(Reuters) - General Motors' (GM.N) Opel unit might make cars for other manufacturers if car parts maker Magna (MGa.TO) becomes its partner, German paper Welt am Sonntag reported, citing unidentified sources close to Magna.
Germany's hunt for a partner for struggling Opel has boiled down to two rival groups, Italy's Fiat (FIA.MI) and Austrian-Canadian Magna, which have been asked to present a full plan within a week, Economy minister Karl-Theodor zu Guttenberg said on May 14.
If Opel has to reduce output of its cars, it could offer capacity to other carmakers such as Peugeot (PEUP.PA) or Ford (F.N), for example in its factory in Ruesselsheim, the sources close to Magna said, according to the weekly newspaper.
Magna therefore does not plan to close any Opel factories in Germany, while it might shut plants in Belgium's Antwerp and in Luton in the UK, the paper said.
Read more here
Sunday, May 17, 2009
Thursday, May 14, 2009
Japan’s Machinery Orders Fall as Factories Sit Idle
(Bloomberg) -- Orders for Japanese machinery resumed falling in March, a sign that managers remain wary of upgrading factories and equipment before an economic recovery takes hold.
Bookings, an indicator of capital investment in the next three to six months, fell 1.3 percent from February, when they gained a revised 0.6 percent, the Cabinet Office said today in Tokyo. Economists surveyed predicted a 4.6 percent drop.
Although Japan’s worst recession since World War II probably bottomed last quarter, the collapse in global demand has forced manufacturers to cut production by more than a third from last year’s peak. With factory lines sitting idle and profits falling, companies have little reason to invest in new equipment, spending that accounts for about 16 percent of the world’s second-largest economy.
“The economy is still in bad shape,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Companies are still reluctant to make new investments.”
The Nikkei 225 Stock Average climbed 1.7 percent as of the lunch break in Tokyo. The yen traded at 95.97 versus the dollar from 96.10 before the report.
From a year earlier, orders fell 22.2 percent in March compared with 30.1 percent in February. The Cabinet Office said the “pace of declines has eased,” changing the wording of its assessment from “the orders trend continues to decline.”
China’s Demand
Bookings from abroad, which aren’t included in the headline number, jumped 46.4 percent, the biggest monthly gain on record. The Cabinet Office doesn’t give any information about the geographic origin of the orders, though an official said China is likely to have been a source of demand.
Analysts predict a government report next week will show the economy shrank at an annual 16.2 percent pace last quarter, the worst showing since records started in 1955 and the fourth contraction in a row.
Data released in the past month suggest gross domestic product may rise this quarter, albeit building from a low point.
Confidence among merchants and small businesses improved in April. Exports increased in March from a month earlier, and factory production rose for the first time in six months. Bank of Japan Governor Masaaki Shirakawa said this week that the gain in output shows the economy is “leveling out.”
Read more here
Bookings, an indicator of capital investment in the next three to six months, fell 1.3 percent from February, when they gained a revised 0.6 percent, the Cabinet Office said today in Tokyo. Economists surveyed predicted a 4.6 percent drop.
Although Japan’s worst recession since World War II probably bottomed last quarter, the collapse in global demand has forced manufacturers to cut production by more than a third from last year’s peak. With factory lines sitting idle and profits falling, companies have little reason to invest in new equipment, spending that accounts for about 16 percent of the world’s second-largest economy.
“The economy is still in bad shape,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Companies are still reluctant to make new investments.”
The Nikkei 225 Stock Average climbed 1.7 percent as of the lunch break in Tokyo. The yen traded at 95.97 versus the dollar from 96.10 before the report.
From a year earlier, orders fell 22.2 percent in March compared with 30.1 percent in February. The Cabinet Office said the “pace of declines has eased,” changing the wording of its assessment from “the orders trend continues to decline.”
China’s Demand
Bookings from abroad, which aren’t included in the headline number, jumped 46.4 percent, the biggest monthly gain on record. The Cabinet Office doesn’t give any information about the geographic origin of the orders, though an official said China is likely to have been a source of demand.
