If you build for the peak, most of the time you’ll have excess capacity.

Saw this in Matt Weiser’s story on farms getting surplus water this year:

The abundant water has dramatically changed the fortunes of the San Joaquin Valley farm economy.

Shawn Coburn, a farmer near Firebaugh, planted processing tomatoes this year on 500 acres that had been fallowed the last two years due to water shortages.

This will yield about 40,000 tons of a relatively high-value crop, which also required a substantial investment on his part, including the purchase of a new tractor and harvesting equipment.

“In essence, it’s another $2 million that I’m going to spend (on equipment) that I wouldn’t spend if I didn’t have the water,” said Coburn, who also grows almonds and wine grapes. “It’s definitely a year where it’s pretty easy to convince us that water equals prosperity, and not just for the farmer but the overall farm economy.”

I’m sure that’s what Mr. Coburn said, but I don’t think it is true. I suspect Mr. Coburn said that to the nice reporter to help bolster the argument that more water equals more economic activity in the San Joaquin Valley. Maybe he needed a new tractor and harvester this year anyway, and the tomatoes helped. But if Mr. Coburn bought a new tractor and harvester to support his most marginal 500 acres of land, he is so fucking stupid he deserves to lose his farm. Mr. Coburn knows from the past two years that he doesn’t get water for that acreage every year. How many wet years does he need to amortize $2M worth of equipment on 500 acres? Right now he’s burdened those 500 acres with $4,000 per acre worth of machinery, because in the wettest year in recent memory, he got some surplus water? I’d worry about that grower, except that I don’t believe the explanation he gave. It was just a political talking point.

This is the danger of setting the expectation that the San Joaquin Valley’s economy should be size it is in freakishly wet years. Most years won’t be freakishly wet, and in the average and dry years, there isn’t water for those 500 acres. Growers shouldn’t buy machinery for them; picking in those fields gives an occasional extra jobs, not reliable ones every year. It it great for farmers and farmworkers to get the occasional boost of a very wet year. But that year doesn’t instantly peg the new baseline, compared to which everything is an economic contraction.

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2 responses to “If you build for the peak, most of the time you’ll have excess capacity.

  1. db

    Great point.

    The notion that it’s a talking point seems plausible given that Coburn is a bit more media-savvy (or at least media-present) than your average farmer (e.g. KVIE panelist http://www.kvie.org/programs/kvie/viewfinder/debatingthedelta/default.htm, interviewed by the AP at least a few times durin 2009-2010)

  2. > Right now he’s burdened those 500 acres with $4,000 per acre worth of machinery, because in the wettest year in recent memory, he got some surplus water?

    *Burdened*? If you make the reasonable assumption and believe him when he says he needed the new equipment to farm those 500 acres, then they’ve already paid for themselves if they yielded 40,000 tons.

    2009 saw prices of $80 a ton for growers, and 2010 dropped to $60 (http://www.cfbf.com/agalert/AgAlertStory.cfm?ID=1475&ck=571D3A9420BFD9219F65B643D0003BF4). Even at $60 a ton, that’s $480k excess (60*40,000 – 2,000,000=480,000).

    Did he make an actual profit? I dunno without knowing the variables like the actual 2011 price he gets or the value of the non-machinery inputs like labor, but I think you are unduly harsh when you say the purchase is prima facie idiotic.