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california Water Today 93 and longer-term shifts in demand through the continued development of the water market. The large differences in crop revenues per acre-foot are reflected in consider- able differences in the value of agricultural water use across regions. Coastal areas specializing in fresh vegetables, other horticultural crops, citrus, avoca- dos, and vineyards generate much higher revenues per acre of irrigated cropland than many farms in the agricultural heartland of the Central Valley (Figure 2.10). To some extent, these discrepancies reflect the costs farmers incur to apply water to their fields, a function of seniority of water rights, water subsidies to some CVP contractors,15 and the financial and energy costs of moving water to users. In coastal Southern California, for instance, farmers pay up to $600 to $800 per acre-foot for State Water Project water that must travel over the Tehachapi Mountains, whereas in Imperial County, parts of the northern Sacramento Valley, and the east side of the San Joaquin Valley, farmers receive water deliveries from local and federal projects for as little as $8 to $40 per acre-foot.16 Irrigated pasture and low-value field crops are viable only when the water is relatively inexpensive. Federal crop subsidies artificially boost the value of many low-value crops. Direct subsidies are now provided for roughly half of the state’s cotton crop, as well as for corn, rice, and some other field crops.17 Subsidies to the dairy industry indirectly boost demand for alfalfa.18 In contrast, prices for the higher-value fruits, nuts, and horticultural crops are entirely driven by local and world markets. Another way to view the value of water is by examining the costs of short- ages. Figure 2.11 shows the incremental revenue loss (or “marginal costs”) from reducing irrigation water deliveries by 5 and 25 percent. Much higher losses occur in areas growing higher-value crops, and losses increase substantially with larger cuts. These disparities in agricultural water values provide incentives for farm-to-farm water sales. Many farmers with more senior and secure water rights grow relatively low-value crops, whereas some junior rights holders, such 15. The estimated yearly subsidy to farmers receiving CVP water, relative to the full-cost rate, is roughly $60 million (Environmental Working Group 2004). In addition to its subsidized contractors, the CVP also delivers about 2.6 maf of water to “settlement” and “exchange” contractors who were already receiving the water before the CVP began operations at low (but not subsidized) prices (Hanak et al. 2010). 16. Comprehensive information on agricultural water prices is not available, but most large irrigation districts publish their rate structures. 17. In 2005, for instance, direct subsidies to cotton, rice, corn, wheat, and barley amounted to $534 million (current dollars), roughly 16 percent of the gross revenue of all field crops (Environmental Working Group undated). 18. Dairy subsidies vary considerably by year. In 2009, they were as much as $125 million in California (Environmental Working Group undated).