FIREBAUGH, CA – FEBRUARY 25: A tractor moves an uprooted almond tree into a shredder at Baker Farming on February 25, 2014 in Firebaugh, California. Almond farmer Barry Baker of Baker Farming had 1,000 acres, 20 percent, of his almond trees removed because he doesn’t have access to enough water to keep them watered as the California drought continues. (Photo by Justin Sullivan/Getty Images)

Drought is rampant these days in many parts of the American West, so consider this a pretty sweet gift: You’ve just been given the rights to some water. An acre-foot of it, to be exact, which is roughly enough to fill an NBA basketball court so the water laps at the bottom of the backboard. Your job is to turn around and use that resource in the most valuable way possible. You’ve got three choices.

You could grow alfalfa in California and ship it to China, to feed its cows and its growing appetite for dairy products, and earn about $1,000, according to calculations by University of Arizona law professor – and water expert – Robert Glennon. You could grow lettuce in Arizona and earn about $6,000. Or you could produce tens of thousands of microprocessors for laptop computers and walk away with a cool $13 million.

You’re probably not picking the alfalfa, right? Well, a lot of western water users are. That crop alone – just alfalfa – consumes one-eighth of California’s fresh water, according to a paper out today from the Hamilton Project at the Brookings Institution. Many California farmers still grow alfalfa year-round, using what’s called flood irrigation, a technique that allows a lot of water to evaporate in the hot summer sun before it ever reaches the soil.

They do that because America’s water markets often don’t work very well. As Glennon writes in another new paper for Hamilton, the way local, state and federal government allocates water can discourage the sort of market trading that should help get the resource in the hands of the people who will put it to its most valuable use. This has long been true in the West, where water rights can be passed down for more than a century and the law encourages sucking as much from the ground and the streams as you can possibly make use of.

But now, as drought rages and climate change raises the risk of future droughts, and as the western population continues to grow, Glennon says America needs better functioning markets to maximize the water it has available – or risk leaving a lot of people poor and thirsty in the future.

“We need to use price signals to price water appropriately and encourage conservation,” he said in an interview. What we have now, he added, is “a government bureaucracy that gives the most powerful interests all the water they want, for low cost.”


Glennon’s recommendations are quite technical but boil down (pun intended) to simple principles: improving the reliability of water supplies, reducing the strain on already dwindling groundwater stocks and, most importantly, making it easier for people who own water rights to sell or trade them in order to maximize their value – unleashing one of the most powerful principles in economics.

A freer water market would almost certainly revolutionize water consumption in the West. You’d see more high-priced crops like almonds and fruit, less alfalfa for export, probably fewer dairy farms in California and perhaps more microchip manufacturing. “It would change the economy,” says Bill Phillimore, executive vice president of the Paramount Farming Company in California’s Central Valley, which is the world’s largest almond and pistachio grower. “If people who owned water rights could make more money by selling them rather than using them locally, and they could move it … I’m absolutely certain it would change the face of water use in California.”

For the market to work best, Phillimore says, the government needs to play by the market’s rules, too. If federal officials hold back water to, for example, protect endangered fish, they should pay the going rate for that use. (They could also reserve a set allocation every year for public use and buy extra if needed.) All these proposed reforms would be politically tough to pull off, but that one – because state and federal governments have so many laws and treaties governing their water responsibilities – might be the toughest. Still, it’s important in markets for people to know what they own, so they can know what they need and know what they can sell. That’s how $1,000 becomes $6,000, or even $13 million.