Analysts predict a government report next week will show the economy shrank at an annual 16.2 percent pace last quarter, the worst showing since records started in 1955 and the fourth contraction in a row.
Data released in the past month suggest gross domestic product may rise this quarter, albeit building from a low point.
Confidence among merchants and small businesses improved in April. Exports increased in March from a month earlier, and factory production rose for the first time in six months. Bank of Japan Governor Masaaki Shirakawa said this week that the gain in output shows the economy is “leveling out.”
Read more here
Wednesday, May 13, 2009
U.S. banking crisis may last until 2013: S&P
(Reuters) - A day after saying big U.S. banks probably needed to raise only one-fourth the capital demanded by the government, Standard & Poor's said the nation's banking crisis has "merely entered a new phase" and might not end before 2013.
The credit rating agency said the industry is being propped up by hundreds of billions of dollars of government support, especially for lenders considered too important to the financial system to fail.
While efforts to spur lending, take bad assets off banks' balance sheets, and restart the market for packaging and selling securities may help the sector, S&P said banks will have a tough time surviving absent a bigger capital cushion than regulators require.
"There's nothing to say that this banking crisis can't go on for another three or four years," S&P Managing Director Tanya Azarchs said.
S&P did not immediately return a request for comment.
On Tuesday, S&P said major U.S. banks need to raise about $18 billion of capital to protect themselves from the economic downturn, though this amount could grow if conditions worsen.
The amount is well below the $74.6 billion that the government last week ordered 10 of the largest U.S. banks, led by Bank of America Corp and Wells Fargo & Co, to plug potential capital shortfalls.
Read more here
The credit rating agency said the industry is being propped up by hundreds of billions of dollars of government support, especially for lenders considered too important to the financial system to fail.
While efforts to spur lending, take bad assets off banks' balance sheets, and restart the market for packaging and selling securities may help the sector, S&P said banks will have a tough time surviving absent a bigger capital cushion than regulators require.
"There's nothing to say that this banking crisis can't go on for another three or four years," S&P Managing Director Tanya Azarchs said.
S&P did not immediately return a request for comment.
On Tuesday, S&P said major U.S. banks need to raise about $18 billion of capital to protect themselves from the economic downturn, though this amount could grow if conditions worsen.
The amount is well below the $74.6 billion that the government last week ordered 10 of the largest U.S. banks, led by Bank of America Corp and Wells Fargo & Co, to plug potential capital shortfalls.
Read more here
Tuesday, May 12, 2009
BofA, other U.S. banks scramble for capital
(Reuters) - Several large U.S. banks undertook big capital-raising efforts on Tuesday, hoping to satisfy regulators who want bigger cushions against a deep recession, or proof that they have enough of a buffer already.
Bank of America Corp, which regulators last week ordered to find $33.9 billion of capital, sold $7.3 billion of China Construction Bank Corp (CCB) shares to a group of investors, according to a person directly involved in the sale who was not authorized to discuss it. The bank declined to comment. CCB could not be reached.
Meanwhile, U.S. Bancorp and Bank of New York Mellon Corp sold a respective $2.5 billion and $1.2 billion of common stock, as they look to repay taxpayer bailout funds.
Unlike Bank of America, both were deemed in U.S. government "stress tests" to have sufficient capital buffers. BB&T Corp, which also got a clean bill of health, is expected to sell $1.5 billion of stock.
Dozens of lenders are hoping to convince regulators that they can withstand a steep economic downturn, or are healthy enough to repay money from the $700 billion Troubled Asset Relief Program.
TARP was designed to spur lending, but banks now consider it a burden because it imposes too many restrictions, including some on pay, and suggests that recipients are weak.
Bank of America took $45 billion from TARP, U.S. Bancorp $6.6 billion, BB&T $3.1 billion and Bank of New York Mellon $3 billion. Lenders say it is up to regulators to decide when money can be repaid. The government does not want banks to repay funds, only to find later that they need more.
