[Congressional Record Volume 168, Number 166 (Friday, October 21, 2022)]
[Extensions of Remarks]
[Pages E1067-E1069]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




RECOGNIZING UNIVERSITY OF CALIFORNIA, DAVIS REPORT ON DROUGHT RAVAGING 
                     CALIFORNIA'S SACRAMENTO VALLEY

                                 ______
                                 

                          HON. JOHN GARAMENDI

                             of california

                    in the house of representatives

                        Friday, October 21, 2022

  Mr. GARAMENDI. Madam Speaker, I rise today to recognize the work by 
the University of California, Davis to quantify the ongoing, 
unprecedented drought's devastating impacts on the Sacramento Valley 
economy. This ravaging drought has left hundreds of thousands of acres 
of Sacramento Valley farmland unplanted this year, causing dramatic 
harm to people, fish, waterfowl, shorebirds, and other wildlife.
  On August 29, 2022, researchers at UC Davis in my Congressional 
district published a report entitled ``Continued Drought in 2022 
Ravages California's Sacramento Valley Economy.'' I encourage all 
Members of Congress to review this important study and work with me to 
help mitigate this historic drought impacting the Sacramento Valley, 
other parts of California, and the American West. The report reads as 
follows:

       Drought in 2022 is severe by any measure. The 2020 and 2021 
     water years left California, and especially California 
     agriculture, damaged and vulnerable (Sumner et al. 2021, 
     Medellin-Azuara, et al. 2022). After a promising start, the 
     record failure of precipitation in January and February left 
     the state with such a deficit that despite some snow and rain 
     in March and April, levels of water tables, snowpacks, and 
     reservoirs have left the available irrigation water supply in 
     a perilous condition. The water situation for Sacramento 
     Valley agriculture is as bad as it has ever been. The depth 
     of this drought was reflected in repeated dismal 
     announcements during the spring of huge reductions in 
     projected irrigation availability.
       In this report, we assess the likely economic impacts of 
     drought for farms and ranches on the Sacramento Valley in 
     2022. First, we briefly describe the economics of Sacramento 
     Valley agriculture in 2019, which, while still drought 
     impacted, was relatively ``normal'' in the water situation 
     and in the broader economic situation. We used data from 
     Sacramento Valley county agricultural commissioners' reports 
     for values of farm output and the IMPLAN data set on linkages 
     across sectors of the economy to extend implications of farm 
     economics of the 2022 drought to the broader Sacramento 
     Valley economy. The Sacramento Valley, which here is taken to 
     include Butte, Colusa, Glenn, Placer, Sacramento, Sutter, 
     Tehama, Yolo, and Yuba Counties, has a large, diverse, and 
     vibrant agricultural economy. Farms and ranches rely on 
     precipitation within the Valley as well as the surrounding 
     hills and mountains for production of crops and livestock.
       Several key assumptions and limitations of any projections 
     of economic effects of the current drought must be listed at 
     the outset. These are important to interpret our results.
       First, irrigation water availability for the rest of the 
     growing season and water year has been mostly determined; 
     however, the growing conditions that affect crop yields and 
     crop production as well as the market conditions that affect 
     farm costs and revenues are yet to play out. That means, 
     while we can project the economic impacts of this drought 
     relative to a baseline, we cannot speak with great confidence 
     about, for example, crop yields or market prices for the farm

[[Page E1068]]

