The Economist: We have a long way to go
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Dr. M. Ray PerrymanAugust 16, 2012 | 1,526 views | 1 comment
What a difference a year can make. Twelve months ago, Texas was in the midst of perhaps the worst drought in any of our lifetimes. Near the end of September of 2011, almost 86% of Texas fell within the D4 “exceptional drought” category (the worst) as defined by the U.S. Drought Monitor. Virtually all of the rest of the state’s land area was in D3 “extreme drought.”
Since then, we’ve seen some much-needed rainfall, and conditions have improved dramatically. As of August 7, less than 1% of the Lone Star State was classified as D4 and only about 10% was D3. A fair-sized swath of east Texas (11% of the state) is even drought free! The situation here, though certainly not ideal, is much better than in many parts of the United States.
Looking at a national map shows the worst conditions centered over the Midwest, with pockets of severe conditions scattered through much of the rest of the nation. Relatively few areas are not abnormally dry. Recent storm systems have brought spotty relief, but the damage to crops (particularly corn and soybeans) is extensive. Drought disaster area designations cover about two-thirds of the United States.
The economic implications are, of course, extensive. Failed crops translate into poor financial results across a spectrum of agriculture industries. While farmers may have crop insurance, that does nothing for the numerous support industries which are involved in the agriculture sector. In addition, lower yields will tend to cause commodity prices to rise as supplies tighten. On a positive note, the US Department of Agriculture (USDA) estimates that commodity prices account for only 14% of food prices, with the rest comprised of food processing, packaging, retail trade, food services, energy, transportation, finance, and other components. So even though the prices of corn, soybeans, and other crops are likely to rise, the USDA is only expecting food price inflation at essentially historical average levels over the next couple of years (3-3.5%).
Drought affects many other types of businesses and industries ranging from golf courses to tourism. Households and businesses also spend more money for water (where rationing doesn’t apply), reducing what’s left for other consumer spending.
Lost growing seasons, livestock selloffs, burning forestland, brown yards, and empty fountains are disturbing. However, a few good rains can do wonders to alleviate these largely short-term drought indicators. The Climate Prediction Center has developed a measurement system which reflects these types of problems (agriculture, topsoil moisture, unregulated streamflows, and most aspects of wildfire danger). The Midwest is the center of the dark red blob of the worst category.
A more disturbing map, however, is that of long-term drought indicators. These are things like reservoir content, groundwater, and lake levels. In this one, the high plains of Texas is bright red, which is second to the worst, and not much of the state is “normal.” The Texas Water Development Board produces a monthly report on Texas water conditions. It tracks reservoir storage, streamflow conditions, and groundwater levels. As of July, the state’s major water supply reservoirs stood at 73% of their total conservation storage capacity.
However, there are 11 reservoirs less than 10% full, many of them concentrated in the hard-hit high plains region (where of more than 637,200 acre-feet of capacity, there is only 9,000 acre-feet of water). Streamflows in that area are down significantly, so no help will be coming from that aspect. Moreover, the Ogallala Aquifer, which is the major source of groundwater for the area, continues to drop, a trend which began in 1950.
The point of this discussion is not to scare anyone (though the situation is grim and getting worse). It is imperative, however, that we realize that a little relief from last year’s horrible conditions does not put us “out of the woods.” Things may look a little better on the surface in some areas, but we have a long way to go before there is improvement in the water situation.
The National Weather Service’s Climate Prediction Center predicts that drought will tend to become more entrenched for most of the United States through October. However, they are calling for wetter conditions through the fall, winter, and into the spring for much of Texas. Even with this help from Mother Nature, there is a critical need for ongoing moves to ensure the adequacy of future water supplies. The Texas Water Development Board is charged with the difficult task of coming up with a long-term plan, and infrastructure investments as well as conservation efforts will be required.
The economic implications of inadequate water are dire, and our future prosperity and quality of life depend on making strides toward ensuring we will have enough. Although it will be expensive under any circumstances, the sooner we deal with this looming problem, the less costly the solution will be.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.