Projects Funded for 2015-2016

Empirical Estimation of Climate Impacts on Dairy Production and Quality


Specific Objectives of the Project This project estimated the empirical effects of historical temperature on dairy production and quality, specifically measured by volume, fat content and protein content. This estimation will be used to both forecast the expected costs to the dairy sector of future climate change, and estimate the historical cost of recent climate change.

Project Report/Summary of Results Dairy is a crucial part of the California and United States' food systems. Milk is California's largest agricultural commodity by value, producing approximately $8 billion per year for farmers. Dairy constitutes 19% of the protein content of the US diet, provides half of the total calcium and vitamin D, and provides a quarter of the total vitamin A and vitamin B12. Globally, dairy is also very important, constituting 10% of total protein and 26% of the total protein consumed from all animal sources. It is the largest animal product globally both in terms of contribution to protein supply and calorie supply.

This project finds that the production response of California dairies to temperature is increasing up to 15-20°C, and more steeply decreasing thereafter. The model estimates that taking an hour at 15-20°C and moving it to 35-40°C would result in a reduction in production of approximately 30% (for that hour), a statistically significant reduction. The quality measures (fat proportion and solids-not-fat proportion) exhibit a significant negative relationship with temperature, across the temperature spectrum, that is economically small. The model estimates that the same temperature change would result in reductions of these proportions of less than 0.2% (not percentage points). These results allow researchers to confidently work with data on raw quantities of dairy production, which is much more readily available than the nutritional quality data.

This project also finds that predominantly pasture-based dairy systems respond to hot temperatures to a much larger degree than concentrated feeding operations. We find that the production response for pasture-based counties is increasing up to 10-15°C and decreasing thereafter. The model estimates that taking an hour at 10-15°C and moving it to 20-25°C would result in a reduction in production of approximately 60%, a much larger impact than that for Central Valley counties. The difference can be explained by a combination of differences in the ease of protection of the cows (fans and evaporative cooling cannot be employed in pasture-based systems) and differences in the proportion of feed grown locally.

A next step in this project is a careful accounting of the impacts on upstream feed production for the Central Valley farms. A simple projection of future climate change would naïvely omi omit these important effects. A working paper will be available in August.

Understanding Compliance and Deterrence in a Food Safety Context

Valuation of Government Income


Specific Objectives of the Project:

Our objective is to develop a method of valuation of state-owned resources and state-owned income streams. Examples are tax receipts and forestry sales. This project will help clarify the importance of California’s natural resources that provide income to the state, and will inform how these resources should be used. Our results will also advise policymakers as to whether California should invest in or divest from these industries.

Summary of Results:

We found that none of the standard portfolios correlate well with either tax returns or returns to forestry. These standard portfolios include the 23 Fama-French portfolios, the DOW Jones Industrial Average, the S&P 500, and the NASDAQ index. Tax returns do correlate slightly with state GDP. Forestry and tax returns are particularly difficult income streams to match to standard portfolios because data is typically only available at the annual level, or in the case of sales tax revenue at the monthly level. We also try to value these streams using a discount rate derived from single index models such as the capital asset pricing model. However, the lack of correlation between standard portfolios and the tax or forestry returns leads to the use of the sure rate of interest with no adjustment for risk. Finding a monetary valuation for the difference between stable and unstable tax revenue streams, such as California’s versus that of Texas, could be very valuable for demonstrating to policymakers the importance of revenue type and tax structure for state budget stability. Further research is needed to find a valuation method for these income streams.

Reducing Environmental Refugees on California's Labor Market

Impact of UC Cooperative Extension on California's Irrigation Water Use Efficiency


Specific Objectives of the Project

(1) Estimate, using existing data at individual farm level, the impact of UC Cooperative Extension efforts on the use of efficient irrigation water across the 58 counties of the state of California; (2) Provide an assessment of the relative efficacy of various extension intervention efforts and investments needed for the different counties to ensure efficient water usage; (3) Develop a framework to extend the estimation of the impact of Extension services on irrigation efficiency across the western states of Arizona, California, Colorado, Montana, Nebraska, Idaho, Oregon, Utah and Washington. (The framework developed under this proposed Giannini project will be applied, with future funding under a different project to be sought.)

Summary of Results

University of California Cooperative Extension (UCCE) is responsible for disseminating irrigation information with the aim of enhancing productivity, using irrigation efficient technology and water management practices. we estimated the impact of UCCE as a source of irrigation information and knowhow, on irrigation efficient production and water use for California’s farmers. The analysis in the paper uses Farm and Ranch Irrigation Survey (FRIS) for the years 2003 and 2008. Empirical results indicate positive impacts of UCCE on irrigation efficient production, and water use per irrigated acre. The latter result suggests the phenomenon of rise in water use due to increased acreage and production, resulting from the use of irrigation efficient technology and management techniques. UCCE as a source of irrigation information has a significant impact of $3,035 on farm level irrigation efficient production, and also a 1.17 acre-feet/irrigated acre rise in water use, suggesting selection of a more profitable cropping pattern. However through the use of the water-saving irrigation systems, farmers do increase the average value of output per irrigated acre, and incur a net profit, with the increased irrigation water use. Policy implications based on better understanding of underlying hydrological systems, can improve water savings. Policy prescriptions also include collaboration of UCCE and other irrigation information sources, to act as substitutes in the dissemination of irrigation information.