     commodities currently growing or yet to be planted in the 
     Sacramento Valley. Agricultural outcomes remain uncertain 
     until final crops and livestock products are sold.
       Second, because our main source of data on economic 
     linkages across sectors of the economy is the IMPLAN data 
     base, we formally delineate upstream connections from farms 
     to purchased inputs used on farms. This limits the scope of 
     the modeled impacts of drought and leaves out some important 
     implications. When farm production falls in a region, there 
     also will be less economic activity downstream a step or two 
     from the farm and IMPLAN modeling based on farm-level data 
     does not capture that. For example, Sacramento Valley peaches 
     or tomatoes that are not produced cannot be processed or 
     shipped. However, there is no comprehensive data to consider 
     implications of farm production shortfalls for food 
     processing and similar industries. A dearth of detailed data 
     on economic linkages for many specific agricultural 
     industries in the Sacramento Valley limits our ability to 
     assess downstream impacts quantitatively for each industry. 
     To partially remedy this limitation, we use the data that is 
     available for rice and rice milling and processing, and 
     extend those results (on a proportional basis) where 
     appropriate to the rest of agriculture in the Sacramento 
     Valley.
       Third, the simulations that underlie our projected impacts 
     are based on illustrative judgements about how much the 2022 
     drought is likely to cut crop and livestock output. As 
     discussed more below, we assume, based on historical data, 
     recent news about water cutbacks, and other assessments, the 
     most probable output reductions relative to a normal water 
     year. These current judgements are subject to revision as new 
     information becomes available.
       For the simulations in this report, we attribute the 
     following output impacts to the 2022 drought relative to the 
     2019 base: Rice: -50%; Fruits and tree nuts: -10%; 
     Vegetables, other grains, and all other crops: -20%; and 
     Livestock and livestock products, including apiary services: 
     -10%. Of course, some farms will have much larger cuts than 
     others, and some specific commodities within a category will 
     face larger water cuts leading to increased output reduction. 
     Our results are roughly proportional meaning, as data allows 
     better projected output impacts, the economic impacts can be 
     readily adjusted. The drought in 2022 is likely to reduce 
     direct farm and ranch value of output in the Sacramento 
     Valley by about $950 million, or more than 20%, in aggregate. 
     These losses will cost the Sacramento Valley about 5,000 on-
     farm jobs and reduce the value added generated from farming 
     and ranching by about $560 million. The impact of these farm 
     losses and their upstream impacts to the Sacramento Valley 
     economy are a loss of more than 9,000 jobs and almost $1 
     billion in economic value added. A fuller accounting, 
     however, takes account of the impact of lost farm production 
     on farm processing, marketing, transport, and related 
     downstream implications. We do not have data for detailed 
     calculations of these implications. However, using data from 
     rice farm production and rice milling as a guide, we have 
     made the best assessment available. We project that the 2022 
     drought impacts on farm production are likely to cause a loss 
     of about 14,300 jobs and about $1.315 billion in economic 
     value added in the Sacramento Valley.
       In 2019, the region produced about $4.83 billion of direct 
     farm revenue. Table 1 lists agricultural value of output by 
     commodity category for the Sacramento Valley based on data 
     from County Agricultural Commissioners. Tree nuts, primarily 
     almonds and walnuts, are the leading category of farm 
     commodities, having recently grown to more than one-third of 
     the value of output. Grains account for almost one-quarter of 
     output; rice accounting for more than 80% of grains or almost 
     20% of the value of Sacramento Valley farm output. Other 
     grains include corn, wheat, and grain seed crops. Fruits, 
     especially wine grapes, olives, prunes, peaches, and other 
     tree fruits, are important as are vegetables, led by 
     processing tomatoes. Other crops include hay, pasture, and a 
     variety of seed crops. Livestock include beef cattle, a few 
     dairies, some poultry, and eggs and, importantly, products 
     and pollination services from the apiary industry.
       Table 1 also includes direct farm and ranch jobs, which 
     totaled about 34,000 in 2019, and the upstream jobs tied to 
     farm and ranch output through indirect and induced effects. 
     Indirect jobs are those tied to farm production because they 
     are employed in industries that supply farm inputs and 
     services and the jobs for input purchases that ripple out 
     from there. These jobs include such services as farm 
     equipment repair, veterinary services, or crop consultants. 
     They also include jobs in industries that supply farm inputs 
     such as feed processing, fertilizers, or farm equipment. 
     Induced jobs are those caused by expenditures by proprietors 
     and employees included in the direct and indirect impacts. 
     So, for example, induced employment includes that generated 
     by expenditures of farm operators and employees and the local 
     businesses and employees from whom farms and ranches buy 
     inputs.
       As noted above, the standard approach to estimating 
     economywide impacts using multimarket relationships is to 
     only consider impacts from upstream linkages in order to 
     avoid double counting and related errors. For example, local 
     supermarket jobs are not linked to farm output within the 
