26 Aug 2014

Do water subsidies help SMALL farmers?

MH emails:
I have a question that has come up in my conversations with a friend (who is actually a libertarian, but I guess not on this issue) about water.

He claims that subsidized water in California is necessary for small farmers to make a profit. If the price of water increases, it will only hurt the small farmers and not big agribusiness. I tried to explain that someone has to absorb the cost of water (infrastructure, transportation, negative externalities etc.) but he kept returning to the idea that without these subsidies for small farmers, it would put an entire sector of the economy out of work, while raising prices for fresh produce.

My response was if you are growing a crop that is not profitable without government subsidies (say rice), you should stop growing it. Though, to me, this seems logical, it also seems heartless, especially towards small farmers. My friend works for a small, organic, sustainable farm and knows from experience the value of cheap water for their survival.

What say you on this dilemma?
In response, I wrote:
I disagree with your friend.
  1. Subsidies goto people who are organized enough to GET them, via paperwork, political lobbying, etc. Small farmers are often too busy to "get subsidies"
  2. Assuming EVERYONE has access to "cheap" water, larger farmers will see a greater share of their costs in water, since they've minimized capital costs, management costs, etc. per ton of production. That means a 20% increase in water prices will raise total costs by a larger share than it would for a small farmer who is less efficient and/or has a larger share of costs from other inputs.
  3. Small farmers are better able to adjust (different crop mix) than larger farmers with big fixed operations (think almond orchard), which gives them more flexibility.
Now I agree that some organic farms struggle and that "they need all the help they can get," but I think cheap water helps the COMPETITION stay in business, which lowers prices to small farmers.

So, I'd predict that expensive water would hurt large farmers and help small farmers.
What do you think?