WHEN FEDERAL WATER projects make the deserts bloom, who ought to pick the blossoms? Back in 1902 Congress's answer was plain: Public irrigation efforts in the arid West should serve homesteaders and promote family arms of no more than 160 acres (320 for husband and wife). Over the years, however, the Bureau of Reclamation has allowed many large landowners and agribusiness companies to circumvent at least the spirit of the law. Now the Interior Department, spurred by California land-reformers and federal courts, is trying to end the abuses and give new life to the old populist dreams.

Interior's proposals could eventually effect the ownership of over 1.3 million acres of Western land. The most immediate impact will be in the Westlands Water District of California's San Joaquin Valley, where Southern Pacific and other major landowners are already committed to selling a total of around 250,000 acres within the next decade. Under the new rules, that acreage would be sold, in small parcels and at controlled prices, to people who live in the neighborhood and do not already own irrigated land. Where too many apply, the buyers could be chosen by lotteries. Lease-backs and other means of assembling larger holdings would be barred.

All this certainly adds up to strict enforcement of the law. Indeed, its very impartiality raises some questions of equity, primarily involving the failure to give any preference to potential buyers who have been working the fields for years. More important, the effects of rules will not be simply to redistribute land from a few big owners to the poor. As staff writer Lou Cannon reported recently, actual farming patterns in Westlands are not that neatly polarized. Considerable capital can required to run a small farm. On the other hand, the tight restrictions on leasing and cooperative management could curtail not only huge operations but also some relatively modest ones.

That points to the large question of whether the basic law is obsolete. No amount of administrative zeal can set aside the economic changes that have undermined the old-style family farm. Where families still want to try to make it on that scale, public policy certainly should not discourage them; even with cheap water, they will find the going hard enough. But it seems increasingly remontic and anti-economical to regard 160 acres of good irrigated land as a sacred formula, forever unchangeable.

For years Congress has shied away from this question, perhaps less out of regard for family farms than because the whole subject is so intensely controversial. But this would be a good time to experiment with modest increases in acreage limits, ideally coupled with more realistic - i.e., higher - rates for delivering water to those larger farms. That combination of greater farming space and smaller subsidies might be politically marketable, as well as more in tune with today's marketplace.