Recent heavy rains have not stopped California’s multi-year drought. As growth continues in other western states such as Arizona and Colorado, water will become even more precious. Instead of pleading for California residents to conserve water, Governor Jerry Brown and state officials should consider several agricultural policy changes that allow the market to encourage conservation.

Despite its favorable soil and warm weather, California is a less than ideal agricultural climate. Growing crops in sunny, high-temperature, low-humidity conditions requires up to six times as much water as growing the same crops in slightly cooler more humid conditions.

California needs to price its water correctly to decrease waste. While agriculture uses 80% of all California water, it accounts for only 2% of economic activity. Worse, by one calculation farmers have only paid 15% of the cost of the federal irrigation system that delivers water. While food production is important, the state should take several steps to preserve water. It should create a binding study group of agricultural and environmental experts, not politicians, to determine how much water farmers actually need. It is crucial that this group be non-governmental to reduce the political impulse to favor the agricultural crop with the strongest lobbyists over another crop.

Once it determines how much water farmers need, the state should stop providing discounts to agricultural users. It should charge commercial water users in the same manner that it charges residential users. Farmers should pay a flat rate per gallon for the amount of water needed to grow a basic crop such as carrots. But just as homeowners pay more for non-basic uses such as swimming pools, farmers should pay more for using extra water for luxury crops such as pistachios.

California should also consider short-term subsidies for crops that California has the comparative advantage in growing and increased rates for other crops. For example, carrots and olives use average to below average amounts of water to grow. And few places in the country other than California can grow carrots and olives. However, growing wheat and oats uses above average amounts of water. And many locations throughout the country can grow wheat and oats. Once California begins pricing water correctly the market should eliminate most of the problems. But to speed the transition, the state should offer short-term subsidies (five years at the most) to continue producing carrots and short-term penalties to discourage wheat production.