     local region, even though supermarkets certainly sell some 
     products derived from local farms. This is appropriate 
     because people buy the same amount of food whether it is 
     grown locally or not, and most food consumers live farm from 
     where their food is grown.
       However, in important cases, upstream economic activity and 
     jobs really are tied directly to local farm production. That 
     is especially true for the shipping and processing of bulk 
     farm commodities. For example, rice grown in the Sacramento 
     Valley tends to be dried and milled in the Sacramento Valley. 
     Likewise, tomatoes are almost always processed near where 
     they are grown. These facts mean that, just as with the 
     impact of rice production on rice milling and shipping jobs, 
     Sacramento Valley tomato processing jobs fall when Valley 
     tomato acreage and production declines. Below, when we assess 
     Sacramento Valley economywide impacts, we include some 
     downstream economic activity when we are confident that it is 
     tied closely to local farm production quantities.
       Using 2019 as the recent base for a ``normal'' year, we 
     apply our drought induced projected losses to the 2019 data 
     to simulate 2022 drought impacts. Our assessments of the 
     likely direct impact of the 2022 drought on output are based 
     on past drought consequences and the cost to farms of making 
     acreage and yield adjustments (Sumner et al. 2021a, band 
     Medellin-Azuara 2022). The tree and vine crops tend to have 
     the smallest acreage or yield adjustments of any crops, as 
     farms typically try to avoid permanent adjustments to what 
     may be a temporary water shortage. Additionally, tree and 
     vine crop operators tend to be willing to pay extra to pump 
     groundwater or to transfer water from annual crops. We 
     project a 10% cut in tree and vine crop output to reflect 
     additional culling of older vineyards and orchards as well as 
     some yield reduction that follows from reduced water 
     application rates.
       Annual crop cutbacks for grains, oilseeds, hay and silage, 
     vegetables and other crops are much larger than we expect for 
     tree and vine crops, but still less severe than the reduction 
     for rice. Higher prices for vegetables and harvested forage 
     crops will offset some of the revenue declines caused by 
     reduced acreage and yields. Historically, fallowing rates are 
     moderate for these crops; even in the San Joaquin Valley 
     where drought cuts usually have been more severe. The USDA 
     Prospective Planting report, released on March 31, 2022, 
     indicated only slight reductions in intentions to plant 
     wheat, feed grains, and hay in California relative to 2020 
     (NASS, USDA). Rice was the exception to moderate intensions 
     to reduce acreage planted. California rice growers indicated 
     a 30% planned reduction in acreage.
       Based on the June 30 USDA acreage planted report and local 
     report from the industry and water district personnel, our 
     judgment is that rice acreage will be down by about 50%. The 
     water situation turned out to be even worse than growers 
     expected during the survey period of mid-March. Also, most 
     rice acreage is eligible for indemnities from prevented 
     planting provisions in crop insurance policies when severe 
     irrigation water cutbacks imply there will not be enough 
     water to support the crop. Therefore, some of the loss to 
     growers will be mitigated. Moreover, if rice acreage is left 
     unplanted, some water that would have otherwise been used for 
     rice can be transferred to other crops on the same farm, on 
     nearby farms or to farms outside the Sacramento Valley.
       Finally, we estimate that livestock output will decline by 
     10%. The drought affects irrigation for pasture and forage 
     crops as well as the feed value of rainfed pastures. In 
     addition, honeybees represent a significant livestock 
     industry in the Sacramento Valley. The revenue from 
     pollination services has been already earned. Honey yields 
     are lower in drought years because bees have less forage, 
     which contributes to our projected livestock losses. Only 
     small reductions due to drought are expected for the 
     (relatively small) Sacramento Valley dairy and egg 
     industries.
       Table 2 shows the results of applying these assumptions to 
     the 2019 farm and ranch revenue data. The bottom line is that 
     direct farm output is likely to be lower by about $950 
     million or about 20% from 2019. The projected direct revenue 
     loss is larger because farms and ranches will make many 
     adjustments and incur higher costs to keep production losses 
     to a minimum. Notice that more than half the overall loss of 
     direct farm value of output is for grains, most of which is 
     due to rice acreage left unplanted.
       The output losses discussed in Section 3 translate into on-
     farm job losses. The job losses are roughly proportional to 
     output reductions within an industry. However, some parts of 
     agriculture are more labor intensive than others, so they 
     have larger influence on overall farm labor use. For example, 
     fruit farming is much more labor intensive per dollar of 
     revenue than is grain farming. The first column of Table 3 
     shows the 2019 farm and ranch jobs in the Sacramento Valley 
     for each industry sector and for the total, which is taken 
     directly from Table 1. We note that other crops are labor 
     intensive because many of the farms are small, part time 
     family is included in the totals.
       The projected farm and ranch agricultural jobs in 2022 are 
     listed in the second column of Table 3. For example, we 
     project 14,313 jobs in the tree nut industry and a total of 
     28,780 farm and ranch jobs. These are lower than the jobs in 
     2019 because of the impact of

