Policy Brief: Drought and California Agriculture



  • California’s agricultural sector – the largest in the country – generates over $50 billion in annual revenue and employs more than 420,000 people.
  • The prolonged drought reduces water availability and increases crop water requirements, taking a toll on agriculture and related sectors.
  • The economic impact of the 2021 drought was modest nationwide but more costly in the Sacramento and North Coast regions. The drought will continue in 2022 and amplify the impact.
  • Addressing the negative effects of pumping, accelerating water demand management, and improving storage would increase agricultural resilience.

California’s agricultural sector is the largest in the country, but water is an issue

The industry employs over 420,000 people and generates annual sales in excess of $50 billion. Farmers have steadily improved productivity and switched to crops that generate more profit and jobs per unit of water — like fruits, nuts, and vegetables — while retaining a sizeable share of the nation’s milk and cattle production.

However, California farms rely heavily on irrigation, and water availability is an ongoing concern despite ongoing improvements in irrigation efficiency. Climatic and regulatory constraints have restricted surface waters in recent decades. Chronic groundwater overpumping has dried up wells and damaged infrastructure, leading to the passage of the Sustainable Groundwater Management Act (SGMA) in 2014.

A fast-moving drought – fueled by climate change – restricts water availability and increases crop water requirements

Climate change is making California’s variable climate even more volatile, with increasingly dramatic swings between wet and dry conditions – or “precipitation whiplash.” At the same time, California, along with much of the West, is experiencing a mega-drought with chronically low rainfall and higher temperatures.

The 2020 and 2021 water years were the second driest biennium since records began in 1895 and the driest since the 1976–77 drought. We estimate that unusually warm temperatures in 2021 — nearly 3.5 degrees Fahrenheit above the 20th-century average — caused an additional 3 to 4 inches of evaporative demand, or an increase in water demand of about 8 percent.

The drought increases costs and reduces agricultural revenues

  • Drought reduced surface water supplies to farms in 2021. Low inventories and water rights restrictions — cuts introduced to protect other users and the environment — reduced on-site supplies. Allocations from the Central Valley Project and the State Water Project fell to zero for some producers. Total surface water supplies for farms in the Central Valley and North Shore decreased by approximately 5.5 million acre-feet (maf) in 2021 (41% below the 2002-16 average).
  • Scarcity of surface water increased groundwater pumping and other production costs. To reduce the effects of the drought, farmers increased pumping by nearly 4.2 maf compared to 2002–16, insufficient to replace all of the surface water lost. Not all farmers have access to groundwater or pumping infrastructure to make up the difference. The net water scarcity was about 1.4 maf – or 6.3 percent of normal water use (see figure below). Production costs rose: higher pumping increased farmers’ energy costs by about $184 million, some farmers bought water from others willing to use less, and animal feed costs also rose.
  • Water scarcity resulted in underutilized land and “deficit irrigation” with economic repercussions. Farmers adapt to water scarcity by leaving some irrigated arable land unplanted, also known as fallow land or fallow land. To minimize loss of revenue, they typically shut down less profitable crops. Farmers regularly lay land fallow for a variety of reasons. We estimate that the total area that lay fallow due to the 2021 drought was 395,000 acres, in addition to land that was already fallow for other reasons, with the majority in the Sacramento Valley. Part of this land has been set aside to sell water to other users.

    To expand available supplies, farmers can also reduce irrigation below crop water needs, known as “deficit irrigation.” Reduced irrigation can decrease crop yields. In the Russian River Basin, where wine grapes are an important crop, yield declines due to drought — combined with crop damage from wildfire smoke — reduced revenue by $148 million (almost 24%). Lost crop revenue and increased pumping costs were estimated at $1.1 billion in affected regions, with about 8,700 full- and part-time jobs lost.

  • Loss of crop income had far-reaching economic effects. Harvest losses do not occur in a vacuum. For example, numerous upstream sectors provide goods and services to agriculture. With that in mind, the economic impact of the drought is estimated at $1.7 billion in lost revenue and 14,600 jobs lost.

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