"It is now a negative to have TARP," Bank of New York Mellon Chief Executive Robert Kelly said at a UBS financial services conference. "When I was traveling in the Middle East, Asia and in Europe over the past couple of months ... I got a pretty clear message (from clients) that it would differentiate us if we were able to get out."
Ten of the 19 large banks that underwent stress tests were ordered last week to raise $74.6 billion of capital to ward off a potentially severe downturn. Many banks said they do not expect conditions to sour as much.
Federal Deposit Insurance Corp Chairman Sheila Bair said on Tuesday the release of stress test results was a catalyst for capital raising by banks. She added that while the banking industry is gaining a better footing, "there's still some more pain to go.
Read more here
Bank of America Corp, which regulators last week ordered to find $33.9 billion of capital, sold $7.3 billion of China Construction Bank Corp (CCB) shares to a group of investors, according to a person directly involved in the sale who was not authorized to discuss it. The bank declined to comment. CCB could not be reached.
Meanwhile, U.S. Bancorp and Bank of New York Mellon Corp sold a respective $2.5 billion and $1.2 billion of common stock, as they look to repay taxpayer bailout funds.
Unlike Bank of America, both were deemed in U.S. government "stress tests" to have sufficient capital buffers. BB&T Corp, which also got a clean bill of health, is expected to sell $1.5 billion of stock.
Dozens of lenders are hoping to convince regulators that they can withstand a steep economic downturn, or are healthy enough to repay money from the $700 billion Troubled Asset Relief Program.
TARP was designed to spur lending, but banks now consider it a burden because it imposes too many restrictions, including some on pay, and suggests that recipients are weak.
Bank of America took $45 billion from TARP, U.S. Bancorp $6.6 billion, BB&T $3.1 billion and Bank of New York Mellon $3 billion. Lenders say it is up to regulators to decide when money can be repaid. The government does not want banks to repay funds, only to find later that they need more.
"It is now a negative to have TARP," Bank of New York Mellon Chief Executive Robert Kelly said at a UBS financial services conference. "When I was traveling in the Middle East, Asia and in Europe over the past couple of months ... I got a pretty clear message (from clients) that it would differentiate us if we were able to get out."
Ten of the 19 large banks that underwent stress tests were ordered last week to raise $74.6 billion of capital to ward off a potentially severe downturn. Many banks said they do not expect conditions to sour as much.
Federal Deposit Insurance Corp Chairman Sheila Bair said on Tuesday the release of stress test results was a catalyst for capital raising by banks. She added that while the banking industry is gaining a better footing, "there's still some more pain to go.
Read more here
Monday, May 11, 2009
Communists Can’t Outspend Capitalists as China Jobless Increase
(Bloomberg) -- Over bowls of chili tofu and mushrooms at a restaurant in Shenzhen in China’s humid Pearl River Delta, Terence Yap says he’s not alarmed that U.S. investors drove his company’s share price down 58 percent over the past year.
“We are in the right business in the right place at the right time,” Yap, 38, says as he gestures toward a gray industrial landscape that disappears into a pollution-blurred horizon. His occupation: selling surveillance equipment to a Chinese government that’s stepping up security spending as the economy slows, unemployment rises and the population grows restless. “We are in the business of providing peace of mind,” he says.
Peace of mind is getting harder to find for China’s leaders. Premier Wen Jiabao has pledged to ensure “social stability” as the government estimates that as many as 30 million rural migrants -- those Chinese who work in factories or seek urban construction jobs -- may have no income.
“We will launch intensive campaigns to ensure public security and maintain law and order,” Wen told the National People’s Congress in Beijing on March 5. China’s unemployment rate is about 9.4 percent, according to an estimate by the Chinese Academy of Social Sciences -- more than double the government’s March figure of 4.3 percent for the registered urban unemployed it officially tracks. Adding to the burden are a record 6 million Chinese college graduates who are entering the job market this year.
Jobs Jostle
Demand for work is so high that 5,000 students jostled at a Shanghai employment fair in March for 400 jobs available in the funeral industry. One woman with a management degree applied for a position as a mortician’s assistant to “make up the faces of the dead,” state media reported. The attraction: It paid 4,000 yuan ($585) a month, equal to what she might have earned in an office job two years ago.
