Economic Analysis of the 2016 California Drought on Agriculture

Persistent dry conditions over the past few years have put California’s irrigated agriculture under severe water stress. Improved precipitation during the winter and spring of 2016, and favorable market conditions, among other factors, have improved prospects for agriculture in 2016. However, water supply restrictions for temperature, endangered species, and salinity management continue to challenge some farming regions.

We present an analysis of the economic impact of the 2016 drought on California’s agriculture. The analysis relies on a suite of models and data to estimate responses to water scarcity. The Statewide Agricultural Production Model (SWAP, Howitt et al. 2012) is calibrated to average year water conditions and used to simulate the response of agriculture to changes in water availability. SWAP model output is linked to the IMPLAN input­output model and used to estimate changes in gross revenues, employment, and value added across all related sectors ofthe economy.

The report is structured as follows. First, we summarize 2016 water supply conditions for agriculture. Next, we present the results of an economic analysis of impacts to agriculture using the SWAP model, and impacts to ancillary industries using the IMPLAN model. We conclude with a discussion of policy implications, limitations, and future analyses. Several appendices provide further details on groundwater availability and cost, land fallowing, consumptive use, livestock and dairies, employment, and regional economic impacts.