Business Ethos Blog

Shipping Water to China During a Drought

Dr. David Mielke, Retired Dean of the College of Business, Eastern Michigan University

The U.S. will ship more than 50 billion gallons of water to China this year.  You might ask how this is possible—are they loading tankers at the California coast and sailing to China?  The water will actually be leaving California in the form of alfalfa hay to feed China’s dairy cows.  Most of the hay was grown in California.  Given the drought in the U.S. and the ongoing water concerns in California is this the “Right Thing to do?”  This is a great story to spotlight what is wrong with the water policy in the U.S.

Here are some of the issues:

1. China has massively expanded its dairy industry.  Despite a large portion of their population being lactose intolerant, milk consumption has tripled in the past 10 years and is expected to increase by another 50% by 2015.  This means millions of more cows on the mainland and millions more tons of cattle feed.

 

2. Despite China’s vast land mass pasturage is relatively scarce and so the Chinese are buying U.S. alfalfa.  The trade is booming.  Alfalfa exports to China have increased to 177,423 metric tons in 2011 from 2,321 metric tons in 2007 and is expected to exceed 380,000 metric tons in 2012.

 

3. You would think that shipping hay to China would be very expensive, but because there are so many containers that come to the U.S. full of Chinese goods, many return empty.  In fact, for every 2 containers that come to the U.S. one returns empty.  It now costs twice as much to truck alfalfa from southern California to a dairy farm in California’s central valley as it does to ship from Long Beach to China.

 

4. Alfalfa prices have doubled in the past two years at a time when there are shortages across the U.S. due to the drought.

 

5. This new export market is all about water and alfalfa is a water guzzling crop.  Southern California gets its water from the Colorado River, 82 miles to the east.  Alfalfa farmers use as much as 50% more water than growers in other areas of the state because of the scorching heat, salty soil and their legal rights to an enormous amount of cheap water.  This single water district controls more than 20% of the total annual flow of the Colorado River—in fact more than 10 times more than the entire state of Nevada.

 

6. The U.S. Bureau of Reclamation released a draft study of water availability in the Colorado River basin that suggests a need for enormous new investment in water conservation, infrastructure and environmental protection.  California’s Governor Brown has proposed a $24 billion plan to improve water reliability.

 

7.  Most water rights in the arid West are obtained under a legal system known as prior appropriation.  This grants the first user of water to continue using it despite changing needs.  This means historically farmers had the first right of use.  If a farmer conserves water, the excess moves to the next farmer in a antiquated chain of rights.  A conserving farmer cannot sell his unused water rights, but U.S. trade policy fosters the international export of this same water embedded in the high water using crops such as alfalfa.

 

8. This new export reflects a growing trend—the U.S. is increasingly selling raw materials to China that China converts into valuable products–cotton into shirts, hides into shoes, logs into furniture.  As a contrast, one of New Zealand‘shighest value products exported to China is powdered milk.

 

Is exporting water guzzling alfalfa the”Right Thing to do?”  It is time to develop trade policies that encourage the development of value added products, for example powdered milk to China.  Wouldn’t we be better off with a thriving dairy industry here that supported a milk processing industry than to ship our water to China?  In the middle of a drought with rising food prices and a need for jobs here, let’s work on policies to maximize the benefits of our water resources here.