Profiting From California's Epic Drought

Last summer, in the second year of California’s latest dry spell, Michael Perez, a farmer in the state’s Central Valley, paid $250 an acre-foot for water to irrigate his almonds, cherries, tomatoes, and cotton. (An acre-foot is enough to cover an acre with a foot of water.) This year, with the drought hitting crisis levels, Perez was in for a shock: Water is now going for as much as $2,200 an acre-foot, an increase of more than 800 percent. “It’s an outrage,” he says.

For him, yes. But not for the farmers on the other end of the deal who have water to sell. They’re among the lucky owners of so-called senior water rights, which date back to the Gold Rush era, when settlers staked their claims along California’s rivers. Today, those claims still determine who gets the water that flows from the Cascades and the Sierra Nevada into the Central Valley, one of the world’s most productive agricultural regions. In times of drought, the system creates winners—the heirs of the miners and ranchers who built the state—and losers, including farmers without rights, who find their place in the state’s $44.7 billion agricultural industry threatened by deals for natural resources cut more than 100 years ago.