Under the new law premium levels at higher levels of coverage have increased

The 2002 Act also created a new Conservation Security Program . This program provides annual payments to farms that use environmentally approved practices in their production operations. Because many farms here in California already apply a number of environmentally approved practices in their operations, this program would provide an additional direct subsidy to farmers on a per acre basis up to relatively small payment limits. But this program has not yet been fully implemented and is very small in total funding.Based on recent data, the Federal Crop Insurance Program provided about $37 billion in protection on about 78 percent of the nation’s insurable acres in 2001 . The crop insurance program has experienced rising participation during the past decade as subsidies have increased and coverage has been extended to more crops. The 2001 level was nearly three times as high as the level in 1990, when crop insurance guarantees amounted to about $13 billion. This protection cost taxpayers about 2.8 billion in 2001. Producers paid about $1.2 billion in premiums and received about $3.1 billion in indemnities. The Agricultural Risk Protection Act of 2000 resulted in increased premium subsidies and adjustments to the formulas used to calculate coverage.For example, the old subsidy level for a coverage level of 50/100 was 55 percent. It now amounts to 67 percent. For a higher coverage level of 75/100, the subsidy level increased from 24percent to 55 percent. This change produced significant cost savings for producers purchasing revenue insurance compared to previous years and also led to a higher number of producers choosing a higher level of coverage. This policy reform has the effect that the crop insurance plays a more important role in the present PSE calculations than it has done under past calculations, because more producers are likely to participate in the program due to the lower cost . On a nationwide basis, the 2000 Act invests an additional $8.2 billion over 5 years to improve federal crop insurance. With regard to California crops, the subsidy resulting from crop insurance in 2001 was substantial for cotton, all grapes, almonds, prunes, apples and wheat. Most other fruits,macetas de plastico vegetables and field crops received only little subsidy as a consequence of participating in the crop insurance program.Irrigation is a key element of the current pattern of agriculture in California.

Water subsidy to California agriculture derives from access to surface irrigation water at prices below cost and below likely market prices for irrigation water if a market were allowed. Much of the reservoir and distribution system that serves agriculture was developed by the federal and state governments. The federal Central Valley Project and the California State Water Project systems of dams and canals are important providers of water storage and delivery to growers. In these projects, water is accumulated and stored in large reservoirs in the northern part of the state and then released into the Sacramento River canals for delivery. Almost half of the water available for use in the San Joaquin Valley comes from CVP and SWP sources. In addition, the All-American Canal diverts water from the Colorado River for use in the Imperial Valley in the far south of California. Imperial Valley dependence on canal water is acute; over 90 percent of valley water comes from federal or state projects. For the PSE calculations we assembled data on irrigation water usage by crop and then developed estimates of the subsidy implicit in the CVP. Based on data from the California Department of Water Resources, we were able to obtain figures on irrigated acreage per crop and irrigation region. This enabled us to calculate the total amount of acre-foot of water applied per crop and region. These calculations are based on average irrigated crop acreage during the 1988-1998 period. For commodities without individual number in DWR data, the share is determined by value of production . The subsidy rates for irrigated water from the Central Valley Project are based on data from the Bureau of Reclamation. We calculated the subsidy rate as the difference of the contract rate that a water district pays per acre-foot and the actual cost per acrefoot. Generally, the contract rate ranges from $10 to $30 per acre-foot for most regions, but it is very low at $2 dollars per acre-foot for most contractors in the Sacramento River region. Subsidy rates varied from $10 to $40 per acre-foot depending on region. The water subsidy for California is estimated to total almost $88 million.Marketing assistance encompasses many programs and departments that provide resident assistance to the agriculture industry. Cooperative Extension and the Agricultural Cooperative Service provide advisory assistance. Inspection services are provided by the Federal Grain Inspection Service, the Food Safety Inspection Service, and the Packers and Stockyards Administration.

The state government also provided approximately $147 million for agricultural plant and animal health, pest prevention and food safety services. Outlays for the Foreign Agriculture Service, Agricultural Marketing Service, and Office of Transportation comprise the federal portion of processing and marketing assistance. For the 1999-2001 period, the average state outlays for California Department of Food and Agriculture marketing, commodities and agricultural services totaled around $60 million. For those commodities with relatively small amounts of total support, marketing assistance provides the bulk of the support. Assessments are subtracted from outlays to determine the contribution to the PSE. Finally, there are state and federal marketing order, board and commissions for many California commodities. These are generally financed by check-off systems that apply a kind of excise tax on the marketed commodity to support promotion or research .Infrastructure support includes federal soil conservation programs, which provide assistance in reducing soil erosion and degradation of resources. While the contribution of these programs to overall support of California agriculture is small, they are included as a separate category for consistency with the PSE calculation. Economy-wide policies include taxes and federal transportation spending. There are various tax benefits for agriculture and foreign sales corporations that indirectly support the agricultural industry. Nelson, Simone and Valdes have compiled the total value of federal tax benefits to agribusiness and have also calculated the value of inland waterway construction and railroad interest rate subsidies. In general, the value of transportation subsidies is relatively small, usually around 2 percent of total support for each commodity. This is likely an over-estimate, however, because the California share in these benefits is likely smaller than the California share of agricultural output . Tax breaks were a larger share of the support, but were not substantial by themselves. We did not include in our PSE calculations the value of state and local real estate tax benefits to agriculture. California, like many other states in the United States, provides for a special taxation rate on agricultural real estate. The state’s Williamson Act, introduced in 1965,macetas rectangulares provides a preferential assessment program for agricultural land. Williamson Act acreage currently represents almost half of California agricultural land. Under the Williamson Act, landowners sign a contract with the appropriate local government agency restricting urban use of that land for ten years.

