Irrigation water runs along a dried-up ditch between the rice farms to provide water for the rice fields in Richvale, Calif. Jae C. Hong | AP

For farmers in parched California, it's water allocation time. An annual rite of spring, the state's water authority monitors winter storm runoff and sets water deliveries for customers. Those regional water allotments are cut into chunks and trickle down to small farmers like Mike DeWit, a second-generation rice farmer in Northern California. He proudly grows a medium-grain variety that once cooked is soft, sticky and holds its shape when molded—perfect for sushi rice.

If you like sushi, there's a good chance you've eaten rice grown by DeWit or his fellow farmers in the Sacramento Valley, the northern end of the Central Valley. About 97 percent of California's entire rice crop is produced in the Sacramento Valley, where the heavy clay-like soil and long warm summer days and nights nurture high-quality medium-grain rice. Rice planting will begin in earnest in April. For now DeWit is waiting for his final water allocation numbers, but he knows they will be low. California is stepping into year four of a drought, and a second year of severe water restrictions for farmers. Residents can't use hoses to wash cars without shutoff nozzles. Restaurants can only serve water to customers who ask for it. Farmers are reducing acreage and installing more efficient irrigation systems to conserve water. Rice grows submerged in water so successful rice farming boils down to savvy water management.

Farmers planting less acreage

The ripple effect is a bigger problem for the state Mike DeWit California rice farmer

Mike DeWit is a second-generation rice farmer in California’s Sacramento Valley. Source: California Rice Commission

In 2013, DeWit farmed about 1,050 acres. This year, he'll farm between 350 and 380 acres—that's down as much as 66.7 percent in just two years. "We know there's going to be water cutbacks," DeWit said. "I know there's going to be less acreage." Economists and researchers so far haven't hit the panic button, and aren't forecasting a widespread spike in consumer food prices. That's in part because of crop diversity. If there's a significant drop in California-grown rice for example, rice farmers in the South might shift some production to fill the gap. But everyone knows mountain snowpack levels are low, and many farmers already are hunkering down for another year of water cutbacks. Vast tracts of farmland have been fallowed, which basically means idling cropland to accumulate moisture. Some communities have been short drinking water.

Winter storms in December and February did help fill major state reservoirs. But most Northern California reservoirs remain below historical average levels for this time of year, according to the California Department of Water Resources. The drought's reach has gripped DeWit and other farmers, and is triggering a cascading effect in the agricultural community. Less water and acreage means "I'm not buying as much fuel, as much fertilizer," DeWit said. "I'm not renting another tractor. I had to lay off the driver," he added. Rice mills at the end of the supply chain might process less product. "The ripple effect is a bigger problem for the state." At 48, DeWit knows a lot about the land and he's eager to expand his farming skills to the next level. But without water, his hands are essentially tied. "It's frustrating," he said. "I'm almost in survival mode." And, oh yeah, it's barely spring. It will only get hotter and drier.

$1 billion in emergency relief

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Facing another year of extreme weather conditions, California Gov. Jerry Brown in mid-March announced a $1 billion emergency drought package. The relief includes funding for safe drinking water and water recycling efforts. Brown is calling on all Californians to cut water use by 20 percent. It's still early in 2015 and researchers are calculating the potential impact of this year's drought. Based on fluid data so far, the 2015 California drought could cost roughly $3 billion, compared to $2 billion last year, said Richard Howitt, an agriculture and resource economics expert at the University of California, Davis. This year's drought could also cost more than 20,000 jobs, including those in agriculture and food production, said Howitt, also professor emeritus. Other economists peg the state's drought impact so far at around $5 billion. Sectors that will be hit significantly include agriculture and food processing, said Troy Walters, a senior economist at IHS. Beyond those two categories, the impact will be minimal in the near term. "We're not going to see any food inflation into 2015 beyond normal as a result of the water situation," Walters said. Looking at some California crops specifically, 2015 regional hay prices may not soften as they are expected to in the rest of the country. There's a good chance there will be less rice acreage overall. And tree nuts including almonds will feel more of the drought's impact, said Brandon Kliethermes, a senior economist at IHS. Older, less efficient nut trees are being destroyed.

Water rights for $700 an acre-foot

With so much uncertainty and water reservoirs down, some farmers are idling land and making more money selling water than planting rice. Some are selling water to Southern California—in a modern-day twist on "Chinatown." The 1974 film, starring Jack Nicholson, depicts the struggle over lucrative water rights. Some Southern California water consumers are offering to pay as much a $700 per acre-foot this year compared to under $300 for the same amount about four years ago, NBC News has reported. (An acre-foot is roughly 325,000 gallons of water. Just imagine a swimming pool that's an acre across and a foot deep.) Read MoreSouthern California offers farmers top dollar for water Soaring water prices are a never-ending source of gossip at virtually every local water board meeting up and down the state. "We're like eighth-grade girls," gabbing about water prices, said rice farmer DeWit. A land tenant, DeWit does not own the acreage he occupies, which means it's not his call to sell water. A typical rice crop requires ballpark 3-plus acres. So if landowners sell water rights for $700 an acre-foot, for example, that means around $2,000 in their pockets. "I can't come near that in paying rent," DeWit said. "I can't blame a landowner for selling their water."

The water market is fetching top dollar amid low inventory. The state water agency, the California Department of Water Resources, is on track this year to allocate a mere 20 percent of the requested 4.2 million acre-feet of water for its 22 million residential consumers and 700,000 agricultural customers.



Is a 'megadrought' coming?

This is a natural disaster that's slowly unfolding Toby Ault climate scientist on chances of a 'megadrought'

Toby Ault is a climate scientist at Cornell University. He studies infrequent but consequential weather events like major droughts. Using supercomputers, Ault and other NASA researchers including Ben Cook studied tree rings going back 1,000 years, and compared those records with soil moisture data from 17 different global climate models to peer into the future.

Their conclusion? A drier world due to rising temperatures from human-induced climate change. By the end of the 21st century, the American Southwest and Great Plains are likely to experience longer and more severe droughts than at any other time during the past 1,000 years, according to research published in February.

Climate scientists forecast a “megdrought.” Browns show lower soil moisture and blues indicate higher soil moisture regions. NASA