Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

My Thoughts

California’s Megadrought, Why There’s No Water Shortage and Why the Market Could Be the Solution

If you have been paying attention to the news lately, you probably know that California is in the midst of a so called megadrought because levels of precipitation and the snow pack are low. This year’s snowpack in the state’s mountains is five percent of normal, which has prompted Gov. Jerry Brown to impose drastic and unprecedented restrictions on water use.

Unfortunately, the drought has been pretty poorly covered by the national media in the USA. That means it will take a lot of people by surprise even though it should not; the story’s been developing for well over a year. Your blogger has been following it for a while in his capacity as a writer for Off the Grid News, so I’ll try to update investors on this important story.

A few facts about the drought that you should be aware of include:The drought will hit people throughout North America in the pocket book because much of the produce sold in the U.S. and Canada is grown in the Golden State. According to Mother Jones magazine, California farms grow:


  • 95 percent of America’s broccoli crop.
  • 90 percent of its tomatoes.
  • 91 percent of its grapes.
  • 74 percent of its lettuce.
  • 99 percent of its walnuts.
  • 99 percent of its almonds.
  • 98 percent of its pistachios.
  • 99 percent of its walnuts.
  • 92 percent of its strawberries.

Obviously, some of these crops can be grown elsewhere, but it will have a big impact on consumers and on the grocery and food business. One result of the drought could be the development of other sources of some of these products, such as imports and production in other areas of the country. A fascinating solution is hydroponics, or growing crops without soil. It is technically possible, but it has not been economically viable. That could change if the drought drives up vegetable prices. A company called Gotham Greens is already growing lettuce and other crops on buildings in Brooklyn commercially; its customers include Whole Foods Market (NASDAQ: WFM). Other possible solutions include drip agriculture, which uses far less water.

  • There really is no water shortage. Instead, we are simply doing a poor job of using the water that we have; the EPA estimates that about 30% of the water used by the average American household goes to outdoor irrigation, usually lawn watering. That number can go as high as 60% in dry areas like the Southwestern U.S. Simply banning or restricting lawn watering would greatly reduce consumption and possibly end the shortage in many areas. That is happening in California, where both property owners and communities now have a strong incentive to severely restrict watering. The drought could actually end the water shortage by forcing property owners to adopt more efficient solutions, such as xeriscaping (landscaping with desert plants that use less water) and drip irrigation. That’s already helped cities like Las Vegas and El Paso greatly reduce water use.

  • There are other sources of water that we can tap, including desalination and water recycling, which can supply water needs. These sources have not been used because they were not cost effective or were unpopular; that’s changing. El Paso is using both desalinated water from an aquifer and recycled wastewater to augment its water supply. The Carlsbad Desalination Project is scheduled to begin supplying water to residents of San Diego County this year; it removes salt from sea water to make it drinkable. Several utilities, including the Santa Clara Water District, which serves Sunnyvale, California, and Apple headquarters in Cupertino, are now recycling sewage water.


My take is that the water shortage, like the energy shortage, will never pan out because of the market. The rising price of water will drive us to tap other sources of water we have not used just as the rising price of oil drove us to start fracking. We now have a glut of oil, and there’s a very good chance we’ll have a glut of water in a few decades after we implement all the new technology.

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The drought is a problem particularly for California’s farmers, but it is also an opportunity. By forcing us to change how we use water, the drought will increase supplies of this precious substance and improve agriculture and our lives. Like the energy shortage, the great water shortage will probably end up as little more than a cliché.