California drought: Ground water has 'saved our bacon'

The California drought will cost the state $2.2 billion and put some 17,000 agricultural workers out of a job this year, according to a new report.

But despite the dire numbers, the situation could be worse for consumers if it wasn't for the increased use of the state's ground water, said one of the report's authors.

"It's saved our bacon when it comes to getting crops to market and keeping food prices in line," said Jay Lund, director of the Center for Watershed Sciences at the University of California, Davis, which released the report this week.

Lund explained that as surface water has dried up from lack of rain, farmers are turning more and more to ground water well supplies in order to irrigate their most profitable crops.

He said there may be new highs in production of crops like almonds this year because of underground water.

Lund also said that, contrary to a lot of thinking, market demand has more of an influence on food prices than the California drought.

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However, the underground water is being drained to the point of drying up if the drought continues, the report concludes.

"It's a wake-up call for the state that ground water is not an endless source," said Josué Medellín-Azuara, a researcher and co-author of the study.

Key findings form the report include:

• Direct costs to agriculture total $1.5 billion (revenue losses of $1 billion and $0.5 billion in additional pumping costs). This net revenue loss is about 3 percent of the state's total agricultural value.
• The total statewide economic cost of the 2014 drought is $2.2 billion.
• The loss of 17,100 seasonal and part-time jobs related to agriculture represents 3.8 percent of farm unemployment.
• 428,000 acres, or 5 percent, of irrigated cropland is going out of production in the Central Valley, Central Coast and Southern California because of the drought.
• The Central Valley is hardest hit, particularly the Tulare Basin, with projected losses of $810 million, or 2.3 percent, in crop revenue; $203 million in dairy and livestock value; and $453 million in additional well-pumping costs.
• Agriculture on the Central Coast and in Southern California will be less affected by this year's drought, with about 19,150 acres fallowed, $10 million in lost crop revenue and $6.3 million in additional pumping costs.
• Overdraft of groundwater is expected to cause additional wells in the Tulare Basin to run dry if the drought continues.
• The drought is likely to continue through 2015, regardless of El Niño conditions.
• Consumer food prices will be largely unaffected. Higher prices at the grocery store of high-value California crops such as nuts, wine grapes and dairy foods are driven more by market demand than by the drought.

An ominous note in the report said the 2014 drought is responsible for the "greatest absolute reduction to water availability for agriculture" ever seen in California.

It also said that surface water availability in California is expected to be reduced by about one-third this year, putting even more pressure on ground-water use.

Meanwhile, California water regulators on Tuesday approved state-wide fines of up to $500 for washing cars, watering lawns or hosing down sidewalks.

This is the first statewide emergency measure since the severe drought began three years ago.

In an email to CNBC.com, Cal Water, which services some 475,000 customers in the state, said the fine is "an additional mechanism ... to prohibit water uses outlined in the regulation. As a whole, Cal Water customers have collectively reduced their water use by 14 percent from 2007-2013."

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But the Center for Watershed's Lund said there's only so much water conservation can do.

He pointed out that agriculture is by far the state's greatest water user, accounting for 75 percent of consumption.

Cities and suburbs use about 20 percent of the state's water.

"California is a dry state," Lund said. "It's hard to drought-proof it."

As for drought conditions in California, the U.S. Drought Monitor said the state had the warmest period and third driest period between July 2013 and June 2014 since 1895.

—By CNBC's Mark Koba.