A Glimpse of Microeconomics in Central California’s Farming

A Glimpse of Microeconomics in Central California’s Farming



A Glimpse of Microeconomics in Central California’s Farming


California’s economy depends heavily on the amount of fresh food they are able to produce. California is known for producing the majority of fruit and vegetables to the majority of the United States. A California orange can be found all the way in Arkansas. California has gone through several stages of wet and dry periods through the centuries but some experts contribute the lack of rainfall to global warming. Farmers around the state have to come up with new ways to produce these large crops with a drought that shows up every so often yet manages to takes its toll on the crops and animals. The microeconomics can be examined to give a better understanding of how California’s agriculture has been impacted and the constant issues the Central Valley farmers have to overcome in order to provide food the growing population in the United States while having a positive impact on the local economy.

Central Valley in California is considered as one of the most agriculturally productive regions in the world. The region grows more than 230 crop varieties. The region makes up less than 1% of the overall farmland in the United States, but provides the country with more than 8% of the agricultural needs and output. The value of agricultural produce has been estimated to be more than USD$17billion as per reports in the year 2002. The Central Valley makes up one sixth of all land under irrigation in the United States. The Central Valley houses the four top counties involved in agricultural activities in the United States as per data dating to 2007.


            Several different farms can be seen when driving through Central California. The produce that can be seen ranges from fresh grapes to almonds. The weather in this area can average at it is highest of 91 degrees in August with a low of 58 degrees (The Weather Channel, 2014). California’s Central Valley produces a large amount of agriculture through the highs and lows in climate change, leaving the farming industry with picture-perfect growing conditions in this area of California year round.

            California’s farmers rely heavily on the amount of rain and snowfall that falls every year. Currently California is experiencing drought that has not been producing enough water throughout Central California with a staggering 5.1 inches last year (Center, 2014). According to Matt Essert, the author of See How Bad California’s Drought Is, in One Alarming Image, “ California is dealing with the worst drought in the last 165 years” (Essert, 2014). The farmers in Central California rely on irrigation systems to aid in the dryer seasons for their crops. Currently, a grim 2014 with the same if not worse conditions are predicted for the future as well. The drought that is currently being experienced can not only lead to loss in food production and loss of thousands of jobs but may cause a ripple effect in problems that can been seen around the country (Smith, 2014).


            There are many useful benefits when it comes to using irrigation. This includes but is not limited to the farmer’s ability to control the amount of water distributed on their crops, limiting the amount of dust and protecting their crops from frost. According to Kurtis Alexander, author of Drought: Feds cut water to Central Valley farmers to zero, the federal government has decided that the Central Valley will not get any irrigated water this year due to the drought. Areas in the Central Valley California rely mostly on the irrigation that is provided to produce all the fresh fruits and vegetables to nearly half of the United States. In fact, the Central Valley takes up one sixth of the irrigated water in the United States. Due to the lack of rain there has been little to no irrigated water to provide to the needed farms. The loss that the farmers are going to see is going to cost millions of dollars. The consumers will also see the effects in the higher prices that will be seen in the cost of the goods in the supermarkets. The opportunity cost for the farmers can be measured in loss of not only cash but all the time spent in trying to come up with ways to provide the water needed for their crops when that time could be used in improving their business in other meaningful ways such as newer technology to improve the production of crops or simply spending the time with their families (Walsh, 2014).

Other Hurdles To Over Come

            Looking at the supply and demand of fresh fruit and vegetables will give a better idea of what challenges the farmers are facing. With the Obama administration taking an active role on educating our country on making healthier food choices and putting their hands in the fast food available, the demand of fresh produce is higher among those trying to live a healthier life style. According to California’s Agricultural Stats, “Over a third of the country’s vegetables and nearly two-thirds of the country’s fruit and nuts were produced in California” (California Agricultural Statistical Overview, 2014). In 2012, the profits for grapes had increased 15 % from the previous year. If a closer look is taken at the weather patterns that have driven through central California, it is clear that the farmers have their work cut out for them (California Agricultural Statistical Overview, 2014).

            There is a large concern among California farmers regarding the restrictions on water use among farmers and residents a like. As already mentioned before, the federal government has imposed restrictions on the amount of irrigation Central California is allowed to receive. For the state to impose restrictions this could put a financial burden on California’s economy. In addition, as with everything in life a domino effect is sure to follow. California residents themselves have been asked by the state to cut their water use by at least 20%. Homeowners are now filling their yard landscape with fake grass and other low water consumption plants in the hopes of conserving water. California’s really do not have an idea of the amount of water they are consuming on a daily basis that is taking away from the water that could be supplied to our food sources. Though there are several opposing viewpoints on how much water the general population uses compared to the amount of water the farmers use for their crops, it’s not secret something has to be done by all to secure the future of farming in the Valley. With 2013 as being recorded as the driest year in recorded history for several California areas, the demand for the fresh produce is going to rise, yet the supply remain the same if not dwindle (Walsh, 2014).

            Food is a commodity required for humans to survive. There for that makes this good inelastic. The price rises and falls based on the demand from the consumers. The high prices for fresh fruit and vegetables can be seen nation wide in grocery stores. If other processed foods did not exist fresh fruit and vegetables would still be an inelastic good. The prices could be almost what ever the whole seller desired and people would have to pay it in order to survive. If fruit and vegetables were subsidized this would lead to the increase in consumer consumption there for making these agriculture products inelastic (Arnold, 2011).

