California Water Pricing Recommendations and Arguments

Water Pricing

California Water Pricing Recommendations and Arguments

There are obviously significant complexities when attempting to develop an efficient pricing strategy for water in California that serves all of the necessary purposes for which water is needed throughout the state. Southern California, which is essentially a desert, experiences droughts on a perennial basis and requires water from northern areas for all manner of uses, including widespread industry and heavy residential use. Agriculture is also a major source of water consumption in the state, yet provides a great deal of economic growth and stability to the state even with the massive amounts of irrigation necessary and the complexities of the irrigation system. Balancing the water needs of the state through pricing strategies is thus far from a simple task, but ultimately it would best be accomplished by implementing a long run marginal cost pricing strategy. This will ensure that revenues allow for the continued supply of adequate water to necessary regions and industries over the long-term, allowing for alternative water sources to be developed without major impacts on price (as long as they are accounted for with the establishment of current prices), while also distributing costs on a somewhat more equitable basis.

Supporting Arguments

A long run marginal cost pricing structure reflects the cost of the next increment of supply, which will ultimately result in cost savings (based on average prices) to large consumers, and while this means that more water will likely be directed to urban consumers this will also present an ultimate savings to agricultural users. This also means that consumption and price will be completely and directly linked, incentivizing reductions in water uses more so than they are under current pricing structures (though consumption is still charged per-unit, the lack of marginalization distributes prices less equitably in terms of actual expenditure to supply water). This will also give clear signals as to the extent that alternative water supplies should be investigated as a means of augmenting the water supply.


The marginal costs of water will make large urban consumers (i.e. municipalities) more likely to consume and agricultural consumers somewhat less so, possibly damaging the agricultural industry in California. Pricing structures that are not attached to volume of consumption in a linear fashion might also meet with more opposition from the public. Finally, estimating long run marginal costs can be quite complex and runs the risk of underestimation, which could lead to underfunding.

Global Food Trade

In 2005 Florida accounted for a large portion of U.S. produce production, including (Overview of Florida agriculture):

percent of the total U.S. value of production for oranges ($843 million)

percent of the total U.S. value of production for grapefruit ($208 million)

percent of the total U.S. value of production for tangerines ($68.4 million)

percent of the total U.S. value of production for sugarcane for sugar and seed ($433 million as of 2004)

percent of the total U.S. value of sales for fresh market tomatoes ($805 million)

percent of the total U.S. value of sales for bell peppers ($213 million)

percent of the total U.S. value of sales for cucumbers for fresh market ($73.7 million)

percent of the total U.S. value of sales for watermelons ($127 million).

Four out of 5 of Florida’s top agricultural exports are produce as show in Table 1 (State fact sheets: Florida).

agriculture exports, estimates, FY 2006

Rank among states

Value million $

1. Other

2. Fruits and preparations

3. Vegetables and preparations

4. Live animals and meat

5. Seeds

Trade between states is very important. Florida, a state rich in agricultural products, uses exports to help boost farm prices and income, while supporting about 20,100 jobs both on and off the farm in food processing, storage, and transportation. Exports remain vital to Florida’s agricultural and statewide economy. The State’s reliance on agricultural exports was 24% in 2006. (Trade and agriculture What’s at stake for Florida). Other states with a climate not suited for agriculture take advantage of trade to increase access to agricultural products and to increase the price and income of their own products they are exporting.

Global food trade is important for the same reasons that trade between states is important, to expand affordable access to agricultural products.

On a worldwide basis, comparative advantages and disadvantages in production can often be more pronounced due to climate conditions and irrigation resources. The United States would most likely survive without global food trade because it exports more agricultural products (9.2%) than it imports (4.9%). (CIA – the world factbook) However, the country would be worse off because it would not be trading with the countries that have comparative advantage in producing certain agricultural products and certain products could become scarce and more costly or unavailable.

Food trade has important economic implications because it impacts Gross Domestic Product (GDP), the total market value of all final goods and services produced with a country. One of the components for calculating GDP is exports minus imports. Thus, when a country exports more food than it imports, it increases its GDP and when a country exports less than it imports GDP goes down.

The United States currently imports more than it exports. Estimates for 2007 show imports to be $1.987 trillion while exports were $1.14 trillion (CIA – the world factbook). In addition to agricultural products, U.S. imports in 2003 included industrial supplies 32.9% (crude oil 8.2%), capital goods 30.4% (computers, telecommunications equipment, motor vehicle parts, office machines, electric power machinery), and consumer goods 31.8% (automobiles, clothing, medicines, furniture, toys). Exports in the same year included industrial supplies (organic chemicals) 26.8%, capital goods (transistors, aircraft, motor vehicle parts, computers, telecommunications equipment) 49.0%, and consumer goods (automobiles, medicines) 15.0% (CIA – the world factbook).


CIA – the world factbook. Retrieved from

State fact sheets: Florida.U.S.Department of Agriculture. Retrieved at

Overview of Florida agriculture. Florida Department of Agriculture and Consumer Services. Retrieved at

Trade and agriculture What’s at stake for Florida. U.S. Department of Agriculture. Retrieved at

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