By global standards, China is growing at a brisk pace; its 9 percent expansion in 2008 made it the best performer among the 10 largest economies. Gross domestic product slumped to 6.1 percent in the first quarter of this year, still a world-beating rate as the global recession cut demand for Chinese-made goods. Even as the country’s leaders assert themselves on the diplomatic stage, they are preoccupied with keeping a lid on popular discontent as the 20th anniversary of the crackdown on the democracy movement at Tiananmen Square draws near.
‘Sensitive Year’
“This is a very sensitive year,” says Jimmy Lai, chief executive officer of Hong Kong-based Next Media Ltd., who was banned by the Chinese government from the mainland in 1994 after condemning Beijing’s leaders for crushing the democracy movement. “If the economy implodes, the risk of instability is high.” Lai, 59, founder of Hong Kong-based clothing retailer Giordano International Ltd., was forced to sell his Giordano shares after China shut down mainland stores in retaliation for his criticism.
As the country’s leaders fret about unrest at home, they’ve stepped up their rhetoric about the economic policies of trading partners in the west such as the U.S., where China has invested some $1.2 trillion, which includes $744 billion in U.S. Treasury bonds. “We lent such huge amounts to the United States, and of course, we’re concerned about the security of our assets,” Wen said at a press conference in Beijing on March 13. “And to speak truthfully, I am a little bit worried.”
China now holds almost $2 trillion in foreign reserves. “The Chinese Communist Party is now the world’s most liquid financial institution,” says Andy Rothman, a Shanghai-based strategist at CLSA Ltd., the Asian brokerage unit of Credit Agricole SA.
Read more here
“We are in the right business in the right place at the right time,” Yap, 38, says as he gestures toward a gray industrial landscape that disappears into a pollution-blurred horizon. His occupation: selling surveillance equipment to a Chinese government that’s stepping up security spending as the economy slows, unemployment rises and the population grows restless. “We are in the business of providing peace of mind,” he says.
Peace of mind is getting harder to find for China’s leaders. Premier Wen Jiabao has pledged to ensure “social stability” as the government estimates that as many as 30 million rural migrants -- those Chinese who work in factories or seek urban construction jobs -- may have no income.
“We will launch intensive campaigns to ensure public security and maintain law and order,” Wen told the National People’s Congress in Beijing on March 5. China’s unemployment rate is about 9.4 percent, according to an estimate by the Chinese Academy of Social Sciences -- more than double the government’s March figure of 4.3 percent for the registered urban unemployed it officially tracks. Adding to the burden are a record 6 million Chinese college graduates who are entering the job market this year.
Jobs Jostle
Demand for work is so high that 5,000 students jostled at a Shanghai employment fair in March for 400 jobs available in the funeral industry. One woman with a management degree applied for a position as a mortician’s assistant to “make up the faces of the dead,” state media reported. The attraction: It paid 4,000 yuan ($585) a month, equal to what she might have earned in an office job two years ago.
By global standards, China is growing at a brisk pace; its 9 percent expansion in 2008 made it the best performer among the 10 largest economies. Gross domestic product slumped to 6.1 percent in the first quarter of this year, still a world-beating rate as the global recession cut demand for Chinese-made goods. Even as the country’s leaders assert themselves on the diplomatic stage, they are preoccupied with keeping a lid on popular discontent as the 20th anniversary of the crackdown on the democracy movement at Tiananmen Square draws near.
‘Sensitive Year’
“This is a very sensitive year,” says Jimmy Lai, chief executive officer of Hong Kong-based Next Media Ltd., who was banned by the Chinese government from the mainland in 1994 after condemning Beijing’s leaders for crushing the democracy movement. “If the economy implodes, the risk of instability is high.” Lai, 59, founder of Hong Kong-based clothing retailer Giordano International Ltd., was forced to sell his Giordano shares after China shut down mainland stores in retaliation for his criticism.
