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  Home Page » News » Business » Government Programs Paying Farms To Grow Waterthirsty Crops

Government programs paying farms to grow water-thirsty crops

by Garance Burke
Associated Press Writer FRESNO, Calif. - As drought forces families in the West to shorten their showers and let their lawns turn brown, two Depression-era government programs have been paying some of the nation's biggest farms hundreds of millions of dollars to grow water-thirsty crops in what was once desert.

Records obtained by The Associated Press show that the federal government handed out more than $687 million in subsidies over the last two years to hundreds of farmers in California and Arizona, the most seriously drought-stricken states in the West.

One program pays farmers for planting water-needy crops such as cotton and rice, which are largely grown by flooding the fields. The other provides cut-rate water for irrigation.

Farmers and government officials strongly defend the double-dip subsidies, saying they produce an abundance of food and jobs.

But now, with the West booming in population and the region gripped by both recession and a dry spell, environmentalists, city dwellers and members of Congress are demanding the government end or scale back this decades-old practice that essentially rewards farms for using water, not conserving it.

"With our weather patterns, with climate change and our population growth, we've got to look at how we use every drop," said Rep. George Miller, a Democrat who represents part of the San Francisco Bay area. "We need to take a serious look at policies that encourage economically inefficient and unsustainable uses of our limited clean water supplies."

Since the drought began in 2007, the government has steered about $79 million in water subsidies to California farms, according to an AP analysis of U.S. Bureau of Reclamation records. California cotton and rice farmers received an additional $439 million in subsidies doled out for commodity crops, according to an AP examination of U.S. Department of Agriculture data obtained through the Freedom of Information Act.

Arizona farmers have received nearly $170 million since 2007 in water and crop subsidies, mostly for cotton, records show.

Exactly how much California farmers will get in subsidies in 2009 is unclear, but it could be significantly less. Facing a third dry year and record-low reservoirs, the Bureau of Reclamation, which manages many dams and reservoirs in the West, announced major water cutbacks last month in California. For now, hundreds of farmers will get no irrigation water from the federal government, although they could get some later this year.

The cutbacks are leading some farmers to switch to less-thirsty crops or leave their fields fallow.

East of the Rockies, other rice- and cotton-growing states, such as Texas and Louisiana, get federal crop subsidies, too, but not cheap water through the Bureau of Reclamation, which operates only in the West. Also, the tug-of-war over water between the cities and the countryside is far more intense in booming California and Arizona.

President Barack Obama recently called some of the nation's crop programs unnecessary, and proposed cutting or capping them.

Over the last quarter-century, Congress has considered eight bills that would bar the double dipping practiced by California and Arizona. And federal budget analysts in 2006 questioned whether the government should be sending farms so much cheap water when endangered species and city dwellers need it, too.

Each year, agriculture takes up to 80 percent of federally controlled surface water in California - and the price many farmers have been paying is less than half what some cities do.

USDA officials acknowledge that even during the drought, the system has encouraged farmers to sow cotton and rice, which require more water per acre than other major commodities grown in California and Arizona. For example, a California farmer uses a quarter more water to grow an acre of cotton than wheat.

Rice, primarily grown in clay flood plains near Sacramento, needs almost twice as much water as wheat.

The USDA's chief economist, Larry Salathe, said a surging population and dry weather - not the agency's programs - are causing water shortages.

"We're concerned about the availability of water in the West, but we were growing rice and cotton in California long before this problem started," Salathe said. "We're trying to use our resources to produce the most food we can, and that by itself is not a bad objective."

Agriculture is a $36.6 billion industry in California, and the state's farms create thousands of rural jobs, contribute hundreds of millions in local taxes and grow most of the fruits and vegetables eaten in this country.

Jim Hansen, a 69-year-old cotton grower in California's Central Valley, said his family business would crumble if the government took away low-cost water and the nearly $1.7 million in crop payments he received in 2007 and 2008.

"Lots of farmers are already saying that these government programs aren't enough to make them stay in the business," said Hansen, co-owner of Hansen Ranches, the state's fourth-largest recipient of crop subsidies. "I just don't think that taking the No. 1 ag state and drying it up is a good long-term answer for our country. I mean, people need food."

BC-Goldman Sachs-Outlook, 5th Ld-Writethru,0513Goldman CFO still cautious about financial sectorEds: UPDATES stock price.

By Stephen BernardAP Business WriterNEW YORK - Goldman Sachs Group Inc. said Tuesday it's still cautious about the banking industry's health even as it priced a $5 billion stock offering aimed at helping it repay government bailout money.

In a conference call with investors, chief financial officer David Viniar said there are still "headwinds" in the industry because the value of mortgage-backed securities and other assets are still falling. Viniar's comments came a day after New York-based Goldman announced it earned $1.66 billion, or $3.39 per share, during the first quarter, beating the $1.64 per share forecast of analysts polled by Thomson Reuters.

Despite the ongoing uncertainty among financial companies, Goldman said it plans to repay the $10 billion in bailout money it received from the government as soon as possible, with help from the stock sale as well as additional reserves.

Goldman priced the $5 billion stock offering at $123 per share, a discount of 5.5 percent to Monday's closing price of $130.15. Goldman said it has the option to sell an additional $750 million in stock to cover over-allotments.

Shares of Goldman fell $15.04, or 11.6 percent, to close at $115.11 Tuesday.

Goldman's first-quarter performance put it in a strong enough position to plan the public stock offering that it said would be used, with additional resources, to pay back the government debt. Goldman received $10 billion in government funds during the downturn last fall as part of the U.S. Treasury Department's program to invest directly in hundreds of banks and try to help the nearly frozen credit markets.

Viniar said that before Goldman can repay the $10 billion, the government must first complete what's called a stress test on the bank. The government is running stress tests on the nation's largest banks to determine if they need any additional capital based on various economic scenarios. Those tests are expected to be completed by the end of the month.

But even if the money is repaid, Viniar told investors, "given the challenging fundamental backdrop in the global economy, we continue to be cautious about the near-term outlook for our businesses." His caution was similar to comments from Wells Fargo & Co. CFO Howard Atkins after the San Francisco-bank said last week it expects to report a record $3 billion first-quarter profit.

Unlike many other banks, Goldman has relatively little exposure to risky assets remaining on its balance sheet, Viniar noted. Goldman has long been considered one of the strongest banks amid the credit crisis and its exposure to the riskiest assets that have plagued banks since late in 2007 has been less than many of its competitors.

Viniar said Goldman's legacy leverage loans on its balance sheet now total $2.3 billion, compared with about $52 billion during the third quarter of 2007 when markets began to unravel. Those $2.3 billion remaining on its books are marked down to an average of about 50 cents on the dollar, Viniar added.