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How China is changing your dinner plate

California wasteland: Drought-sick farmers hope for relief

California is a massive, food-making machine. The state is the nation's largest agricultural producer and exporter. It grows more than a third of the country's vegetables, two-thirds of the nation's fruits and nuts. Tulare County, in the middle of the Central Valley, is America's top dairy producing region.

Fields of dead and growing almond trees in Coalinga in the Central Valley. Direct agriculture costs of the drought will reach around $1.84 billion and more than 10,000 direct seasonal jobs, according to UC Davis.
Lucy Nicholson | Reuters

But deep into year four of the drought, many California farmers have been leveled. The hardship is palpable. Fallowed or idled land forms brown blocks of dry dirt, littered with brittle branches, alongside patches of bright green, the watered crops doted on like a better-loved sibling. With water bills soaring some tenfold, farmers are making choices about what lives and what dies.

In an increasingly export driven market, California farmers are proving quite adaptable. And more of their decisions hinge on China and the growing role it's playing in shaping agriculture, water and food production in the American West.

"The overseas market is extremely important," says Jesus Ramos, a farmer who owns 140 acres of mostly citrus trees in Terra Bella in Tulare County. "That dictates whether you can keep a crop going or not."

Chinese housewives with more income covet select, imported U.S. food, but halfway around the world, back in California, some of the state's roughly 78,000 farms and ranches are producing more agricultural products that can require a lot of water to produce, scarce California water. There's frustration about how the U.S. is exporting water through agricultural products to China.

Farmers are discerning about which crops and varieties to water, and which ones to fallow. Take a crop like oranges. Beyond heft, the sweetest varieties are preferred, and seedless is better than seeds. Consumers are picky about food. They hover over mountains of stacked oranges in search of produce perfection. 

Born in Mexico, Ramos came to America as a young crew picker. During harvest, the work pace is furious. Pickers scurry up ladders with palm-sized clippers to cut oranges off stems. Nearly all oranges in the world are cut by hand this way. Snip, snip, snip. A landowner and grandfather now, Ramos fully grasps the gamble that is farming. "You can lose your life savings in just a couple of years."

A Chinese vendor unloads onions at a local food market in Beijing.
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A sign is posted near an almond farm in Turlock, California.
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The New Melones Lake reservoir east of Stockton, California.
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Walking around one of his six ranches in August, blocks of citrus trees behind him, Ramos' young picking days seem simple compared to the global demands of modern farming. The water bill for one 10-acre ranch, for example, jumped to $33,000 in 2014 from $3,200 in 2013. His total water bill for all his ranches has soared to more than $200,000, compared to roughly $17,000 just a few years ago. Beyond managing water costs, an export-focused citrus crop can trigger food production changes mandated by overseas markets. China, for example, requires controlling and documenting the Fuller rose beetle as a condition of receiving imports there. While not a major threat, the beetle is common in Tulare County citrus.

Pest control? Check. Water costs? Check, check. Then Ramos worries about how his perfect round orbs of fruit will travel on shipping containers to key Asian markets, including South Korea and China. Skins that peel easily are preferred, but not so thin they'll get bruised and crushed during the weekslong transportation journey. "I prioritize firmer fruits that can withstand the shipping time," Ramos explained.

As if farming wasn't enough of a juggling act, producers of commodities ranging from citrus to almonds are wary of China's slowing economy, the world's second largest. There's worry the downturn could hurt demand for California's food bounty. "All of the sudden, you have to be concerned your fruit may not move in Asia," said Ramos.

The overseas market is extremely important. That dictates whether you can keep a crop going or not.
Jesus Ramos
Tulare County citrus farmer

He has fallowed some of his Tulare County land, and put 25 acres up for sale in 2014 amid scarce water. No buyers yet. "If you drive around, you'll notice a lot of 'for sale' signs," he said.

Sandwiched between San Francisco and Los Angeles, the great Central Valley is roughly 450 miles long and 40 to 60 miles wide. From Interstate 5, head inland onto state Route 99. Neat crop aisles whip past you. Roll down the window to the tangy odor of manure and, sometimes, the sweet fragrance of citrus tree flowers in bloom. If you peel off 99 and slow down at dusk, listen for the rustle of olive and almond tree branches against the faint wind. It's here in the arid, rolling hills of the Central Valley that Ramos is fighting to maintain his land with little water.