As the country’s leaders fret about unrest at home, they’ve stepped up their rhetoric about the economic policies of trading partners in the west such as the U.S., where China has invested some $1.2 trillion, which includes $744 billion in U.S. Treasury bonds. “We lent such huge amounts to the United States, and of course, we’re concerned about the security of our assets,” Wen said at a press conference in Beijing on March 13. “And to speak truthfully, I am a little bit worried.”
China now holds almost $2 trillion in foreign reserves. “The Chinese Communist Party is now the world’s most liquid financial institution,” says Andy Rothman, a Shanghai-based strategist at CLSA Ltd., the Asian brokerage unit of Credit Agricole SA.
Read more here
Thursday, May 7, 2009
BofA needs $33.9 billion, eyes stock and asset sales
(Reuters) - Bank of America Corp, ordered by the government to find $33.9 billion of capital, said on Thursday it planned to sell assets and issue more common stock to cover the shortfall.
The capital-raising, half of which will come from common stock issuance, was announced after the government concluded that the largest U.S. bank faced a potential $136.6 billion of losses from loans, investments and trading in 2009 and 2010 under "more adverse" conditions.
Bank of America said the results overstated the bank's risks, especially on seemingly safe residential mortgages, and understated its earnings potential, and pledged to repay the $45 billion of government aid it has taken as soon as it can.
"Our game plan is designed to get the government out of our bank as quickly as possible," Chief Executive Kenneth Lewis said on a conference call.
Bank of America is one of 19 large U.S. banks that underwent government "stress tests" to see how much capital they need to weather a deep recession.
Ten were told to find capital. Bank of America's $33.9 billion shortfall is more than twice the $13.7 billion that Wells Fargo & Co, deemed to have the second greatest capital need, was told to raise.
Bank of America's capital needs add to pressure on Lewis, who called it a "humbling experience" when shareholders last week narrowly voted to oust him as chairman, largely because of its falling share price and a takeover of Merrill Lynch & Co.
The board of directors replaced him with Walter Massey, the president emeritus of Morehouse College in Atlanta. Bank of America said it will seek new directors, perhaps loosening Lewis' control over a board long supportive of him.
Shares of Bank of America rose $1.21 in after-hours trading to $14.72, after closing up 82 cents at $13.51 in regular trading. They traded at $33.74 before the Merrill merger was announced last September 15.
CAPITAL RAISING PLANS
Bank of America plans to raise $17 billion of common equity, including through converting at less than face value some preferred shares held by private investors. The bank said this could involve issuance of 1.25 billion common shares.
It said it also plans to raise $10 billion from asset sales, including its Columbia asset management unit and First Republic Bank, and may enter into several joint ventures. The bank plans to raise another $7 billion through other means.
Lewis said the Charlotte, North Carolina-based bank wants to remain a strategic partner with China Construction Bank Corp and "always have a substantial ownership position" in the bank. Analysts have said Bank of America could post a $8 billion or larger gain from selling its 16.6 percent stake.
Asked if he would consider selling any of Merrill Lynch's investment banking business, Lewis said: "Absolutely not."
Read more here
The capital-raising, half of which will come from common stock issuance, was announced after the government concluded that the largest U.S. bank faced a potential $136.6 billion of losses from loans, investments and trading in 2009 and 2010 under "more adverse" conditions.
Bank of America said the results overstated the bank's risks, especially on seemingly safe residential mortgages, and understated its earnings potential, and pledged to repay the $45 billion of government aid it has taken as soon as it can.
"Our game plan is designed to get the government out of our bank as quickly as possible," Chief Executive Kenneth Lewis said on a conference call.
Bank of America is one of 19 large U.S. banks that underwent government "stress tests" to see how much capital they need to weather a deep recession.
Ten were told to find capital. Bank of America's $33.9 billion shortfall is more than twice the $13.7 billion that Wells Fargo & Co, deemed to have the second greatest capital need, was told to raise.
Bank of America's capital needs add to pressure on Lewis, who called it a "humbling experience" when shareholders last week narrowly voted to oust him as chairman, largely because of its falling share price and a takeover of Merrill Lynch & Co.
