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FRESNO, California (Reuters) - California almond farmer Marvin Meyers has moved into banking -- water banking that is.
In the heart of the San Joaquin Valley, the world's most productive agricultural region, Meyers bought land to collect water in wet years and recharge a shallow aquifer. The water authority takes his supply for nearby farmers and gives him credit to irrigate from a canal at his orchard 15 miles away.
It cost Meyers $7 million and lots of headaches, but now he is the envy of farmers facing a third year of drought, drastic water cutbacks and billions of dollars in losses.
Worse may lie ahead, as climate change leads to longer droughts and depletes the mountain snowpack that now provides a steady stream of water until late in the farming year.
Yet, for all his vision, Meyers's "bank of last resort" will run dry if the drought persists for three more years.
"I do all I can, but really it is just Band-Aid farming," said Meyers, who grows 8 million pounds (3.6 million kgs) of almonds for the likes of Hershey's chocolate and German marzipan makers.
His "Band-Aid" shows how fragile the water future is for California's $35 billion farm industry -- source of half of U.S. fruit, vegetables and nuts, 80 percent of the world's almonds and one-third of its canned tomatoes.
If the state cannot learn to farm with less water and build infrastructure to capture more, the economic impact will be dramatic. Farming accounts for only 2 percent of the state economy but its demand for equipment, transport and other services means its demise would be widely felt.
When California Governor Arnold Schwarzenegger declared a drought emergency last month, state officials said as many as 95,000 agricultural jobs would go. Total economic losses could reach $3 billion. Up to a third of the 3 million acres (1.2 million hectares) normally irrigated with federally supplied water will be left fallow.
No place is worse off than the parched San Joaquin Valley, where crops rely on water that travels hundreds of miles from the snow-capped Sierra Nevada. But farmers up and down the state, from San Diego to Sacramento, are making hard choices.
Some are paring trees back to stumps and keeping the roots alive with minimal water; others are letting older trees die. Row crops, like lettuce and tomatoes, will not be planted without water. And farmers say they are having tough conversations with their children about their inheritance and livelihoods.
"I am third generation and I have a nephew and a son," said San Joaquin almond farmer Mike Wood, 53. "Frankly, I don't believe it will be here when they are ready to go."
Perhaps, this year's shock therapy will bring together warring parties at the water table -- farmers, cities, government, taxpayers and environmentalists -- to plot a future that allows California to maintain its agricultural dominance.
"If you look at California, things happen with crisis and we are in one right now," said Richard Howitt, a resource economist at the University of California, Davis.
Like the late 1970s and early 1990s, farmers have to contend with Mother Nature's drought. But now they also have what they call "the man-made drought" -- restrictions on the amount of water they can pump from the Sacramento-San Joaquin Delta, imposed to protect a fish species, the delta smelt.
The once-mighty water infrastructure is old and insufficient, with new canals and storage facilities years if not decades away from completion. Meanwhile, the state's population may double by 2050, heralding bigger water battles between cities and farms.
With such daunting short-term challenges, few farmers can think about the longer-term impact of climate change. Some models show California's water supply dropping 24 to 30 percent over the century, mostly after 2050. Others expect rain patterns to vary wildly, making farming tougher.
New U.S. Energy Secretary Steven Chu warned that climate change could melt the Sierra snowpack and wipe out California farms by century's end.
"I don't think the American public has gripped in its gut what could happen," Chu told the Los Angeles Times in February. "We're looking at a scenario where there's no more agriculture in California."
Some wonder whether California's vast agriculture industry should have been allowed to grow in the first place.
The San Joaquin Valley, 60 percent of the state's prime farmland, gets little rain and its groundwater was mostly pumped out by pioneers decades ago. Thanks to massive dams built in the 1930s and the California Aqueduct canal system in the 1960s, the valley exploited its rich soil and Mediterranean climate.
Successful farms also attracted industry, like the tomato processing plants that move 11 million tons a year -- double Italy's output.
But farmers struggle with a widely held perception that they have squandered the state's water, living far beyond California's hydrological means.
The water think-tank, the Oakland-based Pacific Institute, said farming uses 80 percent of the state's water, half in inefficient flood irrigation, while cities get the rest.
"Agriculture can no longer own the water of California without drastically changing their practices or water is not going to be available for people, for cities, for industry," said Natural Resources Defense Council President Frances Beinecke.
San Joaquin Valley farmers complain that environmentalists ignore their progress in conservation and smart irrigation. In western parts of Fresno County, which leads the nation in farm production, drip and sprinkle irrigation is ubiquitous.
"The Westside farmer is the most refined, high-tech irrigator there is," said Meyers. "We don't waste a drop."
Still, the Pacific Institute says farmers can do better.
"It's ironic because I do a lot of international water work and there's no other place on the planet where, in my opinion, the agricultural sector is so insistent that they can't do better," said Peter Gleick, institute president.
Farmers also point to reductions in water-intensive crops like cotton or rice in favor of vegetables, fruits and nuts that use water more efficiently. Cotton now covers just 200,000 acres compared to 1 million acres in the past.
Farmers and the state government agree infrastructure rather than conservation is the key to their future.
"We have to look at the things we can invest in at the state level that give us more predictability of a water supply that is deliverable, has high quality and protects the environment," said state agriculture secretary, A.G. Kawamura.
Farm interests and the state want a "peripheral canal" built around the delta to deliver water to farms and cities while observing pumping restrictions for fish conservation.
When it comes to increasing water storage, the large, remote dams of the past offer no solution.
However, diverting precipitation toward depleted aquifers, as Meyers is doing on a small scale, can help build water reserves for droughts. Regions which often compete for water are beginning to work together to recharge common supplies.
Amid the doom and gloom, UC Davis' Howitt says he remains "unfashionably slightly optimistic." Salvation could come, he says, by swapping to higher value crops.
"We can downsize in land area and water use, but because we grow crops that wealthier people like to eat, we can actually offset much of this downsizing by expanding the fruits, nuts and vegetables," he said.
Additional reporting by Nichola Groom and Carey Gillam, editing by Alan Elsner