Rain always in the back of his mind, he keeps busy farming. He tidies his property down to wrenches, hung on nails and arranged by size like small soldiers. He drives down each citrus aisle in one of several utility vehicles — all with names including a green one called "Moco," Spanish for snot or booger. "You have to have a sense of humor about these things."

By humor, Ramos also means doing the best you can during dry and wet years. The state's agriculture complex pushed back against surface water shortages by pumping more groundwater, or liquid tucked underneath the earth's surface.

And in this vortex of water allotments and politics, perhaps no agricultural products expose the collision of rising China demand and U.S. food production quite like hay, dairy products and almonds. Crop reports and export data show these select commodities making big export gains as they're desired by China's growing middle class.

Workers sort citrus at a packing house in Tulare County. California farms and ranches received $46.4 billion for their output in the 2013 crop year, according to the USDA.
Qin Chen | CNBC

"There are likely many smaller commodities that will get a similar boost of demand from China," said Ryland Maltsbarger, an agricultural economist at IHS. "China will remain a significant influencer on the global food system."

As China's incomes expand and appetites shift to embrace more foreign food, smaller farms like Ramos' are getting on with the business of farming. Previous drought years have flattened cash-flow cushions. Many farmers are in their 50s and older. They've drained retirement accounts and savings for children to pay for water. This winter, they're praying for El Niño, a naturally occurring weather pattern that can bring heavy precipitation. With federal forecasters calling for a greater than 90 percent chance that El Niño will last all winter for the Northern Hemisphere, farmers and ranchers are placing one more bet on rain-soaked land. The outcome could impact what's on our dinner plates for years to come.

Filling ‘empties’ with hay

Daniel Putnam has been a plant and soil scientist for some 30 years. Now at the University of California, Davis, he researches how to boost land productivity, or raise more food on the same amount of soil. As the drought has lingered, he's been getting some phone calls about one particular water-thirsty crop: alfalfa hay, used to feed livestock including cows to produce milk products. In the vast basket of agricultural crops, high-margin almonds are the hot girls at the party. Pistachios, walnuts, easy-to-peel tangelos are way popular. But alfalfa? Hay is hay — unless you throw China into the mix.

While exporting U.S. hay is not new, shipments to Asia and the Middle East have climbed in recent years, according to USDA data. Japan imports a lot of U.S. hay, but shipments to China have vaulted from near zero in the mid-2000s to roughly 1 million metric tons as forecasted for 2015, according to UC Davis and industry estimates. While China's appetite for exported hay from Western states is growing, the commodity's biggest market remains domestic dairies, as well as feed for horses, beef and sheep.

U.S. hay producers exported around 911,000 metric tons of hay valued at more than $290 million in 2014, according to UC Davis estimates. Already from January to July 2015, U.S. hay export volumes to China have gained 30 percent, with hay export values near 50 percent higher than the same period a year ago.
Michael Robinson Chavez | Los Angeles Times | Getty Images

Despite China's vast landmass, plants and vegetation on land for grazing animals is relatively scarce. And with China's growing appetite for protein — including dairy products — more Chinese farmers are importing hay — particularly from Western U.S. states. While exporting U.S. hay is not new, shipments to Asia and the Middle East have climbed in recent years, according to USDA data.

The rub for some water experts is U.S. hay producers' shipping of water-intensive hay halfway around the world on shipping containers — in the middle of a drought. "When I found out we were shipping bales of hay across the world, you could have knocked me over with a feather," said Robert Glennon, a water resource expert at the University of Arizona. "And I'm a water guy," said Glennon, also author of "Unquenchable." 

He estimates 2 million tons of Western alfalfa hay, which required 100 billion gallons of water to produce, was shipped overseas, including to Asia, in 2014. Glennon's larger point is the need for a coherent, domestic agricultural policy that treats water as a precious resource.

When I found out we were shipping bales of hay across the world, you could have knocked me over with a feather.
Robert Glennon
water resource expert, University of Arizona

The hay market's peculiarities also raise larger questions about the value of exporting more agricultural products in a global economy. California and the U.S. agriculture complex feed the world. But there's a finite amount of arable land and limited water supplies. And the planet will only get more crowded. The world's population will reach 9.7 billion by 2050, up from the current 7.3 billion, according to United Nations figures. Who's going to produce the food to feed the world? The California drought will end, eventually. And it will rain again. But researchers wonder what happens during the next round, when the planet is more populated and hotter?

