California’s Groundwater: A Political Economy John Ferejohn NYU Law February 2017 1 Table of Contents Introduction 3 1. Nuts 8 2. Groundwater 11 3. From Political Economy to Industrial Organization 19 4. Early History 24 5. Water Law: Courts v. Legislature 30 6. Groundwater Regulation 43 7. Federal and State Water Projects 52 8. Environmental Revolution 73 9. Drought 87 10. Political Opportunities 100 2 “...Annie Cooper was looking outside her kitchen window at another orchard of nuts going into the ground. This one was being planted right across the street. Before the trees even arrived, the big grower – no one from around here seems to know his name – turned on the pump to test his new deep well, and it was at that precise moment, Annie says, when the water in his plowed field gushed like flood time, that the Coopers’ house went dry.”1 Introduction Many suppose that Annie Cooper’s story is emblematic of California’s water problem. Often the culprit is named – almonds, pistachios, walnuts – each of which is very profitable to farm in California and is water hungry. It is true that California Almond growers supply 80% of the worldwide supply despite severe drought conditions in recent years. In 2015 a story in the Sacramento Bee reported that “the amount of California farmland devoted to almonds has nearly doubled over the past 20 years, to more than 900,000 acres.” Similar increases have been experienced by other nut crops (pistachios, walnuts, etc). There is no question therefore that there has been an immense change Central Valley agriculture. The relative growth of orchard crops (compared with field crops) can be seen below. And, as we shall see, there is little question that this shift has caused wells to be drilled deeper and water tables to decline with the host of other bad consequences. 1 https://stories.californiasunday.com/2015-01-04/disappearing-water-at-fairmead/ 3 The example is both dramatic and plausible but are nuts really the problem? Tree nuts are not really new in the valley and are no more thirsty than other orchard crops (peaches, apricots, nectarines, cherries) which flourish the Central Valley. And plunging groundwater tables are not new either: the rapid expansion of irrigated acreage in the 1920s and 30s produced the same effect. Indeed, looking back at the chart, what leaps out is a shift from lower to higher value crops. In principle, as water scarcity increases such a shift is a good thing and probably an efficiency gain. One could argue that it would be even better if agriculture were to use less 4 irrigation water overall, allowing that water to be used for even higher value purposes: domestic consumption, manufacture, or habitat preservation or whatever. I do think there is a problem with groundwater but that it is not so much with its causes as with its effects. And the concern is not so much with efficiency as with distribution. Indeed, I suspect that large farms, because they are able to internalize costs and benefits, are likely to promote efficient water use in two ways: the first is aforementioned shift to higher value crops; the second is to shift to water farming (better known as water banking). Water banks permit the storage of water across drought cycles and appear to be a key aspect of more efficient water allocation. One could complain that the big farms get their water too cheaply and will earn unjustified rents for serving as water intermediaries. But that is a distributional complaint as long as the water finds its best use. And it is always true that the public could step in to correct distributional concerns. In any case California’s populist heritage provides ample warning of the need for agribusinesses to keep public opinion onside. Sometimes, for this reason political convenience has led big farms to operate in ways that permitted smaller farmers to flourish as well. The family farm projected a fuzzy mythic glow that provided political cover for bigger and less popular growers. You can read it on billboards up at down highways 5 and 99. And farmers have votes too which were often needed in populist California politics. But as water competition has become more intense the interests of big and small farmers may no longer align and so we may be entering a new era of consolidation. Anyway, what I want to ask in this paper is how it is that California water got to where it is today. As the reader will see, this question led me to focus on agriculture in the southern Central Valley and specifically on groundwater. This is where the critical action has been from the beginning economically, legally, and politically. Southern CV farms have always shaped water law and policy – on the ground, in the courts, in the state and federal legislatures and in direct elections too. Well that is not quite right: the farms and farmers have been somewhat transient players in creating the demand and supply of water. As Karl Marx said, “Men make their own history, but they do not make it as they please…” The more likely causal source is found in the peculiar climactic and hydrological characteristics of the region. The combination of abundant water in an arid and erratic climate has exercised persistent force in favor of 5 especially large integrated firms. While this claim seems simple enough, the path by which the material forces work is more complicated and is, in the end, political. In other words I want to claim that there are political economies of scale in California agriculture. Historians have usually taken a dim view of the rise and persistence of large farms, seeing this as the result of dirty tricks and political shenanigans which undermined the favored family farm. But for those political tricks, the natural course in the region would have been small farms surrounding well populated and thriving villages and towns. This is apparently what Congress intended when enacting Homestead Act and various other statutes giving special preference to small farmers. Instead, we have nearly empty towns throughout the southern CV, mechanized agriculture dependent on transient and undocumented workers and overexploited and polluted groundwater. Historians and journalists can point to some parts of the Valley where their dream seemed to be realized.2 But those were places where, despite the apparent aridity, there was adequate water to use for agricultural purposes and it was already well organized by private adventurers. Donald Pisani notes that the Fresno colonies were established between the San Joaquin and the Kings River which both had relatively large flows throughout the summer. 3 Nothing like this situation existed further South: the Kern often dried up in the southern months. The efforts of private water companies to build canals to water the area – however well financed – always collapsed when their investors finally surrendered. And the large ranches and farms picked up the pieces. The implicit belief is that things could have been otherwise and if they had they would have been better. I don’t see it. The armies of transient labor needed to operate the 2 There were various efforts to organize colonies in various parts of California and some were successful. In the CV the Fresno colonies provide an example. The colonies were promoted by businessmen who subdivided and sold both land and water rights and were populated initially by Europeans. “… the era of expansion swept over the plains of Fresno County and transformed thousands of unproductive acres, that were once "too dry to support a horned toad,” into a countryside rich with vineyards, orchards, and gardens, with a population so varied in respect to nationalities that no country on the globe appeared to lack a representative. Germans, Italians, British, Scandinavians (the Danes were the largest group of the Nordic races represented), Armenians, Portuguese, Russians, Mexicans, Chinese …turned their particular talents into any number of channels. And just as from the original colonies on the eastern seaboard had emanated the incentive to spread, so the pioneer agricultural colonies in Fresno County had been the centers of attraction from which settlers went into the outlying districts, until they had built up one of the most cosmopolitan communities in the state.”): Virginia E. Thickens, “Pioneer Agricultural Colonies of Fresno County,” California Historical Society Quarterly, Vol. 25, No. 2 (Jun., 1946), pp. 175-6. 333 Donald Pisani, Water: Land and Law in the West, Lawrence: University of Kansas Press, 1996. P. 97. For the more hopeful view see Arthur Maass and Raymond Anderson, And the Desert Shall Rejoice, Cambridge: MIT Press, 1978. 6 large farms might have been needed in smaller ones as well. And where labor was replaced by machines the smaller farmer would have had to make the same substitution (if she could) or suffer lost profits. And, as to water, is it really plausible that large numbers of small farmers would be better motivated or able to internalize externalities than larger ones? The brutal fact is that, for all the tumult of its history and turnover of crops and ownership the large farm has persisted. So. I want to tell a historical story. It has many parts but as far as possible I have tried to stage them as chronologically as possible. I will start, however, from the end – with what I take to be Annie Cooper’s complaint. 1. Nuts The distinguishing feature of any orchard crop is that an investment in a tree pays out over several years. Getting that payout requires that trees be watered during drought years or else the investment is lost.