CoBank publishes new report on economic impact of California's drought
The Knowledge Exchange Division of CoBank, a cooperative bank serving vital industries across rural America, recently released a new report on California's severe drought and its economic impact on the state's important agriculture sector.
DENVER, CO, June 24, 2015 -- The Knowledge Exchange Division of CoBank, a cooperative bank serving vital industries across rural America, recently released a new report on California's severe drought and its economic impact on the state's important agriculture sector.
The report, titled "California Drought in 2015 and its Economic Impact on Agriculture," explores the drought's impact on all the major growing regions of California, a commodity-specific outlook as well as the challenges associated with an increased reliance on groundwater for agricultural purposes.
CoBank economist Dan Kowalski explained that while the drought, now in its fourth year, is challenging all sectors of the agriculture industry, many producers will be able survive the 2015 growing season without severe financial impairment to their operations.
"Despite the continuing difficulties and challenges, California's agricultural industry will continue to adapt to reduced water allocations for as long as necessary and will find better ways to produce the crops and products that consumers demand," said Kowalski.
Key findings from the report include:
- The damages wrought by the drought in 2015 will be worse than those in the previous year, but not catastrophic. With each successive year of drought, the underground water tables decline further, boosting the cost of pumping groundwater to the surface and increasing the likelihood of well failure.
- Not all commodities will be impacted equally. Those yielding the highest returns on investment will be affected least by the drought because growers will redirect the limited water supply to these plants and away from those yielding the lowest returns. California's highest yielding crops are its permanent plantings, including nuts, citrus and other tree fruits, and vine-grown fruits and vegetables.
- Growers will again fallow some of their land and redirect the water that would have been used to irrigate those acres toward more profitable crops grown in other fields. They are expected to fallow up to 600,000 acres this year, about 6-7 percent of total irrigated acreage and 30 percent more than they fallowed in 2014. The resulting losses in revenue will fall most heavily on field crops such as corn, wheat, cotton, rice, hay, pasture, and beans.
- Agriculture lenders will experience some deterioration in the credit quality of their California-based borrowers, but it will be modest in scope. The borrowers connected with the permanent-plantings will be least affected, whereas those connected with field crops and dairy production will bear the brunt of the continuing drought.
CoBank's Knowledge Exchange Division is a knowledge-sharing practice that provides strategic insights regarding the key industries served by CoBank. Knowledge Exchange draws upon the internal expertise of CoBank, deep knowledge within the Farm Credit System and boots-on-the-ground intelligence from customers and other stakeholders to enhance the collective understanding of emerging business opportunities and risks.