By Steven Albrecht
In the Spring 2014 issue of Understanding Investments Journal I wrote about water as an investment. Included in the article was a reference to the looming water shortage that was closing in on several states within the continental United States of which California was the most imminent of incurring a significant shortage. As situations like this turn out, the shortage has occurred sooner than expected and much sooner than the State had planned.
The Governor just inspected the Sierra Nevada snowpack which supplies California with one third of the annual water requirement only to find it at zero. That’s right, zero. This is the worse condition possible and the first time this has happened in 75 years. Neighboring states, Oregon and Washington, are experiencing similar conditions with snowpacks at the lowest level ever.
The drought in California has been building on for several years and estimates ranged from slight shortages for 2015 to a large, catastrophic shortage. Early in 2014 several researchers estimated that to get water tables back to normal, snow fall would need to be near three times normal for five consecutive years. The snow season of 2014-2015 obviously did not cooperate.
The State has instituted mandatory conservation measures because voluntary requests went unheeded in 2014. Previously, the State requested a cutback of water usage close to 20% but, did not get their wish. Now they are mandating all towns reach a 25% usage reduction through various measures. Some of the efforts to reduce water consumption include replacing 50 million square feet of lawn with low water vegetation plants. Other efforts include greater use of grey water and no watering of roadway medians and exit ramp shrubs. Resident lawnwatering is limited to two days with severe fines being imposed for violators.
The economic impact on the State will most likely be limited to specific industries such as agriculture and fishing. For example, the most recent salmon spawning season experienced a 95% mortality rate which should result, unfortunately, in higher prices in the stores for salmon. Farming has already made decisions regarding citrus, almonds and grapes. Lower available supply for all three is expected and market prices for oranges, grapefruit and other fruit will see marketplace increases. Farmers had to make a decision earlier in the season over water for grapes or almonds. Since almond trees take up to 10 years to mature enough to contribute to production, almond trees were the winners. Even with this selection process we expect higher prices in both nuts and wine.
The drought will be with us for some time to come and estimates have looked out five years and beyond. Even though California experienced similar conditions in the late ‘70s, the problem is greater now as the population is much higher and there has been a sizable increase in agriculture. California will manage through the crisis but, expect higher prices in the impacted food areas.