RED ALERT: $20Bn California Ag Industry Hit Hard by Drought: Farmers Using Water Rights as Collateral; 9,000 of 11,000 Acres of Crops Sidelined at Harris Farms; Unemployment 35% in Mendota (15%+ in Fresno); Severest Drought North Cusp of Sacramento (Jim Carlton, WallStreetJournal)

Feb.10, 2009 in Drought

(Feb. 10, 2009, The Wall Street Journal)

MENDOTA, Calif. — Dwindling water supplies are compounding economic woes in California’s Central Valley, causing farmers to leave fields fallow and confront the prospect of going under.

The state’s water supply has dropped precipitously of late. California is locked in the third year of one of its worst droughts on record, with reservoirs holding as little as 22% of capacity. On top of that, a federal judge in Fresno last year issued a ruling in an environmental lawsuit that could restrict diversions to farmers by as much as one-third, as part of an effort to save an endangered minnow, the Delta Smelt.

The cutbacks hit big and small farmers in California’s $20-billion-a-year agriculture industry. At the Harris Farms near Coalinga, managers said they plan this year to sideline 9,000 of 11,000 acres they used to plant with tomatoes, onions, broccoli and other vegetables. Harris has been reducing production for two years because of declining water, and now must cut even more than planned. “You feel like a general in a battle,” said John Harris, chairman and chief executive of the business. “You’re in constant retreat.”

The water woes are hitting a region that is already reeling from housing foreclosures, the credit crisis and a plunge in construction and manufacturing jobs. In the Modesto metropolitan area, housing prices have declined 55% to $168,528 from their 2005 peak of $372,793, according to estimates by Zillow.com, a market-tracking site.

In Mendota, a Fresno County city of about 10,000 residents, unemployment soared to 35% in December — high even for a community that is heavily made up of seasonal farmworkers. In greater Fresno, the unemployment rate shot up to 13.2% in December — up from 9.8% a year earlier and higher than the statewide rate in December of 9.1%, according to unadjusted state estimates.

The Central Valley has been hit harder than most parts of California, in part because housing was so overbuilt there. But the valley faces a problem that much of the rest of the state doesn’t: Its economy is heavily tied to the farming industry, which in turn is dependent on water imported from the mountains of Northern California.

The cutback in thousand of acres of production has sent a shock wave through farming communities up and down the 400-mile-long valley. “I look and look and there’s nothing,” said 25-year-old Gabriel Flores, an unemployed tomato cannery worker.

The farm crisis has compounded Mendota’s housing woes: Its home sales fell to fewer than 10 in the fourth quarter of last year from nearly 100 in the second quarter of 2007; median prices dropped 37% to about $175,000 from a 2006 high of about $275,000, according to City-Data.com. As many as 1,000 people have lined up at the four food-box giveaways the city has organized since November; in 2007, city officials say they had to conduct only one food giveaway. On Jan. 13, the Mendota City Council passed a resolution declaring a local economic disaster. “We’re becoming the Appalachia of the West,” said Mayor Robert Silva.

(Original Article Here)