Memo To California: If You’ve A Shortage Of Something Then Change The Price – Forbes

I agree with the article that the most efficient mechanism to deal with scare resources is via price. I also like the idea of ensuring the poor still have access to a reasonable amount of water: a fixed price baseline low-cost allocation then a per-unit fee for anything above that.

I am not a farmer but the notion of higher water prices shifting growers away from water intensive crops to less water intensive makes sense. Living in the state capitol, I can’t help but think agriculture lobbyists are hard at work keeping the cost of water down so farmers don’t have to make any adjustments (and maximize their profit). Can lobbyists reeducate and retool themselves to become crop and water use optimization consultants? Or, will thy just focus energy on maintaining the inefficient status quo?

http://www.forbes.com/sites/timworstall/2015/04/05/memo-to-california-if-youve-a-shortage-of-something-then-change-the-price/

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2 thoughts on “Memo To California: If You’ve A Shortage Of Something Then Change The Price – Forbes

  1. This is how I am currently (and have been) billed for water in California; a flat base rate for a certain level of consumption with a per-unit rate beyond that level. A California law passed in 2004 mandated that water meters be installed on all Californian homes by 2025. To date, most areas have complied, one of the few exceptions is the city of Sacramento. A few years ago, the water company that services my home finally installed a water meter; I live in Sacramento County. Before this concept could be fully applied, all homes, and businesses, have to be on water meters.

    Residential and business water use in California accounts for about 20% of total state water usage. Agriculture accounts for a whopping 80%. With this new mandate for a 25% reduction in total state water usage, it is impossible that residents and businesses could solely meet that mandate. Obviously business and residential water users can reduce their usage, but the lion’s share will have to come from agriculture.

    Unfortunately, a rate based water pricing scheme without regard for the type of agriculture is too simplistic and flawed. Crops that are planted new every year, or can be easily established, should have sharper rates than tree based crops. For example, almond trees don’t begin producing until their 4th or 5th year, therefore it is not a tree that can be easily reestablished. Not watering trees for a year or two will usually mean the death of the tree, or at the very least, the inability for it to resume producing. Almond trees seem to be singled out because of their high water demand. Almond growers don’t have much choice of how much to water their trees; they either water them and the trees produce, or they don’t and the trees die. If the trees die, then the almond growers are essentially put out of business. California produces 82% of the world’s almonds. Almonds are grown in California because of the Mediterranean type climate. As the price of almonds rises, more farmers abandon other crop types to grow almonds. Water reductions imposed on almond farmers, or other tree based crops, should NOT be at the same rates as annual crops.

    The water for tree farmers should be metered, but at a different rate that is realistic for their types of crops which will prevent them from expanding their crops, but will not destroy their existing trees. Precedence should be given to farmers who have established trees and those who are just switching to almond production should be restricted.

    Perhaps, only that which is required for use in California and the United States should be produced, and beyond that, water should be severely restricted. For example, 70% – 80% of California’s almonds are exported to the world abroad. Perhaps raising the price of exported almonds could cover the cost of higher water prices enabling continuous almond production. Such protectionist policies are not realistic, so the price of almonds locally would likely rise dramatically as well.

    While price rates will work to reduce residential and business consumption, those reductions will not meet the 25% goal set by the governor. Simple price rate schemes will not efficiently deter water agricultural water usage. I would imagine that agribusiness is not excited about the prospect of higher water prices or reductions, especially as they use 80% of the states yearly water usage.

    • Thank you for the farming education. Us city boys wouldn’t know an almond tree if it were in front of us. You made very good points. Residents and businesses can’t bear the entire burden of the 25% cut since they account for only 20% of the total water use. And of course, making agriculture bear the full burden will cost jobs and tax dollars (presuming those agriculture businesses are not dodging taxes right now anyway).

      You mentioned almonds are grown in California due to the Mediterranean like climate. Is is still true that our climate is Mediterranean like? If not, maybe we don’t need to grow so many almonds here. Maybe we don’t need to force it. Maybe over-planting of almond trees to generate more profit actually impacted the climate.

      I do believe in Occam’s Razor (keep it simple). Flat fee plus per-unit charge afterwards is a simple way. Perhaps the “minor” complication really isn’t a complication: have different flat fees for different use models (residential, business, tree-based, plant-based, etc.). I would only adjust the per-unit price if we are talking about different “types” of water. I.e., is the water reaching our faucets for drinking different (more filtered) than the water reaching the almond tree?

      Whatever the solution there must be shared sacrifice. My concern is that agribusiness has an army of lobbyists to ensure the bear as little of the burden as possible. We, the people, must do what we can to ensure agribusiness bears their fair share of the burden. Now just what is fair? 🙂

      -Dr. Moore

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