This story in the AgAlert helps illustrate why individual farmers acting in a water market cannot make the decisions that climate change will require. The article mentions four growers:
Stuller is down to 80 acres of citrus, 1 of 4 wells gives water.
Everett, Terra Bella ID, irrigating 15 acres of 75. Maintaining his valuable lemons and bees.
Unnamed friend of Everett, not farming entire 160 acres.
Unnamed ranch, removing a block (160 acres?) Valencias, which is a real shame ’cause I love Valencias.
It sounds like these guys are making good economic decisions; they are accurately assessing when they can’t afford to farm and keeping the high value crops.
“We can’t justify the cost of the water needed to grow this crop because of the value, so we need to take that expensive ($2,000 an acre-foot) water and grow more valuable crops such as mandarins,” Stuller said. “Growers are taking the citrus that only produces $100 a bin and pushing it out or letting it dry up, to move water to farm mandarins that produce $400 a bin.”
So why not let them work out their future in a water market?
Here are my usual reasons that we are all bored with:
1. The drought we are in now likely represents the coming climate. These guys have no water to sell if they want to do any farming at all. If they do sell, what are they then? Re-entry into farming is difficult. They become notational farmers who have other careers but get a small side income from the little water they sell every year?
2. I want them to farm because I like the small farms on the east side of the Valley. So maybe I am happy because they could buy water in a market. First, from whom? Second, I would rather they just get water for the cost of conveyance because I want them to have secure resilient farms. Third, I don’t want them to have high water costs that force them to grow only high value lemons. I want them to grow a variety of citrus, including Valencias and navels.
The new reason farmers shouldn’t make individual decisions about buying and selling water is that individual farms are on the wrong scale for cheaply moving water:
3. We can’t get a good sense of the proportions in the article. But let’s look at the farm that they gave the numbers for. Everett has kept 20% of in acreage in service. Those 15 acres must now support 75 acres worth of operations and maintenance costs for the infrastructure that delivers water to his farm; district O&M costs on each acre just became four times as expensive. On every farm, the acreage left in production will have to pay for all the costs of farmgate delivery.
For the sake of this argument, let’s say that this drought portends the coming climate and that irrigated acreage will decrease 25%.
Imagine the poor district general manager looking at his district map, with dry quarter-sections on every separate parcel. (Grant that good rational farmers have all made smart decisions at the farm level.) The district manager wishes that he too could make the rational decision. If he’s going to lose a quarter of farmed district acreage, why couldn’t it be the south-east lateral? That thing is due for a new pump, always did cost more than the gravity fed ones, the radical environmentalists are talking about a kit fox sighting out that way, and the retiring ditchtender was the only one who could nurse it through a storm anyway.
At the district level, laterals are not all the same. They cost different amounts to maintain and operate. Abandoning the low value ones first is the best way to keep a district solvent. Keeping the entire infrastructure to service much less irrigated acreage will make O&M that much more expensive per acre. Optimizing that is a decision that (smart, rational) individual farmers cannot make, because it involves more than the property they control.
The same concept scales up. If a great deal of acreage is going to go out of production (as I predict) the decisions about what to consolidate, what infrastructure has the most value, what acreage could serve other purposes like power generation or re-naturalization, should be made at the project level. Even in a market, even with perfect information, even with economically rational decision-making, individual farmers responding on their own farms are at the wrong scale to make those decisions. Lots of tiny, scattered, widely distributed retired acreage will become a burden.
On the public record 
There’s also “The Twisty Logic Of The Drought: Grow Thirsty Crops To Dig Deeper Wells” to be taken into account, complicated by it not being one big aquifer as stated in the intro.
I suspect part of the reason why farmers dig deep wells now is that they see themselves as likely advantaged as ground water begins to be regulated.
Also, last night I caught a rebroadcast of a Climate One program I had missed the first time around (recorded in June AFAICT), “Almonds and Lawns,” featuring Felicia Marcus, Paul Wenger, Ellen Hanak and Marguerite Young (EBMUD board member) director). I wasn’t real impressed, although fair to say much of the problem was with the host (Greg Dalton) (Apparently he, Marcus and Wenger are ruminants, so what more than cud-chewing could we expect ?) Anyway, this is what passes for acceptable discourse in the fourth year of the drought.
Based on a point Wenger made, what will be the impact of significant numbers of bankruptcies in a fifth drought year? To minimize their losses, will mortgage-holders be motivated to require new operators to drill even more?
Notice that while Young was aware of Lisa Sloan’s early work, it had yet to occur to her that if the new normal is 30% less surface water then the new drought years will be something else again. Also, good luck to her with that wetter future.
Finally, I wanted to highlight this exchange in which Wenger canceled some physics and Marcus agreed with him (apparently, although perhaps that was sarcasm):
“Greg Dalton: Paul Wenger, recycling water in agriculture, is that happening? Think of all those flooded fields, flooded irrigation out there.
“Paul Wenger: Yes, that’s recycling because it goes to the system; those molecules of water don’t go anywhere. In fact, we’ve conserved our way into this problem and where in the past we had a lot of our sandy loam soils. University of California would even tell you that on a Hanford sandy loam, if you flood or irrigate, 30% to 40% of that water is used by your tree, if it’s a treeless, if it’s a corn plant or an alfalfa plant. Once it’s below the red zone, it’s in the bank. It’s in the soil profile and it’s sitting there waiting for rainfall or other things. It’s not going to be there for the sun to evaporate it, it’s sitting there. It doesn’t go anywhere. Those water molecules are filling that soil profile.
“What we’ve done today is we have spoon-fed through micro-irrigation which is good to help us conserve, but I haven’t seen anybody conserve their way to plenty. We have to talk about the dialogue. The dialogue has to go to 39 million people in the state of California are surviving on water infrastructure designed for 18 million people. And so we can conserve our way through dry times, we’ve done it before. But a lot of folks say, “Oh, when you flood irrigate a field, you’re losing that water.” I’m banking that water in the ground. That’s where the groundwater comes from for wells and so we are recycling.
“Like, I like to tell folks that were in the valley, we live on it and we have a well. And so on the septic system so we pull the water up, we drink it, we flush the toilet, we do the shower, it goes to the leach line, it goes down. My kids live a mile to the west of me, they pick it back up in their pump [Laughter]. They shower on it. They drink it. They flush the toilet.
“Greg Dalton: It’s kind of inheritance of sorts like that.
“Felicia Marcus: There’s this magic touch of nature somehow in between.
“Paul Wenger: But it works. It goes to the soil profile.
“Felicia Marcus: Yeah, soil.
“Paul Wenger: And that water recycles and is completely being reused.”
Re the rapidly melting Arctic, likely the cause of the surprisingly quick drying of California’s climate, this article by glaciologist Jason Box is enlightening. He mainly discusses the way the ground has been shifting beneath ice sheet models, but the same applies to global models.