An environmental horticulturalist for UC Cooperative Extension in Los Angeles, Don Hodel, has been getting a lot of press recently criticizing the State Water Board’s urban water restrictions. He advises that the Water Board should have advised targeting changes in watering practices rather than limiting supplies, and claims that urban restrictions were unneeded, implying that agriculture should bear the entire brunt. Unfortunately, he’s made at least two grievous errors in his assessment.
First, Hodel fails to understand that the actual implementation of the reductions is to be done by the local water utilities, not the Water Board. The Board only provided the targets, and the stick if the targets aren’t met. Hodel needs to complain to the utilities if he thinks they aren’t doing their job.
But of course, he’s equally naive about the huge problem of communicating about changing irrigation practices to millions of urban customers across hundreds (yes) of distinct water utilities. Of course, these utilities have been trying to get their customers to improve outdoor watering, but just getting their attention is a big enough problem.
Second, his real agenda is to imply that urban horticulture is more valuable the state’s agricultural industry. Urban agencies have only so much contractual and physical access to water supplies. To not cutback deliveries would require transferring water from farmers. But there’s at least two problems with that, the first being that agricultural water is much more valuable than Hodel imagines and second is that it’s not easy getting the water from northern to southern California.
It turns out that those farmers have been doing an exceptional job at improving their irrigation practices; the problem is that they’ve used that efficiency to increase output rather than to save water. The original proponents of agricultural water efficiency didn’t anticipate this response and the surplus didn’t materialize for urban users or the environment.
And even so, moving water from farm areas and treating it for domestic uses adds substantially to the cost of water. It’s the primary reason why urban water costs well in excess of $2,000 per acre-foot while agricultural water is much less than $500 per acre-foot. Water isn’t a particularly fungible good, and proponents of water transfers as the “solution” ignore this issue (along with the problems of market design and function.)
These types of moments are when I wished that journalists were better informed and able to filter out the uninformed “experts.”
Economics Outside the Cube 
Hope you emailed this blog link to UCLA and the journalist. Anya
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Your post makes excellent points regarding improving water efficiency in California and the role of ag-urban water transfers. There are some other points worth considering also. First, the difficulty in conveying water from northern to southern California is primarily a product of inadequacies in infrastructure, which has both physical and institutional aspects. The SWP and CVP are constrained from diverting more water from the Delta due to environmental regulations and related court orders, and neither DWR nor USBR are sufficiently adept at facilitating transfers, although they have been getting better in recent years.
Second, the politics of ag-urban water transfers remain difficult, despite state legislative policies that support them. In 2015, there was water available in the Sacramento Valley that did not move to buyers in the San Joaquin Valley or urban southern California because of perceptions and political pressures alone. The infrastructure and pricing worked, but politics prevented any transfers from being consummated.
Third, as you note, it is wrong that urban buyers always constitute the highest economic use of water. Much of the ag water that may have been available for transfer in 2015 would have been purchased by other ag operations. Ag-ag transfers achieve the highest economic use in many instances.
Lastly, the “market” for water transfers from northern to central and southern California is obstructed by the strength of several negotiating blocs on both the buying and selling sides. These blocs distort the ability of the ultimate users of water on both the selling and buying sides to reach agreement on transactions. Even if agreement can be reached, other users can use those blocs to prevent transfers from happening, and in that way the blocs represent unofficial regulatory barriers.
I am cautiously hopeful these challenges can be solved, but it won’t be without opposition from a wide range of water users, environmental advocates and politicians. That’s why an economically rational discussion like yours is so valuable.
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Wes, two thoughts. First, the CVP and SWP already combine for at least 10 MAF in permanent long-term water transfers from the Sacramento Valley and east side of the San Joaquin. Whether there’s capacity for additional transfers is a complex question that may not be solvable simply through engineering. And second, I’ve heard from farmers recently that ag-ag transfers disappeared this year as the supplies dried up, not so much due to political pressures. On the other hand, last year saw lots of (expensive) transactions.
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As a direct participant in transfers and negotiations for transfers every year for the past 15 years, I can say that politics was indeed the reason why several transfers did not happen in 2015. There was water available with no regulatory barriers, but it didn’t move because of perception fears. Prices would have been slightly higher in 2015 than in 2014, before the potential sellers pulled out, effectively ending any transfers.
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