[[Page E1069]]

     drought. The losses in direct farm and ranch jobs are shown 
     in the third column. We project a direct loss of more than 
     5,000 jobs on farms and ranches in the Sacramento Valley due 
     to the 2022 drought. Of course, the losses to the broad 
     economy from drought in agriculture go much deeper than the 
     direct losses of jobs. Table 4 summarizes economywide losses 
     in the Sacramento Valley caused by drought in agriculture for 
     value of output, employment, labor income and value added. 
     (Value added is the measure of economic activity that removes 
     any double counting across industry segments and is used for 
     economic aggregates such as national, state, and regional 
     GDP).
       The first row of Table 4 shows the direct agricultural 
     losses and the losses for value of output and employment that 
     are familiar from Tables 2 and 3. Labor income in column 2 
     shows earnings from jobs, including earnings of the 
     proprietors such as farm owners and operators. As expected, 
     many of these agricultural jobs are seasonal and many farms 
     are operated part time, so the annual earnings are well below 
     what full-time, year-around employees of full-time business 
     operators would earn. The ``value added'' column represents 
     the wages paid to hired workers and income attributed to 
     proprietors. Another way to think of value added is the 
     revenue of the industry minus the value of goods and services 
     purchased directly from other industries. Value added for the 
     economy as a whole is economic output being careful to remove 
     any potential double counting. For example, output of the 
     dairy industry includes the value of the grain, hay and other 
     feeds that are turned into milk by the dairy cows and sold by 
     the farm. Value added of the dairy industry nets out the 
     value of all inputs purchased by the dairy farming industry, 
     including purchased feed and nutrition consultant services, 
     and others. The sum across industries of all the direct 
     losses of agricultural output due to drought in 2022 is $954 
     million, whereas loss of value added is $572 million, which 
     may be thought of as loss income earned by hired workers and 
     farm operators (farms and ranches) within the agricultural 
     industry.
       The second row of Table 4 includes losses to upstream 
     suppliers to Sacramento Valley agriculture. Industries that 
     supply goods and services to farm and ranch operations lose 
     sales and profits and their workers lose jobs when farm 
     output falls due to drought. Such businesses include local 
     repair shops, fertilizer firms, insurance companies or law 
     offices that work with farms and ranches. These indirect 
     effects reflect losses of output jobs, labor income and value 
     added of Sacramento Valley businesses that rely on farm and 
     ranch customers. The third row of Table 4 includes induced 
     losses. These reflect lost output, jobs and income in all 
     sectors affected by lost agricultural incomes (mostly reduced 
     incomes of labor and those contributing labor, management, 
     and capital). This includes the reductions in goods and 
     services that farmer and farm worker families buy in the 
     Sacramento Valley. The ripple effects of such purchases 
     include everything from haircuts to autos and schooling.
       The direct and upstream losses for the Sacramento Valley 
     economy, shown in row 4 of Table 4, are the sum of the 
     direct, indirect, and induced effects. One must be careful 
     interpreting the sum of the direct and indirect output rows. 
     The direct output includes the value of inputs used in 
     production; therefore it incorporates the indirect output and 
     to simply add them up would be double counting. For example, 
     the output of almonds includes the contribution of the 
     honeybees (included in livestock income) that pollinated the 
     crop. Thus, in evaluating the overall contribution of 
     agriculture and the economywide impact of the drought we 
     focus on value added in the fourth column. We note that Table 
     4 contains only the farm and the upstream economywide losses 
     due to drought. Upstream economywide losses due to specific 
     agricultural industries are in an appendix available from the 
     authors.
       In this section, we emphasized the results in Table 4 are 
     upstream impacts. This means that the reduced economic 
     activity in transport and processing of farm commodities is 
     not included in the impacts. We do not have data to estimate 
     such impacts for agriculture broadly. For some products; the 
     downstream economic activity within the Sacramento Valley may 
     be relatively small. For example, many calves raised and sold 
     in the Sacramento Valley are shipped to feedlots in the 
