Water for Profit

California's Central Valley touts itself as the breadbasket of the nation. And while it does produce about $13 billion worth of food every year, that outcome is a secondary effect of an elaborate mechanism for turning privately owned land and water into profits.

In 2005, California’s Central Valley Project, which manages distribution of water from the several rivers flowing west out of the Northern Sierras, renewed its contracts with the rural water districts it serves. The contracts bind the state to deliver cheap, subsidized water to Central Valley farmers for the next 50 years. Rather than account for drought, retirement of exhausted farm acreage, environmental set asides, and urbanization, the contracts give the farmers the same amount of water they were granted in the first round of contracts, signed more than 40 years ago.

Water is measured in acre feet, the amount of water it takes to cover an acre of land in one foot of water. The average urban household uses only about half an acre-foot per year. So about 80 percent of California’s plentiful supply of water currently goes to agriculture. As the state’s cities grow, they have no choice but to buy water from rural users. While Central Valley farmers will pay less than $60 per acre foot under the new contracts, urban water agencies already pay as much as $500 per acre foot. The Metropolitan Water District, which serves the nearly 24 million people who live in the SoCal triangle, has even begun buying options contracts on hundreds of thousands of acre-feet of agricultural water. In order to hedge against shortages during drought years, MWD pays $20 per acre-foot for the right to call in water from Northern California farms. If the spring is dry and they exercise their options, they'll pay another $80-100 per acre-foot to take delivery. If the don't exercise the options, the money goes down the tubes.

Central Valley water districts are dominated by a small number of big growers who have gotten fabulously rich by gaming the system. The Westlands Water District, near Fresno, is one of the most notorious. Using bought political influence, they have secured exclusive contract rights to 260 billion gallons of water per year at pennies on the dollar. That much water is worth half a billion dollars at current prices. Over 50 years, with prices rising due to inflation and population growth, Westlands’ water could be worth $40 billion. Westlands is just one of 251 irrigation districts in the valley.