If California doesn't get rain this winter ...

Dry cracked earth is visible on the banks of Shasta Lake at Bailey Cove in Lakehead, Calif.
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Each year from October to the following September, California measures its rainfall and snow accumulation.

This past season didn't take much figuring. It turned out to be the fourth driest year ever for the state, as it only got around 60 percent of the average precipitation.

As California starts a new water measurement cycle—and faces a fourth year of severe drought—another dry winter could be a tipping point for the country's top agricultural producer.

"This year is crucial," said Michael Hanemann, professor and environmental economist at the W.P Carey School of Business at Arizona State University.

"A third winter of low rain would be extremely painful," he said. "If we have one or two dry winters we can get through that. But the lack of water this winter would have a significant economic impact on agriculture that hasn't been felt before."

What's kept some of the pain at bay so far has been the increasing use of groundwater in the state, especially among farmers.

That use, along with crop imports to the U.S., has also kept consumer prices from rising more than they might.

But like many of the surface water supplies that have dried up, groundwater supplies are in danger of disappearing.

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"Groundwater demand is normally around 40 percent a year," said Doug Carlson, information officer at the California Department of Water Resources ( DWR). "Now it's at 60 percent demand."

Carlson explained that groundwater is layered in clay and sandstone. Removing the water, he said, not only depletes the resource but often creates dangerous conditions of the earth sinking in on itself, which has already happened in parts of the state.

"Once that subsidence (collapse) happens, it's lost forever and rainfall won't replace it," he said.

$2.2 billion in losses

The falloff in crop and livestock production from the drought— along with increased costs for groundwater use —is expected to cost California $1.5 billion this year, according to a report from the University of California, Davis. Some 17,000 seasonal and part-time jobs will also be lost.

An estimated 420,000 acres of farmland went unplanted this year—about 5 percent of the total in the state. The entire statewide economic cost of the 2014 drought is paced at $2.2 billion.

Among the casualties are crop losses in almonds, hay, corn and oranges. The state's dairy farmers are suffering from lack of water to grow hay to feed their cows.

Even the state's rice production has been hit. Nearly 25 percent of California's $5 billion rice crop will be lost this year due to lack of water, say experts.

Additional dry years in 2015 and 2016 would cost Central Valley crop farming an estimated $1 billion a year.

Another winter without rain has at least one farmer thinking of quitting.

"If we keep going through this drought, it may make us quit and sell the ranch," said Sherry Polit, who grows organic rice with her family on 1,500 acres in the Northern California town of Maxwell.

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"We had droughts before, but this is like the third bad one in a row," explained Polit, who also grows organic olives.

Residents too are feeling the pain. Some 500 people in Tulare County, in the central part of the state, cannot flush a toilet, wash clothes or drink water out of the tap because water sources have dried up.

"The drought is hurting more in the agriculture areas than urban," said Lori Anne Dolqueist, partner at the law firm Manatt, Phelps & Phillips and an expert on California water regulations.

"But I live in San Francisco and even though we have water, it's on our minds and people are talking about conserving all the water they can," she said.

Groundwater rules

The situation has gotten so bad that California passed its first comprehensive groundwater rules this September. The regulation plan is designed to stop the overpumping of groundwater and to bring those supplies up to sustainable levels.

But controversy lingers—from those who say the regulations go too far, to those who say they don't go far enough. And by the way they are written, there is the question of whether they will actually help ease the pain of the drought.

One part instructs local water agencies to create sustainability plans for groundwater. Another measure establishes when the state government can intervene if the agencies don't do their jobs in making the plans.

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However, the third part postpones the state's intervention in certain areas where groundwater extraction depletes connected surface waters. And the laws don't take effect until Jan. 1, and some water agencies where groundwater supplies are very low have until 2020 to submit their plans for water sustainability.

"We know that groundwater supplies are under stress in California, and these measures, while long overdue, are only the first step," said ASU's Hanemman.

Also designed to help is a state water bond issue on the ballot in November. If approved, the measure would provide funding for needed investments as part of a statewide, comprehensive water plan for California.

"This is encouraging," said Manatt, Phelps & Phillips' Dolqueist. "We've had a lot of talk and debate about what to do about the drought but it's time to have some action."

'Pray for rain'

Earlier this year, there were some forecasts of greater rainfall this winter for California. But those predictions have been toned down.

The weather condition known as El Nino that brings rains to the state was expected to be strong. But now, even if El Nino does occur, it will be weak with little rainfall predicted.

That doesn't leave many options, said DWR's Carlson.

"We pray for rain and just tell people to cut back on their water use," he said.