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Findings

California Water Subsidies: Findings

December 15, 2004

At a time when California water is scarce and expensive, taxpayers guarantee Central Valley farms an abundant and cheap supply through a subsidy worth $416 million a year or more, according to an Environmental Working Group (EWG) investigation that calculated, for the first time, federal water subsidies to each of more than 6,800 farms in the Central Valley Project (CVP).

These findings come as the U.S. Bureau of Reclamation is negotiating new long-term contracts with CVP farmers that will lock up millions of acre-feet of California's most precious resource for 50 years. EWG's investigation is the first to name individual recipients of federal water subsidies in California — a missing detail that has stymied repeated efforts at reform of the largest federal water project in the nation. It confirms what has long been suspected: Multimillion-dollar agribusiness operations — not the small family farmers whom federal water projects were originally intended to benefit — are reaping a windfall from taxpayer-subsidized cheap water while Californians face recurring water shortages and higher water bills.

Although there are more than 6,800 farms in the CVP, EWG found that water subsidies are overwhelmingly concentrated in the hands of the largest farms: 

  • In 2002, the top 10 percent of CVP farms in terms of total water use got 67 percent of all the irrigation water delivered by the CVP. Those 683 farms received an average of 2,300 acre-feet, for an average subsidy worth up to $349,000 at the market rate for replacement water. †1 (Unless noted, this market rate for replacement water was used to define the subsidies listed in this report and database; the actual subsidy at this rate could be twice as high as our estimates.)
  • The top 5 percent, or 341 farms, got 49 percent of the irrigation water. On average, these farms received an estimated 3,400 acre-feet of water, for a subsidy worth up to $513,000. This is enough water to supply 2.3 million households for a year.
  • The 25 largest farms accounted for more than 13 percent of CVP irrigation water, receiving on average an estimated 11,900 acre-feet of water, for an average subsidy worth up to $1.7 million. 27 farms received subsidies worth up to $1 million each. A single farm, Woolf Enterprises of Huron, Fresno County, received 29,000 acre-feet, for a one-year subsidy worth up to $4.2 million at market rates. (For a list of the bigggest subsidy recipients, click here.)
  • Meanwhile, the average farm received only 350 acre-feet of water, for a median subsidy of $7,056. More than 90 percent of CVP farmers got less than 1,000 acre-feet of water in 2002. (The average US household uses less than one half of one acre-foot each year.)


 The distribution of CVP water subsidies is overwhelmingly uneven




What's the water worth?

Analysis of federal, state and local data shows that about one-fifth of all agricultural water in California goes to CVP farmers at rates that, by any measure, are far below market value:

  • In 2002, the average price paid for irrigation water from the CVP was less than 2 percent of what residents of Los Angeles pay for drinking water, and less than 3 percent of what residents of San Francisco pay.
  • The average CVP price is one-tenth the estimated cost of replacement water supplies from proposed new dams and reservoirs.
  • The average CVP price is about one-eighth what the public pays to buy its own water back from the CVP to restore fish and wildlife habitat in the San Francisco Bay and Delta — an ecosystem severely degraded by the diversion of water to agriculture and the resulting toxic pollution.



Source: [11,15,16,17,18]



EWG's 16-month investigation unearthed data from the Federal Bureau of Reclamation, the state Departments of Water Resources and Pesticide Regulation — much of it obtained through federal Freedom of Information Act and California Public Records Act requests. We sought answers to the most fundamental questions about one of the largest and longest-running government subsidies to any industry in any state:

  • Who gets subsidized water?
  • How much do they get?
  • What is each recipient's water subsidy worth?

The Central Valley Project, built starting in 1936, is the largest water storage and delivery system in California and the largest federal water project in the country. Each year it carries 7 to 8 million acre-feet of water — 2.3 to 2.6 billion gallons. Ninety percent is used to irrigate crops. [1, 2]


Water belongs to us all 

Although many CVP farmers may consider it theirs, according to the state Constitution the water, which originates as snow in the Sierra Nevada, belongs to the people of California. †2   Likewise, the Project's infrastructure — 20 dams and reservoirs, more than 1,600 miles of canals and drains — was paid for by federal taxpayers, at a cost of $3.6 billion. Under the law creating the CVP, recipients are supposed to repay this capital cost. By 2002, 60 years after the water started flowing, irrigators had repaid only 11 percent of their allocated cost. At the current pace, this interest-free loan won't be paid off for another 100 years. There are still other hidden subsidies that add up to millions of dollars over time. (See "About the CVP.")