The board of directors replaced him with Walter Massey, the president emeritus of Morehouse College in Atlanta. Bank of America said it will seek new directors, perhaps loosening Lewis' control over a board long supportive of him.
Shares of Bank of America rose $1.21 in after-hours trading to $14.72, after closing up 82 cents at $13.51 in regular trading. They traded at $33.74 before the Merrill merger was announced last September 15.
CAPITAL RAISING PLANS
Bank of America plans to raise $17 billion of common equity, including through converting at less than face value some preferred shares held by private investors. The bank said this could involve issuance of 1.25 billion common shares.
It said it also plans to raise $10 billion from asset sales, including its Columbia asset management unit and First Republic Bank, and may enter into several joint ventures. The bank plans to raise another $7 billion through other means.
Lewis said the Charlotte, North Carolina-based bank wants to remain a strategic partner with China Construction Bank Corp and "always have a substantial ownership position" in the bank. Analysts have said Bank of America could post a $8 billion or larger gain from selling its 16.6 percent stake.
Asked if he would consider selling any of Merrill Lynch's investment banking business, Lewis said: "Absolutely not."
Read more here
Wednesday, May 6, 2009
Shaved Heads Keep Barbers Idle as Drought Sears California
(Bloomberg) -- The drought in California’s Central Valley is so severe that it’s drying up money for haircuts.
One customer waited six months to get a $10 haircut, then asked to have his head shaved so he could wait another six months, said Armando Ramirez, a barber in Firebaugh.
“People come in and say, ‘Hey Armando, how about I give you a dollar for a cut, it’s all I have,’” said Ramirez, 63, who has owned his shop for four decades. “Saturday is supposed to be my busiest day, but I’m lucky if I get one customer before I go to lunch.”
Businesses are casualties of the three-year drought that is forcing farmers to leave hundreds of thousands of acres fallow in the Central Valley, the semi-arid agricultural region running 400 miles (600 kilometers) down the middle of the state. The drought may cost the valley 35,000 jobs and $959 million in lost revenue this year, said Richard Howitt, chairman of agricultural and resource economics at the University of California, Davis.
“I’ve never seen a drought this bad,” said Bob Diedrich, who has been farming near Firebaugh, 140 miles southeast of San Francisco, since 1973. “It’s putting a chokehold on us.”
Diedrich laid off all five of his full-time workers in anticipation of receiving no water this year to irrigate the 1,000 acres (400 hectares) of land where he grows almonds and tomatoes. The U.S. Bureau of Reclamation in February cut off water deliveries to Central Valley farmers for the first time in 15 years because reservoir levels were low. The reservoirs collect rain and melted snowpack from the Sierra Nevada for transport to farm irrigation systems.
Multiplier Effect
Farms hire workers for planting, picking, sorting, packing and other jobs. Most wages are spent locally, so when fields aren’t cultivated it hurts stores and other businesses, and a multiplier effect rolls through the economy, Howitt said.
“Our mom-and-pop shops are hurting,” said Hope Morikawa, director of the Hanford Chamber of Commerce, 30 miles south of Fresno, which has lost dozens of its 700 members this year and began offering its services for free.
Stacey Marshall can look out the window of her women’s clothing boutique in Hanford and see four empty storefronts.
“We’ve lost the scrapbook store, a cigar store and the bakery,” said Marshall, whose sales are dropping at a rate of about 13 percent this year. “The wine cellar and Boogie’s, a restaurant, closed.”
Rainfall in February and March eased the shortage, said Wendy Martin, drought coordinator for the California Water Resources Department, “bringing us back from the edge of disaster.” Still, Martin said she thinks this drought may rank among the state’s worst.
Third Dry Year
Snowpack runoff is forecast to be 66 percent of average in the year ending Sept. 30, following years of 58 percent and 51 percent, said Elissa Lynn, senior meteorologist for California’s Water Resources Department. Governor Arnold Schwarzenegger declared a state of emergency in February, asking residents of the world’s eighth-biggest economy and the most populous U.S. state to cut water use by 20 percent.