Piling on to the moral question about exporting "virtual" water, the staggering U.S.-China trade imbalance incentivizes American producers to take advantage of shipping container "empties" that might otherwise return to Asia unfilled. Shipping goods such as hay from California's Imperial Valley, east of San Diego, to Tulare County in the Central Valley can run $60 to $70 a ton, estimates Putnam of UC Davis. Transporting the same batch of goods from Long Beach, California, to a port in Asia is a relative bargain at roughly $25 to $45 a ton. Turns out you can make money shipping something — even hay and recycled cardboard — to China on an "empty." 

‘Made in USA’ milk for China

Shipping hay to China makes some people uncomfortable because it illustrates how America's economy is shaped by domestic producers that export raw materials, which China converts into finished goods. Cotton for jeans, lumber for furniture. So instead of just exporting commodities, some American farmers have figured out how to keep hay on U.S. soil and produce finished milk products domestically for export to international markets.

With roots stretching to Denmark, fourth-generation dairyman Pete Olsen and his two brothers farm 1,700 acres of alfalfa, corn and rye at Hillside Dairy in Fallon in western Nevada. In between milking cows and managing the dairy, Olsen has traveled the world — including to China — and probably knows more than most about food production in a growing export economy.

Pete Olsen and other Nevada dairy farmers are producing more milk products for export to regions including China.
Source: Pete Olsen

In September 2014, Olsen, regional farmers and local economic developers did something you don't hear about every day. The group opened an $85 million dairy manufacturing plant on U.S. soil. The facility encompasses the whole supply chain — local hay feed for cows to the final end product of dry milk powder, sifted into bags for export to overseas markets, including China.

The plant was designed by the Dairy Farmers of America, which includes more than 14,000 dairy producers. It processes 1.5 million pounds of raw milk daily into 250,000 pounds of whole milk powder that's shipped to consumers globally. Regional farmers sell their crops, including alfalfa hay and milk to the plant, with the end product bound for the port of Oakland, California, and then store shelves around the world. "For us as dairymen, the plant provides long-term stability," Olsen said. "You know you're going to have someone to sell to." And that "someone" includes China.

Chinese moms and housewives have long sought dry milk powder because it's a protein-rich food that boasts a long shelf life. The percentage of U.S. dairy goods exported to China has climbed to roughly 15 percent from around 5 percent since 2008, when tainted baby formula lead to several infant deaths and thousands of sick babies. Chinese milk products were found to contain melamine, a chemical used to manufacture plastics and fertilizer that can cause kidney stones and kidney failure. When added to agricultural products, the chemical can indicate higher protein content.

In China, they want to know it came off the shelf in the United States.
Pete Olsen
Nevada dairy farmer

Back in America, dairy producers noticed rising global demand for safe, "Made in USA" milk products and boosted production for overseas markets. U.S. dairy farmers joined other big, international exporters including New Zealand. In the past decade, U.S. dairy export value to China has soared to $692.6 million in 2014 from $59.2 million in 2004, according to USDA data. The massive gains reflect the 2008 melamine scare and rising Chinese demand for dairy. But China's broader economy is retreating to slower growth, and milk imports there have shifted into lower gear. In the first half of 2015, China's dairy imports as measured in the equivalent of milk were down 35 percent from last year, according to analysis from the U.S. Dairy Export Council.

Despite China's recent downturn, milk imports in China will remain significant over the long haul. Growing hay for feed is difficult in China. Unlike America, China's farming complex is a patchwork of microfarms — a few acres down to mini scattered plots — that makes scalable food production challenging.

That's good news for the 45-employee Nevada plant that was designed to make dairy products to the specifications of international customers including a preference for whole milk powder. As more agricultural products are manufactured and tailored for export — especially to China and other rapidly developing nations — producers are building global market share and moving up the food chain, literally. "The local milk supply is a big deal for our global customers who want to know where their dairy products come from," Olsen said. "In China, they want to know it came off the shelf in the United States."

Almonds’ high-margin lure

China and the world loves California almonds. The state's almond cash receipts surged for the fourth consecutive year in the 2013 crop year, as revenue rose to $5.77 billion, according to USDA figures. Though everyone from corporate farms to crew pickers is feeling the pinch of parched weather, almond farmers comparatively are hurting less. And despite the almond industry's improved irrigation practices, the water-intensive crop has become a target for scrutiny.

