among the least profitable ag sectors in the Central Valley, and they are more likely than cash crops to lose acreage as land is fallowed,” Sharp says. “Dairy producers will have to pay enough for forage to compensate nearby farmers to forgo the opportunity to plant more lucrative crops like grapes or almonds, which thrive in the Central Valley's unique ecosystem.” 

Vineyards and orchards will pull water from alfalfa and corn silage in dry years, not only because they are more lucrative, but also because pulling water away from these crops often means the end of them. “We could see adequate forage production for Central Valley livestock in a wet year, but in an average or dry year, the trees will get the water and dairy producers will have to haul forage in from elsewhere,” Sharp says.

In a typical year, 38% of the water used in California comes from groundwater, but in years when surface water is limited, farmers and producers rely more on groundwater. In recent years, Sharp says that increasingly stringent environmental regulations, reduced access to surface water, and a string of droughts have resulted in groundwater being pumped faster than it could be replenished. 

Under the SGMA, more than 250 local groundwater sustainability agencies (GSAs) will implement plans to slowly recharge the state's 140 priority water basins by 2040. Their five-year objective will be to keep long-range plans on track, Sharp says. While some GSAs plan to invest in ways to capture and sink surface water, the least expensive—and thus likely the most common—way to restore or sustain groundwater will be to limit pumping, she adds.

Water restrictions will not hit all farmers equally, though. “For farmers in less depleted water basins, or those with historical water rights or access to surface water, SGMA will have little impact in the near term,” Sharp says. “But some farmland relies entirely on groundwater.” The Public Policy Institute of California projects that as SGMA's water restrictions become more severe over the next two decades, between 535,000 and 750,000 acres of Central Valley farmland will need to be fallowed. 

The value of land with no groundwater rights located outside of irrigation districts has dropped 25-50%. In other areas where declines in water allotments have been modest, land values have not dropped as far, and farmers and dairy producers in these areas could manage by fallowing a small portion of their land. 

“Land values have helped to fuel California’s dairy expansion, and land sales have helped producers survive painful downturns,” Sharp says. “Now, dairy producers in the driest districts face lower net worth and a smaller borrowing base.”