FIVE POINTS, Calif.—Sharp cutbacks in water for farmers threaten to trigger renewed layoffs in a large swath of California, eating into the state's $40 billion-a-year agriculture industry and damping its nascent economic recovery.
Amid an unusually dry winter, managers of the federal Central Valley Project, which delivers mountain water for agriculture, late last month announced an initial reduction in farmers' water allowance for this year to 30% of the allotment in the driest southern reaches of the valley, down from 85% last year. Now farmers and local agriculture officials are taking in the economic impact they face.
California Farmers Face Sharp Water Cutbacks
Matt Black for The Wall Street Journal
Farmer Derek Borba surveyed his family's land in Fresno County, California.
Officials of the 614,000-acre Westlands Water District, near Fresno, say farmers there are expected to leave tens of thousands of acres fallow, only a year after California experienced one of its wettest winters on record.
"Being a farmer in California is worse than going to Las Vegas," said Mark Borba, as he inspected a barren field he may leave without crops this year because of the water reductions. Mr. Borba, co-owner of Borba Farms, which gets water from the district, expects to reduce his cotton crop by 38% to 1,480 acres from 2,400 last year.
The Central Valley, which is 450 miles long and about 50 miles wide, is home to most of California's agriculture industry. With much of the valley semi-arid, farms there for decades have depended on irrigated water from the Northern California mountains, but those supplies have long been subject to sharp fluctuations. Environmental regulations have made the water supplies from year to year even more unpredictable.
The mountain snowpack stood at 45% of normal as of last Wednesday, compared with 139% a year ago, according to official estimates. Reservoirs remain full enough from 2011 precipitation so that restrictions aren't expected to spread to the household water tap yet, officials said.
But cutbacks to farms could slow the state's overall recovery. While agriculture accounts for only a fraction of California's roughly $1.9 trillion economy, the sector employs hundreds of thousands of workers, whose spending ripples out to the broader economy.
The Central Valley —which became the epicenter of California's real-estate crash and still stands in contrast to the improving coastal cities—will take the biggest hit. The valley's farm belt was so badly damaged by recession and drought that its unemployment rate remained as high as 19.5% in January, compared with 10.9% for the state and 8.3% for the nation, according to Labor Department estimates.
Farmers, who have some of the weakest water rights in the state, say the system is inadequate, without the storage facilities to bank enough water in wet years. Some also blame federal restrictions like the one on pumping in the Sacramento-San Joaquin Delta to protect species such as the endangered smelt. Meanwhile, some environmentalists say farmers could conserve more and shouldn't be growing water-guzzlers like cotton.
During the last drought, in 2009, a cutback in water allocations to as low as under 10% of the allotment resulted in 285,000 acres going fallow and the loss of 9,800 agricultural jobs, for a $340 million loss in farm-related revenues, according to a study by the University of California at Davis.
Here in Fresno County, farmer Todd Allen said he was able to plant only 40 of his 600 irrigated acres with wheat that year, leaving the rest fallow. In 2011, there was enough water to plant all 600 acres with wheat, cotton and onions. But he said with the new cutbacks he will reduce his acreage to 450 this year, and perhaps to zero in 2013, which would force him to lay off his four employees.
Harris Farms plans to reduce its cotton crop to zero this year from 2,003 acres last year, said John Harris, chairman and chief executive of the 14,000-acre operation. That would translate into 68,696 fewer work hours this year, a loss of $755,480 in wages, according to estimates by Harris Farms. After receiving more water in 2011, payroll jumped 46% to $12.97 million from $8.87 million in 2010, the family-owned company said.
Businesses that depend on farms also are bracing themselves. At Kern Machinery in Bakersfield, general manager Clayton Camp said sales of tractors and other farm equipment could fall "20% to 25%" this year from 2011, when they had increased by single digits from 2010. Less water "will be a direct hit on our sales," Mr. Camp said.
In Firebaugh, Cathy Jones, a saleswoman at Westside Ford, said the dealership's revenues probably will this year after an increase in the sales rate to 25 vehicles a month from 16 in 2009. She said the sales rate had been 35 to 40 vehicles a month in 2008. She said the sales rate had been 35 to 40 vehicles a month in 2008. "Next year will be the rough year for us," Ms. Jones said.
Mr. Allen, the farmer, offered a starker assessment. "Without water," he said, "I'm worth nothing, basically."