California Drought Has Some Positives

California's drought has some upsides. It created a water market (sort of like cap and trade) and has led to improved water efficiency like drip irrigation.

http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_id=13237162&subjectID=348924&fsrc=nwl

[Side note: I'd be interested to do more research into the price/cost of water. It's unbelievable that possibly the most valuable resource on the planet is free at any faucet.]

'Before the 1930s this land was desert. Then the federal government built a vast irrigation system. Water from the Sierra Nevada mountains in northern California is pumped out of the Sacramento delta and dumped into a canal that runs 400 miles (640km) through the temperate Central Valley. It is an engineering marvel and an economic boon. In 2006 California’s agricultural output was worth $31 billion, more than any other state. By contrast, worldwide ticket sales for Hollywood’s films in that year amounted to $25 billion.

The trouble is that there is not enough water to go round. Snow levels in the Sierra Nevada mountains are below normal for the third year in a row.

As farmers take land out of production, employment falls and the price of some crops is likely to rise.

But the drought is also forcing changes that will help agriculture in the long run. Farmers like Mr Errotabere have begun to use water more efficiently, dripping it through perforated hoses rather than flooding fields. There is a growing market in water trades between farmers. Most important, the state has set up a water bank. Farmers north of the Sacramento delta, many of whom grow rice, can offer to keep fallow their least productive lands and sell water to cities and needy farmers farther south.

This is no free market. The state sets the price...The market is also crimped by a rule that no more than 20% of farmland in any county may lie fallow.

Yet it is a crucial change. The problem with water in the American West is not that it is too scarce but that it is too cheap. Low, stable prices have encouraged some farmers to waste water and to pour it on low-value crops like rice and alfalfa, while others struggle to sustain valuable almond trees. The water market that is emerging in California helps change that. There is an old saying that water flows towards money. At last it is starting to do so.'