In return, property under Williamson Act protection is assessed for tax purposes according to its capitalized agricultural income. Capitalized income assessments are usually about half of the market value-based assessments for Williamson Act land; thus landowners receive approximately $120 million in tax benefits. Contracts may be terminated through non-renewal or cancellation. Non-renewal gradually phases in the market value-based assessment over nine years; at the end of the ten-year contract, the land is appraised at full market value. Cancellation of Williamson Act contracts must be approved by the local governing board after conducting public hearings. If the contract cancellation is approved, the landowner pays a penalty of 12.5 percent of the current market value of the land .Dairy policy is discussed in detail above. Here we note only that, in addition to trade protection and internal price policies, the dairy industry receives support from several smaller programs as well. In addition, the dairy industry receives indirect support in the form of subsidies to the grain industry and, especially, the alfalfa hay industry. Hay is important in dairy production, accounting for about 20 percent of total costs. The major subsidy for alfalfa is irrigation water; some have argued that the water subsidy to alfalfa is a major contributor to lower dairy production costs in California. Let’s examine this proposition. Total alfalfa support is about $34 million. Most of this, about $15 million is attributable to the irrigation water subsidy. Some of the alfalfa and other hay grown in the state is consumed by other livestock. Approximately $12 million of the water subsidy to hay is ultimately of benefit to the dairy industry. If the $12 million were added to a subsidy of about one billion dollars, it would raise the overall dairy subsidy from 33.4 percent to 33.6 percent. In other words the effect of irrigation subsidy on dairy is very small, especially compared to the subsidy from other sources.Commodities in this category have little government intervention in their markets. The PSEs range from about 3 to 5 percent of the revenue. There are no significant trade barriers or direct payments for these commodities. The main portion of support comes from input assistance, marketing assistance, broad government infrastructure and economy-wide policies. While these commodities have no explicit export subsidies, they do benefit from foreign market development funding to some degree, especially almonds and strawberries . Crop insurance benefits and disaster payments are also a source of a small amount of support for this group . In the citrus industry, crop insurance and disaster payments comprise almost 30 percent of the support; large payments were made following the 1990 freeze that took a heavy toll on the California citrus industry . Most commodities in this group have some sort of marketing order, either federal, state, or both. The marketing order share of total support ranges from 3 percent to around 25 percent . The share of support from research is relatively high for these commodities, around 25 percent. Nevertheless, since these percentages equal very small PSEs for the horticultural commodities, the overall subsidy is quite small.

One of the major problems in California is that the state’s water is concentrated in the north, but the majority of the state’s urban population and irrigated agriculture is located in the south. California contains 32 million acre-feet of developed water, of which 84 percent is used to irrigate 9.68 million acres of agricultural land. Because such a large proportion of water resources is used for irrigated agriculture, most water management conflicts involve the movement of water to or from irrigated agriculture. While most of the water is used to irrigate field and fodder crops, the high value vegetable and fruit crops generate the majority of agricultural revenues.From the 1950’s to 1970’s different government agencies at the State and Federal level implemented a massive water development program in California. This program was built upon the traditional supply augmentation approach to water development. Unfortunately this approach to water development is flawed. The main weakness of the traditional supply based method is that it assumes that the demand for water is perfectly inelastic and unchanging over time. An inelastic demand assumes that there is little quantitative response to changes in the price of water. Under this planning approach the quantity of water to be delivered by a water project is fixed, and the only question is how to minimize the costs of supplying it. Economic analysis is then performed to see if the total costs of the water project are less than the total benefits. Both the State Water Project and the Federal Central Valley Water Project were developed using the principles of the supply-based approach to water development. The SWP was originally projected to supply an average annual quantity of 4.2 million acre-feet of water in two stages. The first stage of 2.2 million acre-feet was built and put into service in the late 1960’s and early 1970’s. However, subsequent attempts to build the remaining 2 million acre-feet capacity have met with effective opposition from environmental interests, who want to prevent any further water development, and current contractors, who know that the average cost of water delivered by the system will have to increase by up to 300 percent to finance the completion of the planned project.