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Drought Watch: A Conversation with Business Leaders

Ellen Hanak February 19, 2014

This is part of a continuing series on the impact of the drought.

I recently had the opportunity to talk about the economic impact of California’s ongoing drought with two of California’s leading business representatives: Allan Zaremberg, president of the California Chamber of Commerce, and Dave Puglia, senior vice-president of Western Growers—a group that represents the state’s producers of fresh fruits and vegetables, who supply much of the nation and many overseas markets with high-quality, high-value produce. The conversation was wide-ranging, touching on the extent of the drought, its likely economic impact, and the steps that can be taken to help California avoid economic harm from future droughts.

The conversation highlighted several key points:

  • Two types of water uses are being especially hard-hit by this drought: farming—especially in the San Joaquin Valley—and environmental flows that protect fish and other wildlife. Most urban areas are in much better shape, thanks to major investments made over the past two decades to conserve, diversify water sources, and improve local storage systems.
  • The economic impacts of this drought are likely to be concentrated in farming and related sectors, such as industrial processing of farm products and fertilizer and seed sales. The drought will cause severe hardship in some regions, but it will not likely have major repercussions on the state’s economy as a whole, because farming and related activities make up just a small share—1 to 2 percent—of total state gross domestic product.
  • We need to make systematic investments to reduce our vulnerability to future droughts. Urban areas such as Southern California spent significant sums—mostly funded by local ratepayers—to diversify their water supplies. Farming areas have invested considerably in more efficient irrigation techniques, but they have also been drawing down their groundwater reserves. As a result, groundwater—normally an especially valuable resource during dry years—is in short supply in many areas, less able to help farmers weather the drought.

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