In the heart of Central Valley, half of the 30 communities in Fresno County had unemployment rates above 20 percent in March, when the state rate was 11.5 percent.
Farmers in the Westlands Water District, which includes Fresno County and part of Kings County, are planting about 200,000 acres, down from 500,000 in wetter years, said Sarah Woolf, spokeswoman. It’s the largest agricultural irrigation district in the U.S., she said.
Almonds, cotton, beans, grapes, tomatoes and other crops are raised in the area about halfway between San Francisco and Los Angeles. Fresno County grew $5.35 billion of produce in 2007, said Steve Lyle, a spokesman for California’s Food and Agriculture Department.
Read more here
One customer waited six months to get a $10 haircut, then asked to have his head shaved so he could wait another six months, said Armando Ramirez, a barber in Firebaugh.
“People come in and say, ‘Hey Armando, how about I give you a dollar for a cut, it’s all I have,’” said Ramirez, 63, who has owned his shop for four decades. “Saturday is supposed to be my busiest day, but I’m lucky if I get one customer before I go to lunch.”
Businesses are casualties of the three-year drought that is forcing farmers to leave hundreds of thousands of acres fallow in the Central Valley, the semi-arid agricultural region running 400 miles (600 kilometers) down the middle of the state. The drought may cost the valley 35,000 jobs and $959 million in lost revenue this year, said Richard Howitt, chairman of agricultural and resource economics at the University of California, Davis.
“I’ve never seen a drought this bad,” said Bob Diedrich, who has been farming near Firebaugh, 140 miles southeast of San Francisco, since 1973. “It’s putting a chokehold on us.”
Diedrich laid off all five of his full-time workers in anticipation of receiving no water this year to irrigate the 1,000 acres (400 hectares) of land where he grows almonds and tomatoes. The U.S. Bureau of Reclamation in February cut off water deliveries to Central Valley farmers for the first time in 15 years because reservoir levels were low. The reservoirs collect rain and melted snowpack from the Sierra Nevada for transport to farm irrigation systems.
Multiplier Effect
Farms hire workers for planting, picking, sorting, packing and other jobs. Most wages are spent locally, so when fields aren’t cultivated it hurts stores and other businesses, and a multiplier effect rolls through the economy, Howitt said.
“Our mom-and-pop shops are hurting,” said Hope Morikawa, director of the Hanford Chamber of Commerce, 30 miles south of Fresno, which has lost dozens of its 700 members this year and began offering its services for free.
Stacey Marshall can look out the window of her women’s clothing boutique in Hanford and see four empty storefronts.
“We’ve lost the scrapbook store, a cigar store and the bakery,” said Marshall, whose sales are dropping at a rate of about 13 percent this year. “The wine cellar and Boogie’s, a restaurant, closed.”
Rainfall in February and March eased the shortage, said Wendy Martin, drought coordinator for the California Water Resources Department, “bringing us back from the edge of disaster.” Still, Martin said she thinks this drought may rank among the state’s worst.
Third Dry Year
Snowpack runoff is forecast to be 66 percent of average in the year ending Sept. 30, following years of 58 percent and 51 percent, said Elissa Lynn, senior meteorologist for California’s Water Resources Department. Governor Arnold Schwarzenegger declared a state of emergency in February, asking residents of the world’s eighth-biggest economy and the most populous U.S. state to cut water use by 20 percent.
In the heart of Central Valley, half of the 30 communities in Fresno County had unemployment rates above 20 percent in March, when the state rate was 11.5 percent.
Farmers in the Westlands Water District, which includes Fresno County and part of Kings County, are planting about 200,000 acres, down from 500,000 in wetter years, said Sarah Woolf, spokeswoman. It’s the largest agricultural irrigation district in the U.S., she said.
Almonds, cotton, beans, grapes, tomatoes and other crops are raised in the area about halfway between San Francisco and Los Angeles. Fresno County grew $5.35 billion of produce in 2007, said Steve Lyle, a spokesman for California’s Food and Agriculture Department.
Read more here
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