From Farms to Cities

One of the few water transfer programs that both sides declare "win win" is a land-fallowing/water transfer between the Metropolitan Water District (MWD, the subject of my PhD dissertation) and Palo Verde Irrigation District (PVID). The program began with MWD offering upfront money (about $3000/acre, I think) for land enrolled in the land-fallowing program; 97% of land was enrolled. The program specified that MWD could ask farmers to fallow their land and sell the unused water to MWD in exchange for additional, annual payments ($145/AF, according the number below).

Given the precarious state of water supply in SoCal, MWD initiated fallowing sooner than some people expected:

Starting this summer, farmers in the Palo Verde Valley along the Colorado River will forgo planting crops on nearly 26,000 acres, the most land yet under a little-known fallowing agreement with Metropolitan Water District. The pact will double the amount now being sent to MWD and its 18 million urban customers.

In exchange, MWD will pay the farmers $16.8 million each year for 115,000 acre-feet of water -- almost 37.5 billion gallons. That's on top of startup fees the district has already paid the farmers, making it more costly than the water the district traditionally relies on from the Colorado River and the Sacramento Delta.

MWD's request to ramp the program to 100 percent comes at the three-year mark of a 35-year transfer deal between the valley's farmers and the water district. The district can request the maximum amount of water for only 10 of the 35 years, officials said.

"I don't think anyone anticipated that it would come this quickly," said Bart Fisher, a third-generation valley farmer who has fallowed some of his crops. "I don't think anyone had an inkling that this drought would be so sustained and such a deep drought at the same time."

Fisher, who helped negotiate the transfer deal, said it was expected back then that the full allocation wouldn't be requested until 2015. The ramp-up will leave 29 percent of the valley fallowed.

"I think we'd all rather be farming the land, but a deal is a deal, and we're all being fairly compensated," he said.

Under the program, MWD has to give a year's notice before requesting more water from the valley's farmers. It gave that notice last August, when a federal judge ruled that supplies from the Sacramento Delta that flow to Southern California would be decreased by about 30 percent to protect a threatened fish, said Jeff Kightlinger, MWD's general manager.

The request for additional supplies from Palo Verde can last for as long as two years, Kightlinger said.

"It's not willy-nilly," Smith said. "The farmers know well in advance and can do their management accordingly."

I was told by MWD that this program is not just win-win, but win-win-win, i.e., other people in the area are also happy with the program -- avoiding the dreaded "third party impact"/Owens Valley phenomenon of water transfers that destroy communities -- because the farmers used the up-front money to buys lots of stuff locally.

Let's see how fallowing 29% of the land works after the honeymoon of those up-front payments wears off. In (economic) theory, it should do well. Farmers will be using fewer local inputs (labor, seed, etc) but will still have money to spend. (It's probable that they will make a larger profit farming water.) I guess that PVID will see more people eating out and less casual laborers.

Bottom Line: Water trades affect more than the buyer and the seller, but the immense gains from trade (difference in value of water between farms and cities) make them very attractive. The PVID deal may be the shape of things to come.