But the details of this massive corporate welfare program are hidden from the public — by state law.  

Water and irrigation districts are defined as utilities, which under the state Public Records Act, are not required to release information about their customers (following a case during the state's early-90s drought in which The New York Times sought the names of water users exceeding their allotted ration of water.)   [Read legal opinion PDF]   Today, some CVP water districts do not even maintain internal records of how much water individual farmers receive. Accurate information on individual recipients is also hidden by the widespread legal maneuver of dividing large farms into many smaller farms, to get around the rule that no one may get subsidized water for more than 960 acres. †3

But the public has a right to know where its water is going, and whether recipients are paying their fair share in a time of increasing cost and scarcity. What's more, the public, elected officials and regulatory agencies need this information now in order to make informed decisions about the future use of California water. Virtually every study of the CVP, from academic, government and non-profit sources, has concluded that the subsidy system is an economic and environmental disaster — yet the stage is set to perpetuate the disaster for another 50 years. [5, 6, 7, 8, 9]

The Bureau of Reclamation is in the midst of negotiating new long-term contracts with CVP water recipients. Some may be finalized before the end of 2004; others are scheduled for completion in 2005 and beyond. Nearly all the contracts are not with individual farmers, but with the water districts, who pass the water they receive — and the subsidies — along to their members. The new contracts are for 25 years, but many provide for automatic renewal, so that the Bureau's decisions in coming months will have a major impact on California water supply for the next half a century. [8]

According to Rep. George Miller of California, former chair of the House Natural Resources Committee, the Bureau of Reclamation has failed "to allow for adequate public participation, review and comment in the development of the long-awaited and very important contracts." Miller and several other Members of Congress have repeatedly petitioned the Bureau of Reclamation to re-open public comment periods after the long-term environmental and fiscal effects of the contracts were made known. Miller author of a law that sought to reform the CVP — with mixed results because of entrenched resistance to change by recipients, the Bureau and members of Congress from the Central Valley and other agricultural regions — wrote last year:

When the expiring contracts were signed in the 1960s, California was a very different place than it is today. California's population has more than tripled in the last 50 years. The Central Valley . . . has lost a half-million acres of farmland to urbanization in the last 20 years alone, and the Valley's non-farm population will more than double by 2040. Land is also being voluntarily retired because of severe pollution contamination related to irrigation. What farming remains will have to maximize water conservation and minimize runoff degradation. . . . If new contracts ignore decades of changed conditions in California, it will take years of litigation and probably billions of public dollars in buyouts to extricate ourselves and allow us to allocate water in conformity with California's true needs. [10]

The Bureau of Reclamation's figures for the total amount of water delivered through the CVP are public. EWG used those figures and state data on farm size and the water needs of different crops to calculate the value of the water subsidy for almost all districts in the CVP and make the most accurate estimates possible for the value of the subsidy for each farm in those districts. (For details see "Methodology.") If water districts or individual recipients take issue with our estimates, they are free to make their records public.

EWG calculated that, depending on how the market value of the water is defined, CVP farmers are receiving between $60 million and $416 million in water subsidies each year. The first figure represents the subsidy if the water is priced at the Bureau of Reclamation's so-called "full cost rate," which in practice is much less than the actual full cost of delivering water to recipients. [3] The higher figure comes from comparing the average price for CVP water to the estimated cost of replacement water supplies from proposed dams and reservoirs on the San Joaquin River. An intermediate figure is $305 million a year, reflecting the difference between the average CVP rate and the price paid for CVP water by the Environmental Water Account, a state-federal joint agency, to restore fish and wildlife habitat in the Bay-Delta.

No matter what market value is used for comparison, the total subsidy to CVP farmers exceeds the actual amount they paid in 2002, about $48 million. [11] That means CVP water users are getting a minimum discount of 55 percent below market value, ranging up to almost 90 percent, for the water they receive.



Table: Water subsidies for the entire CVP.


Amount of CVP water purchased in 2002 (acre-feet) Amount paid to the Bureau of Reclamation Subsidy* calculated at
Federal "full cost" rate
State Environmental Water Account rate
Replacement Water Rate
2,722,574 $47,700,570 $59,682,672 $304,818,312 $416,280,491

Source: [11]

*The three figures listed here are the subsidy amounts — that is, the difference between what the water user should have paid for the water minus what they actually paid.



