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Tense wait for water allocations in California

Anna Vidot, Thursday March 6, 2014 - 14:23 EDT
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California is responsible for about 80 per cent of US tree nut production, including almonds. America's largest agricultural state is in the grip of its worst drought in decades. - ABC

The United States Agriculture Department's chief economist says it's still too early to know exactly how the drought in California will affect horticulture production.

America's biggest agricultural state is in the grip of its worst drought in decades, and irrigators there should soon learn if they'll receive sufficient water allocations to salvage their season.

USDA chief economist Joe Glauber says that some of an expected reduction in Californian rice production could be offset by increases elsewhere in the US, particularly in the Mississippi delta region.

But the impact on American horticulture could be significant, unless irrigators get the water allocations they're looking for.

"California accounts for about a third of [US] vegetable production, and about two-thirds of fruit and tree nut production. In fact, if you were to go to tree nuts, it's probably 80 per cent," Dr Glauber said.

"For producers who have a little bit of water, they're going to want to maintain it on trees and other things that are more perennial in nature. But the impact [on production] unfortunately, we just don't know yet, until we see what the allocations are."

Decent allocations are by no means assured, however, with reservoir levels low. Dr Glauber says irrigators who do get an allocation will then face a choice that's all too familiar to Australian farmers: whether to grow a crop, or sell water for cash, which is allowed in some US jurisdictions.

With Australia once again in the midst of its own debate about appropriate levels of government assistance for drought-affected farmers, the US crop insurance model has again be raised by those who'd like Australia to consider crop insurance as part of its national drought response.

But the Californian experience also shows the limits of a crop insurance program.

Dr Glauber says restrictions around crop insurance mean that many California irrigators won't receive relief through that program.

"A lot of these insurance products were developed essentially for row crop, broadacre producers in the mid-west, less so for specialty crop producers in California," he said.

"The insurance is predicated on available water supplies, so if there's not enough water to plant, we don't allow them to insure for that. It's only after the insurance period, when they can sign up for insurance, closes, if there's a decision at that point to cut off water, then they are eligible.

"I think for a lot of these producers, the decision about water allocations will come before the insurance kicks in, so they probably won't be covered there."

In terms of other drought assistance, like Australia at the end of the Millennium Drought, the US President Barack Obama has indicated a long-game approach. He has travelled to drought-affected regions, and talked about the importance of preparing to better manage drought in the face of climate change.

"We have programs to encourage water conservation and to encourage water management," Dr Glauber said.

"Now of course that's not immediate relief, but hopefully it helps over the longer run."

Despite a predicted increase in wheat exports for the current year, adverse weather elsewhere in America could see US wheat exports decline in the following year.

"We know that for our fall [autumn] planted wheat, the area's down from a year ago. There's some concerns about the US wheat crop - the winter wheat crop - because of the severe cold that we've experienced this year and because of some lingering dryness in the southern plains.

"Quite apart form the California drought, this is our fourth year of dryness in Texas and Oklahoma and that area.

"We'll know a little better about the size of that crop over the next couple of months as it emerges and we start getting more accurate crop condition reports."

Grain markets have already seen greater volatility in futures trading since tensions have escalated in Ukraine.

The Black Sea region was responsible for almost a quarter of global wheat exports last year, and interruptions to grain supply from that region has caused global price spikes in the past.

There's been no evidence yet of Black Sea exporters defaulting on contracts, but Australian analysts have said that Australia's capacity to capitalise might be limited because of an export program that's already tightly locked in.

Dr Glauber says the US will have a better sense of its supply capacity once those crop condition reports start to flow.

"But prior to that, our forecasts have certainly suggested that we'll export a little less [wheat] next year," he said.


© ABC 2014

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