A close look at water markets in practice.

The Atlantic is running Lustgarten’s detailed piece on a hedge fund manager brokering water sales.  I appreciated getting a specific example of the phenomenon that I described here.  I wrote that individual farmers acting independently in a market are the wrong scale to be making water use decisions.  Water infrastructure needs a support base.  Individual farmers selling water away will crash their whole district.

Orville Tomky … tried to resist as the pressure mounted. “My wife every night at supper would say, ‘When are we going to sell the rest of that Twin Lakes water so we can have a lot more money?’ ” he told me. One night he divided up the water rights, giving 20 shares to each of his four children, five shares to each of his five grandchildren, and 30 shares to his wife. Selling the shares put some of the kids through graduate school, gave them down payments for their own homes, and paid for a family ski lodge in the mountains.

Eventually, though, Crowley County passed a point of no return. With so much water gone, the empty irrigation ditches didn’t work; one lonely farmer at the end of the run would see all his water soaked up by the soil long before it ever reached his farm. And with fewer and fewer farmers around to share the expense of maintaining the ditch systems, the cost kept rising. Farmers had little choice but to sell, and all but 11 in the county did. The place literally dried up.

Market advocates say that the market is less coercive than a guvmint Stalin, but in practice, farmers felt plenty coerced.

An intentional program of reallocating water could be based on social criteria.  It could protect small towns, choosing instead to close the farms of the 1%.  It could choose to protect acreage that grows truck crops for Californian consumption instead of luxury food exports.  It could decide based on the engineering elegance of the irrigation district infrastructure.  It could choose based on the potential for retired land to become wildlife habitat.  A state that foresees decreased water supplies from climate change and publicly decides what it values could prevent shit like this:

Kneeling in his driveway changing a truck tire last summer, Tomky’s son-in-law Matt Heimerich recalled what the town had lost. Though tens of millions of dollars in water rights were sold, few of the proceeds were reinvested in the community, he said. One by one, families moved away. The tomato and sugar factories shut down, and without goods to ship, the railroad stopped sending trains through town. Ordway’s car dealerships closed, and the tractor store went bankrupt. As though someone had pulled a bottom block out from a Jenga tower, Crowley County fell into an inexorable collapse.

“I couldn’t have eaten enough Prozac,” Heimerich said.

One could view Crowley’s loss as an inevitable part of the larger downturn in American farming—and a justifiable reallocation of resources. Crowley County was itself diverting water from the Colorado River system, after all, under a legal system that encouraged waste. But the people still living in Crowley point to the green fields in adjacent counties, and say the water sales killed their towns. Of the 60,000 acres once farmed there, about 4,000 produce crops today. Ordway’s Main Street is a procession of boarded-up buildings.

It may be that Crowley’s loss is the least-harmful choice.  But making a choice and planning for transition for the town would be kinder than letting individuals twist in the market.

I have said that climate change will force the retirement of about three million acres of ag land by mid-century.  I would like to emphasize that retiring three million acres of Californian irrigated ag is not my policy preference.  It is my prediction.  My policy preferences are all about how that land will go out of production.  We should choose the ag we want to protect and support, including with water.


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7 responses to “A close look at water markets in practice.

  1. Curt Sanders

    Excellent Vlad the Impaler! You are all over it. Totally concur with your policy preference. The Big hurdle to the process of wise farm water allocation is of course that 1%. Those are the Big political contributors. Those are the jerks growing Almonds and shipping 2/3rds of the 2+ billion pound crop to Asia. In effect shipping well over 500 billion gallons of precious CA water overseas…! Crony Capitalism at its worst.

  2. Yes, you were out in front of the Atlantic, good for you.

    Vladama, have you heard of TC Cummings? He’s a corporate culture expert speaker and trainer. I think you’d like him. You’re both optimists and envision change for the better. You should add your email to his weekly motivational hints. He’s all about being proactive. You could anonymously post his stuff around the office. And if you’re not too busy, could you please infiltrate the DWP and IRS while you’re at it?

    Sent from my Fire

  3. jrfleck

    This is why what’s being done in Palo Verde and Imperial are important alternative examples of how this might be done. I think they are a lot closer to what you are calling for. There’s been a lot of at times unpleasant pushing and shoving over what sort of values are to be respected and preserved as some water moves away, and the questions of who’s empowered in the decisions are murky, and the results look nothing like a traditional “market”. But some water has been moved, lots has stayed in farming, some has been shifted to meet environmental values, and the crop mix has shifted in really interesting ways.

  4. Anonymous

    Interesting take on commoditizing water. You may want to take a gander at something similar “How Goldman Sachs Created the Food Crisis” and it has to do with commoditizing grains by Wall street http://foreignpolicy.com/2011/04/27/how-goldman-sachs-created-the-food-crisis/ Would be curious to know if water trading would go as far as being “managed” by the few or Wall Street.

  5. pacific flyway

    Which is worse, the 1% on farms or the 1% on Wall Street? The Atlantic article presents how billionaire investors beat the bushes for water & land deals from hard scrabble farmers made desperate by regulatory over reach. The 1% donor class make tax-deductible donations to non-profit environmental organizations to employ armies of tax-deductible environmental lawyers to exploit the nuances of the Endangered Species Act to their advantage. The investment model is to seize control over the water, then raise prices and sell it; crash land values, buy it, raise prices and then hold it, lease it or re-sell it. The hedge-fund investor called this helping people.

  6. onthepublicrecord

    made desperate by regulatory over reach

    The water broker attributed people’s willingness to sell to “Debt, death, and divorce”. Even environmental regulations don’t generally reach that far.

  7. A comment or two on Crowley, where I did my thesis research…

    Yes, farmers felt plenty coerced. Many of them were also misled- the water was bought by intermediaries who claimed they wanted to grow Christmas trees and the like, but the water and the investment would stay in their community. At this time, the ditch bylaws didn’t permit transferring water off the ditch. Once the brokers got 51% they unilaterally changed the bylaws and sold the water on to the cities, and people at the end of the ditch stopped getting their water. Soon almost everyone had sold.

    Furthermore, it should be noted that farmers in the Lower Arkansas basin try to sell their water all the time without being coerced. They want to retire or send their kids to college, and every single farmer who abhors buy-and-dry, and wants to set up a lease-fallowing alternative (which I’m surprised Lustgarten didn’t mention; every other reporter going down there has) will fight you to the death to protect their ability to sell out if times get tough.