Big Ag sells to Big Urban


Editor's note: David Zetland, a water economist at the University of California, Berkeley offers an insider's perspective into water politics and economics. We will be cross-posting occasional posts and content from his blog, Aguanomics, here on the Range.

I've been participating in an email discussion about Westland's plan to sell 50-100,000 acre feet of water to Metropolitan Water District (Spreck broke the news; this article gives more background).

This ag-to-urban, central-to-southern California sale upsets enviros. Why?

  1. Westlands Water District has been making A HUGE FUSS about how it needs MORE water. How is it possible now that they can be selling water? (Short answer is that WWD has to sell it, to avoid losing it from storage; the long answer is that WWD will eventually sell ALL of its water to SoCal urban buyers. No, it's NOT about the workers, food or community. It's about MONEY.)
  2. MWD's water has driven SoCal sprawl, and more water means more lawns at MWD and more sprawl into new housing developments.
  3. Some enviros just dislike WWD (and other irrigators using imported surface water); they want it shut down and its water left in the environment/Delta.

I am not upset about these "business facts" (or even anti-ag emotions), especially when water is going from willing sellers to willing buyers, for beneficial use.

OTOH, I am not happy about this (prospective) sale:

  1. WWD water is subsidized.That means that price may be too low and profits come out of our pockets.
  2. A backroom sale does not allow others to bid. That's not good from a social perspective.
  3. Feinstein and other politicians are writing special rules, changing the definition of water rights to make them worth more cash -- and more water -- when we have already overallocated our water supplies. These special interest giveaways merely rob The Public a second time.

My suggestion? WWD auction its "surplus" water to the highest bidder and use the revenue to repay the money it spent to acquire it.* The remaining money should stay at WWD, as a reward for its special relationship with DiFi and others. (I don't like those special interest/lobbying rents, but I don't think they should be taken away. We need politicians who are brave enough to change the policies that produce these rents. Anyone?)

Bottom Line: Water trading is good, as long as the good for sale is clearly owned and the price reflects its real cost.
* It's interesting that they are talking about a water swap -- 3 af today for 2 af in the future -- instead of a cash sale. The swap makes sense for three reasons: (1) They do not want to haggle over price (except that "net af" of water), (2) they do not want the public to know how valuable the water is if it WAS priced, and (3) they do not want to worry about cash flows. OTOH, the swap creates a long term relationship (good!), but also creates uncertainty. Will MWD be able to return the water in the future? What if it's dry for 5 years and MWD needs the water for toilets, showers and lawns?

Tom Birmingham wrote me an email on this post, and I am waiting for him to let me post it as a comment. Until then, the gist of his comment is that this is a swap, not a sale, and that MWD has the storage space to let it happen. I replied that this swap seems a poor substitute for a market (in which WWD and MWD would be able to buy and sell when and if they wanted), but a necessary substitute given the current distribution of water rights -- a distribution that favors WWD and MWD over other water users.

Originally posted at Aguanomics.


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