Government Subsidies

            To provide the desired amount of fruits and vegetables the farmers in Central California relies heavily on government subsidies to help get through hard times.

Policy makers are looking at lowering food prices through subsidies. Farmers gain subsidies from the government to help with the costs of farmland and other associated costs when the revenue coming in is not covering the total added expenses when the market prices fall. Fresno California is the leading county in the United States for collecting the most subsidies, collecting $1 billion since 1995. Another concern with the subsidies is the water that is being transported to the Central Valley is an area that would not normally be able to support the mass crops that have been set up over the years. Now with the water shortage millions of dollars are at stake (Essert, 2014).

            With the growing concern of our future generation’s health, policy makers along with the Obama administration are taking a closer look at the farming subsidies and how they are distributed to the farmers in Central California. Financial support for farmers is given to those who grow corn or wheat compared to the amount of funds that are given to those farmers in the valley who grow fruit and vegetables. This appears to go against all the hype the lawmakers and the Obama administration have been preaching to the public. Furthermore, there are two ways the farmers can receive the money. Direct and counter cyclical payments are determined by a few different factors. According to Alli Condra, author of Why Fruits, Vegetables Are Excluded from Farm Subsidies, “Counter-cyclical payments are tied to market prices.

Farmers will be paid when the price of their commodity is less than a price set by the government. Direct payments, on the other hand, are paid to a producer regardless of the market price of the crop. The payments are based on the number of acres the producer was growing when the subsidy program began” (Condra, 2011). With that being said the majority of the crops in the Central Valley are fresh fruits and vegetables that are grown on smaller farms compared to the almond crops, which grow 1900 million pounds per year, and is about 90% of what is supplied to the world. There is a lot at stake there compared to the smaller amount of money that tomatoes farms receive due to supplying a mere 37% of their produce to the United States (Condra, 2011).

Economic Overview

They include Fresno County that has an estimated $3.731 billion sales revenue in agricultural products. The second county is the Tulare County that has $3.335 billion sales revenue in agricultural products. Kern County comes in third with $3.204 billion sales revenue in agricultural products. Merced County was third with an estimated $2.330billion sales revenue in agricultural products (Greenspan, 2012). The increase in agricultural activities has resulted in high incomes for the workers in the farms and owners of the farmers. This has other direct and direct economic impacts such as increase gross domestic product for the local communities as well as developmental activities.

In addition, subsequent population increases due to the lure of accessibility employment, increased disposable incomes, cheap farm produce have resulted in strain on the existing infrastructure and social amenities. Traffic congestion and air population are among some of the effects of increased residences in the Valley area and the Bay area. In order to continue with agricultural activities, there was a need to control perennial floods because of snow melting from the upper regions of the continental United States that drain into the Sacramento River (Greenspan, 2012). Damage to property was a common occurrence before the counties governments’ developed infrastructure to curb overflowing rivers and lakes in the Valley.

            Employment in the Valley was largely affected by the financial crisis in the 2007-2008that saw decline in consumer and investment activities. The rate of employment in Sacramento declined to 7.6% in December 2013 but stood at an average of 8.7% for the entire 2013 period. It is estimated that the positive economic forecasts in the Central Valley area and the Bay area will result in decline in unemployment levels. On the other hand, the drought in the area will largely affected the expected aggressive recovery within the counties. In addition, there housing construction industry in the state of California and other parts of the country has not rebounded despite the high prices for homes. The high demand for homes has driven real estate prices upwards despite the reluctance among developers to engage in construction of new houses and buildings.

            California is considered as the largest state economy in the world. The economic ranking is indicated through a variety of measures such as incomes, housing, population, business environment, transport and infrastructure, agriculture and state and federal expenditures. To understand the economy there is need to consider the issues identified. With recent increase in population in the Valley area, despite the decline in employment opportunities is an indicator of problems within the Valley’s economy (Greenspan, 2012).

This is due to the competition for employment opportunities that is brought about by the high population levels resulting in decreased wages and incomes for workers in various fields. Labor becomes cheap resulting in lower disposable incomes for families, which could have been used for savings and spurring growth in other sectors such as business, banking and real estate. Furthermore, the scramble for housing is to blame for the increase in housing prices mainly associated with high population numbers in the region (Garone, 2011).


            The economic impact of the Central Valley Farms drought is not only affecting the number of local jobs lost but also the amount of money these farmers bring into California. The very idea of starting a crop that has to have water irrigated to it due to the lack of rain in the area was a bad idea in the first place. Though through technology and innovation of irrigation have come a long way and successfully support millions of crops around the United States, California has been battling their own crisis with constant drought over the years. In addition, because the majority of the water flowing in from aqueducts to the Central Valley for farming, a closer look is going to have been taken at what California priorities lay. Are the economic benefits of the mass production of fresh fruit and vegetables more important than providing the millions of people in California with fresh drinking water? Can both be successfully managed? What are other options of bringing in more water to California?


Garone, P. (2011). The fall and rise of the wetlands of California’s Great Central Valley. Berkeley: University of California Press.

Greenspan, E. (2012). The Central Valley. Hoboken, NJ: John Wiley & Sons.

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