The Effect of Climate Change on Agriculture: Testing Nonparametric Identification in the Panel Data Context

Seasonal Differentiation and Trade in Fresh Fruits and Vegetables


Specific Objectives of the Project

The project has three specific objectives: • Develop an analytical model of trade in the market for a perishable commodity where producers are differentiated by their harvest season (market window) to derive testable hypotheses regarding the price, quantity and welfare effects of free trade agreements and of the effects of a change in the market window for one producer. • Test predictions of the theoretical model in an international market with two producers with differentiated market windows and a third-country consumer: U.S., Chile and South Korea in the tablegrape market. U.S. tablegrapes are produced in California. • Test predictions of the theoretical model in a domestic market with seasonally differentiated production regions: U.S. fresh strawberries, which are primarily produced in California.

Summary of Results

We have developed a model to explain the impacts of seasonality on production, consumption, prices, and trade flows. The extent of overlap between harvest seasons is a key determinant of the welfare effects of trade. Initial empirical results were weak, and we are pursuing additional data.

Estimating Agricultural Acreage Responses to Input Prices: Groundwater in California

Food for Thought: Can Education Affect Student Attitudes and Behavior Towards Healthier and Sustainable Food Choices?

The Economics of Groundwater Management for Agriculture: A Structural Econometric Mode

Would a Mechanical Powdery Mildew Sniffer-Sprayer Be a Game-Changer for California Grape Growers? An Ex-ante Evaluation of a Variable-Rate Sprayer with Real-time Spore Detection

Labor, Water, and California Agriculture


Specific Objectives of the Project Hired workers do most of California’s farm work, almost all were born outside the US, and two-thirds are not authorized to work in the US. Agriculture uses about 80 percent of the state's developed or storable water that can be delivered via dams and canals, and received no federal and 20 percent of contracted state water in 2015.

This project conducted research, held conferences, and disseminated reliable and timely information on the labor and water challenges facing California agriculture. The research brought together data from several sources to establish a reliable baseline against which to assess the likely effects of immigration reforms. The slowdown in Mexico-US migration has generated 4-S responses among farmers: satisfy current workers to retain them longer in the farm work force, stretch the current work force with mechanical aids that increase productivity and make farm work easier, substitute machines for workers, and supplement the workforce with H-2A guest workers.

The project supported a major conference April 15, 2016 at the UCD Law School that attracted over 100 participants to discuss water, labor, immigration, and union activities. Dissemination included research articles, shorter papers in ARE Update, and Rural Migration News, which analyzes the most important farm labor and water issues facing California agriculture each quarter for over 1,000 subscribers.

Project Report/Summary of Results Farmers often fear shortages of water and labor. Both have been in short supply in recent years due to drought and reduced Mexico-US migration. California agriculture may be at a crossroads on both issues, facing higher costs and more uncertainty about the availability of two critical inputs.

Despite the drought, farm sales have been rising. Farm sales were $47 billion in 2012, $51 billion in 2013, and $53 billion in 2014. Three factors shape the longer term outlook for water. First, most climate-change models expect warmer winters that are less suited to California’s water storage and transport system. Second is the hardening of the demand for water, as trees and vines that must be watered for 20 to 30 years replace annual crops on land that can be fallowed in dry years. Third is the possibility of water marketing to shift water around the state.

The average employment of hired workers in California agriculture rose 12 percent over the past decade, reaching 415,000 in 2014. Average employment is a measure of full-time equivalent jobs, not farm workers. Some 829,000 unique workers filled these jobs, a ratio of two workers per FTE job.

Farm employers face labor challenges, including paying the statewide $15 minimum wage by 2022. The federal minimum wage was $7.25 an hour in 2015, which was 42 percent of the $17.40 US median hourly wage of all US workers, while the California minimum wage of $9 was 47 percent of the state’s $19.15 median wage. Median wages vary within California, and the $15 an hour minimum wage in 2022 is projected to be 70 percent or more of the median wage in the San Joaquin Valley that includes half of the state’s farm workers.

The H-2A program has been expanding, quadrupling in California to over 10,000 jobs certified to be filled with guest workers in the past five years. If there is no DAPA or other immigration reforms, the farm labor stage could be set for a return to the 1950s, when some farmers built housing on their farms and others joined labor cooperatives that housed Bracero guest workers and moved them from one farm to another employed as needed.

Farm sales have risen despite drought and declining migration, demonstrating the adaptability of California agriculture.

How Did California Respond to the 2012-Present Drought and How Should the California Water System Adapt to Climate Change?