Unlike federal crop subsidies, for which the recipient simply gets a check, the value of water subsidies depends on two variables — the amount of water received and the amount paid. Lots of water at very cheap rates means big subsidies. Lots of water at closer to market rates means lower subsidies.


Concentration of subsidies

But as with crop subsidies, we found that water subsidy distribution is highly uneven within the CVP. Some districts get hardly any water subsidies while others are awash in cheap federal water. In 2002, the CVP delivered 2.7 million acre-feet of water†4 to more than 90 different water districts, but just 10 districts accounted for 60 percent of the water delivered and subsidies received. [11]

One district skews the balance all by itself: Westlands Water District, one of the most powerful forces in California agriculture and politics. Westlands, encompassing more than 600,000 acres in Fresno and Kings counties, receives more than a quarter of all irrigation water delivered by the CVP. Depending on how the market value of the water is calculated, Westlands receives 26 percent to 40 percent of all of water subsidies in the CVP — between $24 million and $110 million a year.

It is important to note that EWG's subsidies estimates are well within the bounds of other estimates. For example, the prominent UC Berkeley economist David Sunding testified before the House Subcommittee on Water and Power in 2001 that "the present value of the [water] subsidy to Westlands alone is nearly $1 million per farmer." [28]



Table: Top 10 water district subsidy recipients


Water District
Amount of CVP water purchased in 2002 (acre-feet)
Amount paid to the Bureau of Reclamation
Subsidy* calculated at

Federal "full cost" rate

State Environmental Water Account rate

Replacement Water Rate

Westlands Water District

721,258

$13,407,763

$23,908,128

$79,980,723

$109,509,025

Madera Irrigation District

130,154

$2,313,491

$1,464,762

$14,538,849

$19,867,354

Delano-Earlimart Irrigation District

125,156

$2,377,714

$1,463,908

$13,827,485

$18,951,371

Lower Tule River Irrigation District

112,727

$1,988,040

$1,202,792

$12,607,852

$17,222,896

So San Joaquin Municipal Utility District

105,549

$2,067,216

$1,184,911

$11,599,268

$15,920,444

Sutter Municipal Water Company

105,391

$500,467

$1,735,930

$13,145,559

$17,460,267

Chowchilla Water District

93,611

$1,578,419

$954,100

$10,542,333

$14,374,767

Del Puerto Water District

90,693

$1,891,563

$1,107,654

$9,851,366

$13,564,338

Glenn-Colusa Irrigation District

90,207

$306,974

$1,688,405

$11,373,028

$15,066,103

Panoche Water District

63,637

$995,620

$1,257,821

$7,244,099

$9,849,397


Source: [11]

*The three figures listed here are the subsidy amounts — that is, the difference between what the water user should have paid for the water minus what they actually paid.



In terms of individual water subsidy recipients, Westlands again gets the lion's share. Of the 9 farms that used the most Project water in 2002, all are wholly or partly contained within Westlands. Each of these farms used an estimated 13,000 to 29,000 acre-feet of CVP water and received subsidies reaching into the millions of dollars.

Westlands is also home to one farm that is by far the single largest recipient of CVP water: Woolf Enterprises, with headquarters in Huron in western Fresno County. This farm uses its subsidized water to grow thousands of acres of tomatoes, cotton, almonds, garlic and pistachios, among other crops. According to EWG's estimates, Woolf Enterprises used a staggering 29,000 acre-feet of water in 2002 — 50 percent more water than any other single farm in the CVP. This is enough water to fill more than 37,000 Olympic-sized swimming pools, and is more water than used by 70 entire water districts in 2002.