     Midwest and slaughtered and processed outside the Sacramento 
     Valley. However, for other important products such as tree 
     nuts, processed fruits and vegetables, there is substantial 
     value added in the Sacramento Valley and jobs in downstream 
     industries depend on Sacramento Valley farm production.
       Fortunately, we do have data within the IMPLAN system on 
     rice milling, which is an important downstream agricultural 
     processing industry that relies on farm production of rice in 
     the Sacramento Valley. The next section shows how considering 
     rice milling indicated a larger economywide economic impact 
     of the 2022 drought. Above, rice farm value of output was 
     combined with other grains, which is how rice farming is 
     reported within the IMPLAN data sets. The Agricultural 
     Commissioners data show that the value of farm rice 
     production in 2019 was almost $0.95 billion based on about 
     500,000 acres of rice. These totals, as expected, differ 
     slightly from the aggregate statewide data from the USDA, 
     National Agricultural Statistics Service.
       The top half of Table 5 uses rice farm revenue data, 
     together with linkage multipliers from the IMPLAN data set 
     that are applicable to the ``grains'' category, to assess 
     upstream economywide contributions of Sacramento Valley rice 
     in 2019. Notice the results reported in the top half of Table 
     5 data equal 80%, or more, of the magnitude of the impacts 
     for grains as a whole in 2019. Total direct sales, jobs, 
     labor income and value added are all only slightly lower than 
     for all grains in 2019.
       The bottom four rows of Table 5 represent the economic 
     output and other aggregates for rice milling as an industry. 
     Because these results are for rice milling, the main upstream 
     input (indirect output) is rice grown on farms. The direct 
     output is milled rice, which has a price and output value 
     almost double that of farm rice output. The output of farm 
     rice is the main contributor to the indirect output of $1,282 
     million for rice milling. Because of this, economywide 
     impacts on rice milling are built directly on the base of 
     rice farm output; therefore, anything that reduces rice farm 
     output necessarily reduces rice milling output in the 
     Sacramento Valley. The economywide impacts of drought on rice 
     milling subsume the effects of rice production and capture 
     much of the downstream impact.
       Table 6 shows the projected effects of the 2022 drought, 
     which, based on currently available information, we assume 
     cuts rice production by 50% and reduces economic contribution 
     of rice production and milling by 50%. The bottom panel shows 
     that the reduction in rice output caused by the drought 
     reduces Sacramento Valley employment by 5,293 jobs: including 
     jobs in rice farming and milling as well as the other 
     indirect and induced losses. The important effects on 
     Sacramento Valley income are the loss of labor income of $398 
     million and reduced value added in the Sacramento Valley of 
     $703 million. The loss of value added is 36% larger ($703 
     million/$514 million) than the impact of rice farming without 
     capturing the first step downstream. The employment impact of 
     rice milling is 52% higher than of rice farming. These 
     results for rice milling show the importance of capturing 
     downstream economic activity when it is reliant on local farm 
     production. Unfortunately, we do not have enough data to 
     fully evaluate the contributions of other processing 
     activities in the Sacramento Valley for crops such as tree 
     nuts, fruits, and processing vegetables. Nonetheless, we 
     expect the impacts for these industries may be similar to 
     those of rice. In the final remarks we make the appropriate 
     adjustments to the results of Table 4 to take into account 
     the first step of downstream impacts.
       Table 4 showed projected losses from the 2022 drought for 
     the Sacramento Valley, including direct and upstream indirect 
     and induced impacts, are: employment loss of 9,396 jobs, 
     labor income loss of $504 million, and economic value-added 
     loss of $967 million. Using the more detailed results for 
     rice presented in Table 6, however, we show that these 
     upstream results do not capture the true extent of the 
     economic implications and are likely too small by between one 
     third and one half. When we adjust the employment and value-
     added results to account for downstream processing, using the 
     rice results as a guide, we find substantially larger 
     impacts.
       Our best estimates are that the farm impacts of the 2022 
     drought are likely to cause economic losses of about 14,300 
     jobs and loss of value added of about $1.315 billion.

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