Tom Rogers is a third-generation almond farmer in the Central Valley. Despite the drought, almond prices per pound gained 24.4 percent to $3.21 per pound in the 2013 crop year.
Qin Chen | CNBC

"We are a very visible industry in California that has grown dramatically over the last 20 years," said third-generation farmer Tom Rogers. He owns a 175-acre almond farm in Madera, California, northwest of Fresno, and produces some 2,500 pounds of almonds per acre.

Next year will mark the farm's 100th year in operation since Rogers' grandparents immigrated from Italy. Up until the late '70s, the Rogers family had grown cotton, alfalfa hay, corn and raised some cattle. But Rogers' late father had a hunch about almonds — long before consumers began reaching for snacking almonds, almond milk, almond butter and a broad variety of plant-based proteins. "He was willing to look out and try different things," said Rogers.

His water bill for his almond farm has soared 50 to 100 percent during the drought, as he's pumped more groundwater to irrigate crops. Groundwater flows naturally to the top, or can be pumped up through wells. For the past two years, Rogers has received no surface water supplies found in rivers, lakes and reservoirs, and has relied purely on groundwater.

This is not a sustainable business model for any farmer or rancher. A few years ago, his annual surface water costs ranged from $25,000 to $30,000. More recently he paid around $150,000 in well repairs alone. And that first patch of almonds his father planted in 1979? Rogers fallowed the older field in November last year, as the older trees were producing less crop.

Rancher Steve Drumright looks toward his cattle, grazing on a barren hillside outside of Porterville. Drumright's herd searches the parched Tulare County hills for dwindling vegetation as the drought lingers.
Gregory Bull | AP

If you linger in an agricultural county, you'll find folks old enough to recall when farmers began pulling up apple trees to make room for fancier crops in the Central Valley. The bottom line is nuts and other specialty foods can be lucrative. Nuts including almonds are shaken off trees and scooped off the ground by machines, which means low labor costs and strong cash flows. "Why wouldn't anyone take a chance on a crop if it turns a profit?" Rogers asked.

But food production choices have a broad reach in a global agricultural economy. Almonds and other specialty crops can require more water to produce. And it's tough to turn your back on an almond investment, despite high water costs, when global demand for nuts including almonds is so strong. About 60 to 70 percent of California almonds are sold internationally.

Irrigation water runs along a dried-up ditch between the rice farms to provide water for the rice fields in Richvale, Calif.
Amid drought, some California farmers in near 'survival mode'
A footbridge spans a completely dry river bed in Porterville, Calif.
Water scarcity is becoming a business problem

In China, almonds are especially popular in autumn and winter. Packaged nuts are an appreciated Lunar New Year gift. Almonds and nuts are also a hit on China's Singles' Day, a big commerce day that's like America's Black Friday. Nuts are popular because more Chinese consumers are growing health conscious.

More Chinese consumers are also concerned about food safety and seek imports. "If you have money and if the product is made outside of China, the feeling is you have a bit more trust," said Jeff Walters of The Boston Consulting Group. "If you cruise a food market in China and stroll down the nut aisle, the bags of almonds are likely from California. Take a moment to inspect the almond bag's "Made in USA" labeling.  "The packaging will have an American flag on it," Walters said.

A worker handles bags of almonds packaged as originating from California at a supermarket in Beijing. About 60 to 70 percent of California almonds are sold internationally.
Ng Han Guan | AP

China's growing appetite for nuts and more protein reflect larger shifts among its middle class. The share of China's urban households with disposable incomes — high enough to afford cars and small luxury items — is forecast to reach about 57 percent by 2020, according to forecasts from consultancy McKinsey. While China broadly can feed its own people, the food preferences of China's higher earners — and their growing appetite for Western-grown specialty crops — are likely to reverberate throughout the agricultural landscape for years to come. Food consumption patterns for many developing regions follow a familiar path in tandem with rising incomes. "As people get more wealthy, they tend to spend more money and tend to go for high-quality food," said Hal Sirkin, a senior partner at The Boston Consulting Group. "That's a universal trait."