Table: The 27 farmers getting $1 million in subsidies or more


Farm name
Estimated amount of CVP water purchased in 2002 (acre-feet)
Subsidy* calculated at
Federal "full cost" rate
State Environmental Water Account rate
Replacement Water Rate
Woolf Enterprises 29,000 $38,000 to $710,000 $2.3-3.0 million $3.5-4.2 million
Dresick Farms Inc. 19,000 $30,000 to $450,000 $1.5-1.9 million $2.3-2.7 million
Burford Ranch 17,000 $31,000 to $420,000 $1.4-1.8 million $2.1-2.5 million
Vaquero Farms 17,000 $38,000 to $410,000 $1.4-1.7 million $2.1-2.4 million
S & S Ranch 16,000 $29,000 to $390,000 $1.3-1.7 million $2.0-2.3 million
Harris Farms 15,000 $36,000 to $370,000 $1.2-1.5 million $1.8-2.2 million
Murrieta Westland Trust 14,000 $39,000 to $340,000 $1.1-1.4 million $1.7-2.0 million
Tanimura & Antle 13,000 $29,000 to $310,000 $1.0-1.3 million $1.6-1.8 million
O'Neill Farming Enterprises 13,000 $36,000 to $310,000 $1.0-1.3 million $1.5-1.8 million
Davis, O/et al 11,000 $120,000 $1.3 million $1.7 million
Westside Harvesting LP (North) 11,000 $37,000 to $270,000 $910,000 to $1.1 million $1.4-1.6 million
Stone Land Company 11,000 $34,000 to $260,000 $870,000 to $1.1 million $1.3-1.5 million
Anderson, Dick & Sons Farming 10,000 $33,000 to $240,000 $820,000 to $1.0 million $1.2-1.4 million
Schreiner Farms 9,900 $36,000 to $190,000 $1.1-1.3 million $1.5-1.7 million
Christopher Ranch, L.L.C. 9,500 $32,000 to $170,000 $860,000 to $1.0 million $1.2-1.4 million
Perez Farms 9,400 $35,000 to $110,000 $940,000 $1.3-1.4 million
Sutter Basic Corp 9,100 $66,000 to $210,000 $1.0-1.2 million $1.4-1.5 million
Borba Brothers Farms 8,800 $39,000 to $210,000 $730,000 to $900,000 $1.1-1.3 million
Terra Linda Farms II 8,700 $34,000 to $210,000 $710,000 to $880,000 $1.1-1.2 million
Westside Harvesting LP 8,600 $38,000 to $210,000 $700,000 to $870,000 $1.1-1.2 million
Paramount Citrus 8,200 $13,000 to $94,000 $820,000 $1.1-1.2 million
Fordel Inc. 7,900 $20,000 to $220,000 $640,000 to $850,000 $960,000 to $1.2 million
Vann Bros. 7,400 $32,000 to $210,000 $700,000 to $880,000 $1.0-1.2 million
Hammond Ranch 7,200 $29,000 to $93,000 $710,000 $1.0-1.1 million
Delmar Farms 7,200 $31,000 to $98,000 $700,000 $1.0 million
Quad H Ranches/Hoffart Farms 7,200 $39,000 to $140,000 $820,000 to $920,000 $1.1-1.2 million
Richter Brothers 6,500 $32,000 to $120,000 $730,000 to $820,000 $1.0 million
Baker Farming 7,100 $32,000 to $190,000 $580,000 to $740,000 $870,000 to $1.0 million

*The three figures listed here are the subsidy amounts — that is, the difference between what the water user should have paid for the water minus what they actually paid.



What is clear is that artificially cheap water creates an uneven playing field. Farmers in the State Water Project, a much smaller system that parallels the CVP in some areas, pay almost three times on average for water than farmers in the CVP. Providing a relative handful of large farmers with highly subsidized water tends to concentrate landholdings into fewer and fewer hands. A 1986 study by the California Institute for Rural Studies found that Central Valley farms receiving federally subsidized water are 7.2 times larger on average than farms not receiving subsidized water. [12]


Consequences

Defenders of federally subsidized water projects in the West argue that they "made the desert bloom" (another way of saying that they make it possible to grow crops that are neither economically nor environmentally sustainable). Farms in the CVP produce roughly $3 billion worth of crops a year. [2]

But the original intent of federal water projects, set out in the Reclamation Act of 1902, was to encourage Western settlement by small family farms. Initially, no one could receive subsidized water for more than 160 acres, and they had to live on the land. [3] Today, artificially cheap irrigation water in the Central Valley has led to a host of problems besides the CVP-sized hole in the federal treasury. Among the most serious:

