Economic Analysis of the 2014 Drought for California Agriculture

California is enduring its third driest year on record as agricultural, urban and environmental demands for water are at an all-time high. This report presents an assessment of the economic impacts of the 2014 drought on crop production, livestock and dairies using a suite of models. 

This analysis extends the preliminary estimates of the Central Valley drought impacts released May 19, 2014 (Howitt et al. 2014) to include: 

•Broadened coverage of the Statewide Agricultural Production Model (SWAP) to include majoragricultural areas on California’s central and south coasts and inland farms of the Imperial,Coachella and Palo Verde valleys,

•Updated SWAP agricultural production and economic impact estimates for the Central Valleyusing the most current data available,

•Estimated Central Valley impacts if the drought persists through 2015 and 2016, includingeconomic effects and the impact of increasing groundwater depletion and pumping depths usingthe California Department of Water Resources’ (DWR) C2VSIM model,

•Estimated fallowing of cropland due to drought using the SWAP model,

•Estimated losses to dairies and livestock using a supply elasticity approach based on pasturelosses and feed crop prices, and

•Comments on the preliminary draft from various state agencies.

The study finds that the 2014 drought will result in a 6.6 million acre-foot reduction in surface water available to agriculture. This loss of surface water will be partially replaced by increasing groundwater pumping by 5 million acre-feet. 

The resulting net water shortage of 1.6 million acre-feet will cause losses of $810 million in crop revenue and $203 million in dairy and other livestock value, plus additional groundwater pumping costs of $454 million. These direct costs to agriculture total $1.5 billion. The total statewide economic cost of the 2014 drought is $2.2 billion, with a total loss of 17,100 seasonal and part-time jobs. Table ES-1 summarizes the key findings of the study.