And whether talking about nuts or specialized dairy products, there's a larger philosophical question: Which crops feed more people? As more farmers pursue high-value specialty crops — many of them essentially luxury crops — and away from staple crops, not everyone can afford the more expensive food that often requires more water to produce. The elephant in the room is whether an economic-driven preference for high-value crops over low-value varieties is creating the equivalent of a 1 percent and 99 percent in our food complex. "It's ironically the low-value crops like rice, wheat, alfalfa that impacts everybody's diet, every day," said Putnam of UC Davis. And farmers aren't dummies. They're savvy, gambling start-up guys in overalls.

Praying for El Niño

Lorren Wheaton farms citrus in Tulare County, not far from Ramos. Wheaton's late father farmed corn and raised cattle in the Nebraska sandhills. Christmas back then brought an orange, apple, nuts, some penny hard candy and maybe a repainted toy or two. In the 1940s, the family headed west to California. Wheaton eventually settled in Terra Bella. In the past two years, he has shelled out $1 million-plus to keep his 300 acres alive in hopes of a rain-soaked crop year.

In 2015, citrus farmer Lorren Wheaton in Tulare County had received no surface water deliveries for two years. Oranges, pistachios, almonds and wine are among California's top agricultural exports.
Qin Chen | CNBC

It's late afternoon and Wheaton relaxes in a living room chair, flanked by photos of his children and grandchildren. Regional Friant-Kern Canal authorities have allowed no surface water deliveries for the past two years — the first time for zero surface allotments since 1952. "If you do everything you can to survive and you don't make it, you can't feel bad about it," Wheaton said. "It's up to the land."

Wheaton, Ramos and many other farmers are all fixated on El Niño, a naturally occurring phenomenon that happens every three to five years. When water temperatures rise in the eastern Pacific during El Niño events, the warmer ocean temperatures also alter the path and strength of high-level atmospheric winds called jet streams. These powerful winds rake across the Pacific from the west to east. Thunderstorms need some warmth and humid air. So El Niño — and its supply of warm ocean temperatures — triggers a lot of persistent thunderstorms in the tropics. And these thunderstorms in the tropical Pacific Ocean have significant impacts across the entire Northern Hemisphere, including California.

California's drought drama and how we got here

"We do expect that this winter won't be like it has been in the last two winters in California," said Todd Crawford, chief meteorologist at WSI, a catastrophic weather forecaster, based in Andover, Massachusetts. "But how wet, we don't know yet." But early forecasts already suggest this El Niño could be among the strongest on record before all is said and done.

The strong El Niño event has fueled some speculation it might stretch well beyond spring 2016, into some kind of back-to-back El Niño. But Crawford notes stronger El Niño events typically weaken rather quickly. "El Niño will likely end fairly quickly during early 2016," he said. "It would be a shock to have a conversation a year from now about the current El Niño event."

We do expect that this winter won't be like it has been in the last two winters in California.
Todd Crawford
Chief Meteorologist at WSI

But forecasts don't matter at the moment to laborers in Tulare County. Three men — Victor Diaz, Fernando Hernandez and Roman Moreno — break up remaining branches of citrus trees that have been left to die for lack of water in the August heat. The dry dirt is surprisingly dense and pliable. It's like stepping into deep, fluffy sand that compresses and collapses under your shoes' weight. The branches will be shipped to a processor for mulching.

"We need rain," said Diaz, who is from Porterville and has worked and lived in the area all his life. Taking a break, Diaz leans against a beat-up compact car, and crosses both sets of fingers. "We are praying to baby Jesus that El Niño comes."

Workers Victor Diaz, Fernando Hernandez and Roman Moreno clear fallowed land in Tulare County. About 540,000 acres of California land will be fallowed in 2015, with most of that fallowed land in the Tulare Basin.
Qin Chen | CNBC

It's the tail end of summer and quieter in the Central Valley. Early morning rush hour on state Highway 65 — coffee and food truck runs, fill-ups at gas stations, bumper-to-bumper pickup traffic — has long passed. Ramos, our crew picker turned landowner, hands over a plastic bag of his sweet oranges, gathered from the back of his utility vehicle. "The people from here literally feed the world with a lot of effort and hard work." He gestures at his land with both hands. "This is home."

Written by Heesun Wee
Video by Qin Chen
Produced and designed by Joseph O'Dell
Data visualization by John Schoen