RACHEL MARTIN, HOST:
California is putting new limits on the amount of groundwater the businesses can use. This comes after years of devastating drought. Stacey Vanek Smith and Cardiff Garcia, hosts of the NPR podcast The Indicator from Planet Money, bring us this story. They spoke to one farmer about how he's navigating these restrictions using an innovative new micro-market for water.
STACEY VANEK SMITH, BYLINE: Edgar Terry is a farmer in Ventura County, Calif.
EDGAR TERRY: Hello, hello.
VANEK SMITH: He meets us on his farm, and it is absolutely beautiful - rolling brown foothills and green fields.
CARDIFF GARCIA, BYLINE: He grows celery, cilantro, peppers.
VANEK SMITH: So what was the drought like for you?
TERRY: Well, you know, we managed through it. The scary part was - we're standing next to one of our newer water wells here. And when we drilled that well in 2010, our standing water level was 35 feet. As of the end of last year, it was down to 135 feet.
VANEK SMITH: At one point during the drought, the water level in Edgar's aquifer got so low, some of his pumps couldn't reach it. Things are much better now. California's drought is officially over. And Edgar takes us to see the pump. It is a fat, white pipe that rises up out of the ground with a little wheel on it. And Edgar turns the wheel and starts the pump.
(SOUNDBITE OF MOTOR WHIRRING)
TERRY: And we have water (laughter).
GARCIA: Before and during part of the drought, Edgar could pretty much use as much water as he wanted from the aquifer. But new regulations have capped his use, and the amount of water he can use will get a little bit smaller every year.
TERRY: It has to be reduced 2% a year for 20 years, for a 40% reduction of water - to get there. Well, so in essence, all else being equal, 40% of my land's going to go fallow.
VANEK SMITH: If your allotted water isn't enough, you could lose your crops. If you use more than your share of water, you face huge fines.
GARCIA: So Edgar teamed up with - who else? - an economist to create a marketplace where local farmers who shared the aquifer could buy and sell water. If a farmer had extra water, that farmer could set the price, post it to a website. And if a farmer needed water, that farmer could go to the website and buy it.
VANEK SMITH: But there was a problem. Edgar says the way a farmer uses water is a proprietary thing. And the idea of your neighbor knowing how much water you use and when you're using it, that was just a non-starter.
GARCIA: So the economist created an online marketplace that's kind of like Tinder but for buying and selling water and with one big difference, which is that it's all anonymous. Buyers and sellers are machine-matched.
TERRY: You put into the market algorithm what you're willing to sell for. I put into the market algorithm what I'm willing to buy for.
VANEK SMITH: The pilot is just getting started, but Edgar says he holds out a lot of hope for this idea. He says if farmers own a share of water instead of just having it be a free resource, they will use it better - be more responsible with it.
TERRY: Otherwise, without that ability, the incentive is, well, heck, I need to drain the aquifer before my neighbor does then. Well, what good does that do? It puts us both out of business. Let's think about a way of creating a system of market forces where there's an incentive to conserve, and also you're able to still grow your crop.
GARCIA: Edgar expects water costs will continue to be a bigger and bigger issue for his business. But he says he wouldn't do anything else.
TERRY: I couldn't imagine myself sitting in a high-rise, looking out over a sea of other high-rises. I like looking out over a sea of dirt.
VANEK SMITH: (Laughter).
Stacey Vanek Smith.
GARCIA: Cardiff Garcia, NPR News.
(SOUNDBITE OF MOONCAKE'S "MANDARIN") Transcript provided by NPR, Copyright NPR.