  • By allowing the planting of water-intensive crops such as rice, cotton and alfalfa in what is naturally a desert, it has discouraged the efficient use of water. While the average acre of U.S. farmland gets 2.48 acre-feet of water each year, the average acre in California gets 36 percent more, or 3.37 acre-feet. [13] In a state where water demand for all uses exceeds supply by 1.6 million acre-feet in normal years and 5.1 million acre-feet in drought years, this is irresponsible. [14] As urban customers are often reminded, there's never enough water to waste.
  • This inefficiency means less water for wildlife and urban users. Wildlife in particular has paid the price. Of 29 fish species native to the Sacramento and San Joaquin Rivers and the Bay-Delta, two are extinct, six are endangered, five are rare, and nine others are declining. [2]
  • Cheap water has also made feasible the continued farming of land unsuited for irrigation because of serious drainage and toxicity problems. One of the worst environmental disasters in the state's history, the mass death of migratory birds at the Kesterson National Wildlife Refuge in Merced County, was the result of toxic salts in the soil carried downstream by irrigation runoff. (See "Environmental Impacts of Irrigated Agriculture.")

Remarkably, despite the well-documented adverse environmental and health impacts of farm runoff, its contamination is largely unregulated by either federal or state law. Agriculture, California's largest and most politically powerful industry, is not subject to the Clean Water Act or most state water quality laws.

Public health groups are suing to end this exemption, just as the state recently made agriculture subject for the first time to air quality laws. But the continued flow of water subsidies to a relative handful of the largest farms, and the lack of conservation incentives, are major factors leading not only to the inefficient use of water but also to water pollution. Unless reform addresses the amount of water farms receive and the price they pay for it, as well as the runoff they discharge, the Central Valley Project will continue to be a disaster for taxpayers and the environment.


Conclusion

As California's largest industry, agriculture's fate depends on the cost and supply of irrigation water. Our analysis of federal subsidies to the Central Valley Project raises profound questions about how water is priced, and whether the current distribution of water is in society's best interest.

We have documented severe inequities in the distribution and pricing of water — between large and small farms, between farmers and urban users, and between farm use and the use of water to protect and restore the environment. It's one thing to ask taxpayers to subsidize farming with cheap water. It's another thing when those subsidies top $400 million a year, and still another when the great majority of the subsidies are going to the largest, wealthiest farms. It is also more than fair to question whether society can afford anything but the most efficient use of water it supplies to agriculture with respect to irrigation technologies and crop choices.

Since the CVP was begun in 1936, California has changed almost beyond measure. So has California agriculture. Large agribusinesses and some farm organizations argue that those changes mean that it is no longer realistic to limit subsidized water to 960 acres. They argue that large operations not only require but have a right to the current amount of subsidized water they receive. These same interests continue to push for development of additional irrigation water supplies, often at the expense of the environment and other potential users. EWG is far more sympathetic to a competing notion: Even fairly small and medium-sized farms, growing high-value crops with highly efficient irrigation technology, can compete and provide a living to more families if the water subsidy system weren't tilted so heavily to a relative handful of giant agribusinesses.

As the contracts governing CVP subsidies are renegotiated, it's time for an honest debate about how the water needs of all Californians will be met in the 21st Century. That debate must take place in public, not behind the closed doors of negotiations between the Bureau of Reclamation and CVP recipients. It must also take place with full public access to information about who gets subsidized water, how much they get and what they pay. Above all it must ask: Is the current subsidy system fair enough to lock in for another 50 years? The numbers say no.


Footnotes

†1 - This is a very conservative estimate based on studies by the Bureau of Reclamation and the state Department of Water Resources of the projected cost of water from a new dam on the San Joaquin River. The actual cost of this water could be twice as high. For more information on how we calculated this rate, see Methodology. | Back to footnote 1

†2 - Article 10, Sec. 5: "The use of all water now appropriated, or that may hereafter be appropriated, for sale, rental, or distribution, is hereby declared to be a public use, and subject to the regulation and control of the State, in the manner to be prescribed by law." | Back to footnote 2

†3 - Farmers may get subsidized CVP water for more than 960 acres, but the subsidy is smaller than for the first 960 acres. | Back to footnote 3

†4 - Overall, the CVP carried a much larger volume of water in 2002 - about 6.5 million acre-feet. Although about 90 percent of this water went to agriculture, about half of it was delivered for free to farmers (mostly because of historical water rights). For our analysis, we only considered the CVP irrigation water that was paid for in 2002 by permanent contractors. | Back to footnote 4