Specific Objectives of the Project Objective 1: Conduct 4 surveys on California institutions and how the drought changed their behavior: 1) A survey at the water district level on sources of water (surface, ground, and purchased), pricing and allocation of water, and water use by farmers in the three years prior to the drought and during the drought; 2) A survey at the county/farm level on farmers’ technology choice and adoption and their changes in practices in response to the drought; 3) A survey obtaining data from the Department of Water Resources (DWR) and the Bureau of Reclamation on allocation of water to different projects and activities; 4) A survey obtaining data from the State on production and earnings of different crops in different counties.

Objective 2: Expand the conceptual framework on optimal management and utilization of water under climate change to interpret possible outcomes of the drought as described below.

Objective 3: Analyze the data to assess how the drought affected crop production and water use patterns within and between sectors, and obtain estimates of the economic impact of the drought.

Objective 4: Using the expanded conceptual framework and the empirical estimates, analyze policy implications for the California water system to adapt to climate change.

Objective 5: Produce an outreach program to disseminate findings.

Project Report/Summary of Results California agriculture experienced high profits during the drought period, reaching record earnings. The main driver was high output prices and in some cases higher yields, especially in crops irrigated with subsurface drip irrigation (with the drought, weeds couldn’t survive). California farmers adapted to the drought by fallowing close to 1 million acres of land (out of close to 10 million of acres total). However, the drought was a period of transition where the acreage associated with high value crops increased, while the acreage of lower value crops, like cotton and grains, declined. The high earnings of agricultural production were also associated with water transfers at very high prices (up to $1,000 per acre foot in some regions). Another response to the drought was a significant increase in groundwater use, which have threatened the long-term viability of some groundwater aquifers.

A third mechanism of adaptation was a further increase in use of drip irrigation and other conservation technologies as well as increased reliance on irrigation scheduling and automated and optimized irrigation systems. Forty percent of the agricultural land in California uses drip irrigation and a significant percentage of this use is subsurface drip systems. We estimate that the use of water conservation technologies increases gross and net income of California agriculture by 2.6-7.4%.

Our research suggests that to maintain sustainability of California’s water supply, groundwater use must be regulated based on sound economic and hydrological principles. Further, the use of recycled water can increase supply by up to 3 million acre feet of water, out of a current total use of 44 million acre feet per year. The challenge is to develop a sound conveyance system. In addition, the use of desalination is warranted. Finally, there is much more room to improve water pricing.

Western Calf and Yearling Prices: Spatial, Quality, and Temporal Factors


Specific Objectives of the Project

We sought to investigate spatial, quality, and temporal factors impacting the prices of calves and yearlings in California and other Western states, using data from satellite video auctions and a hedonic regression framework.

Summary of Results

Results suggest that spatial price discounts received by Western ranchers, due to the paucity of processing capacity in the West, closely match reported shipping costs and, thus, are consistent with FOB pricing and competitive procurement. Also, this study is the first to identify the presence of temporal price premiums on average for seller-offered forward contracts at video auctions. With respect to quality attributes, this study provides the most up-to-date estimates of the marginal value associated with various quality attributes and management practices, while also finding some support for the benefits of third-party quality certification. Finally, we show that the considerable year-to-year variability in estimated valuations for value-added attributes in hedonic regression models of cattle pricing can be linked to the stage of the cattle cycle as measured by the cattle inventory.

Expensive but Available: The Expansion of Biomass-Based Diesel in the California Fuel Supply

An Empirical Model of Crop Choice in the San Joaquin Valley for Policy Analysis


Specific Objectives of the Project

The objective of this paper was to empirically estimate surface water elasticities for 52 irrigation districts south of the San Joaquin and Sacramento River Delta by observing districts' land-use responses to the reductions in contract allocations from the Central Valley Project (CVP) and State Water Project (SWP) during drought years.

Project Report/Summary of Results

California has experienced four major droughts over the course of the last forty years, and is currently in the fifth year of a severe drought. Emergency drought policies enacted during times of drought restrict access to cheap surface water supplies, which requires farming operations in the agricultural sector to change their cropping decisions, and utilize more expensive groundwater supplies to adapt to the lack of surface water availability. Understanding how surface water availability affects the intensive and extensive margin for agriculture, in other words cropping intensity and crop choice. This paper estimates the impact of drought on the intensive margin for agriculture.

This paper finds that fallowing supply response elasticities range from 0 to -5.9. These reductions in irrigated land could for lack of access to water or due to the decision to sell water through transfers to other districts. Supply elasticities for deciduous trees are smaller than those for grain, truck, and pasture land-uses. Supply elasticities for grain acreage range from -7.6 to 1.0, which is evidence of a heterogeneous grain acreage response to drought-induced delivery reductions.

The model presented in this paper will be used for policy simulation to inform and guide policymakers on how to design a more refined allocation mechanism, and to obtain necessary reductions in surface water consumption while minimizing the welfare impacts to farmers and environmental impacts from future droughts. Additionally, this work has potential to inform water transfer negotiations between irrigation districts to minimize welfare losses during future droughts. The main contribution of this work is that it is driven by the actual decisions of the landowner responding to drought policy.