Water subsidies are ‘ancient history’

Water subsidies are ‘ancient history’

This is Part 4 of a series

Cadillac desert book cover

Prior articles in this series showed there are no real water subsidies. But if there are no real water subsidies to farmers from taxpayers, what about all those crop subsidies?

According to Mark Borba, owner of Borba Farms in Monterey County, “The days of being paid to not produce crops are gone” due to the worldwide agricultural market.  Borba said farm subsidies for corn, wheat, soybeans, rice and cotton are “ancient history.”

The farm income stabilization subsidies reported in the popular book “Cadillac Desert” by Marc Reisner no longer exist due to the globalization of agricultural markets. The book came out in 1993 and the entire situation has changed in the subsequent 21 years.

Moreover, due to globalization, the 2013 Federal Farm Bill shifted from crop subsidies to crop insurance.

Cheap water offset by high land values

There is also the misconception that California’s water system would allocate water better during droughts if it weren’t for water and crop subsidies.  But as the University of California, Davis Center for Watershed Sciences pointed out, any advantage of cheap water is paid for by higher agricultural land values.

Also, eliminating cheap water priced at cost rather than marked-to-market would collapse agricultural land values, resulting in a calamitous drop in the property tax base in many rural counties. That would lead to lower tax collections for state and local governments, in turn leading to calls for tax increases on incomes and sales.

Paying for water with power

Using cheap electricity to lower the cost of water goes back to 1909 with the Roosevelt Dam near Phoenix, Ariz. One of the reasons the Salt River Project along the Colorado River in Arizona can provide water at an ultra-cheap price of $14 per acre-foot to farmers is that hydropower sales offset the cost to operate the water system.  However, such a system a does not subsidize farmers at the expense of residential electricity customers.

The city of Phoenix can also buy this cheap, raw water. It then treats the water and resells it to residential customers for about $867 to $1,377 per acre-foot. The added cost includes the price of treating and disinfecting the water for domestic use.

Critics say cheap water encourages waste. But the price of water cannot be equalized for all users without destroying property and water rights, land values and entire industries.

As the Salt River Project shows, cheap water isn’t subsidized water. The reality: Taxpayers don’t pay water subsidies to farmers in Arizona or California.

This is Part 4 of a series. Part 1 was on how drought-water pricing violates Proposition 218’s ban on tax increases without a vote of the people. Part 2 was on fact-checking water pricing. Part 3 was on fact-checking water price subsidies.

3 comments

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  1. Bill Gore
    Bill Gore 1 October, 2014, 21:44

    A good point, and ‘yes and no’ in terms of your broad conclusion at the end.
    While cities and farmers that utilize the SRP canal system may not be getting a taxpayer subsidy due to SRP’s electricity sales, the users who benefit from water delivered via the Central Arizona Project (CAP) have, to my knowledge, received a federal subsidy in that the CAP was built with federal dollars, and the water allocation and transmission to the CAP from the Colorado River is administered by federal agencies. The CAP was Barry Goldwater’s ‘love child’ with Dennis Deconcini…The CAP benefits farmers, indian reservations and communities from south of Phoenix to Tucson.

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  2. Hank
    Hank 3 October, 2014, 09:21

    The value of farmland would only come into play if it was sold. The property tax of that land is the thing not to be disturbed. I am curious, does the the property tax bill decrease if the land is out of production? I would think it may if it was the result of a declared disaster. I’m not against it just asking.

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  3. Clay Campaigne
    Clay Campaigne 12 April, 2015, 11:52

    “There is also the misconception that California’s water system would allocate water better during droughts if it weren’t for water and crop subsidies. But as the University of California, Davis Center for Watershed Sciences pointed out, any advantage of cheap water is paid for by higher agricultural land values.”
    This doesn’t follow. It’s the price of the water itself that determines how much water is used. The land cost is a fixed expense, and has no effect on that quantity decision. To take an extreme case, if the price of the farmland is high but water is free, then the farmers’s best decision is to use water as freely as possible, once he owns the land.
    Farmers could indeed suffer if prices rise, if their needs are not covered by long-term contracts. If so, perhaps they should be compensated. Just not via an implicit subsidy that encourages inefficient water use.
    You talk about the calamitous effects of land value collapse: we should also consider what will happen in the event that there is insufficient water. A municipality bailout would probably be preferable to just running out of water, exhausting aquifers, and rendering some of them un-rechargeable.

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