The water shortage in California is leading some farmers to sell their irrigation allotments to cities and other farmers in Southern California, according to an Associated Press story. It is well within their rights to do so, but while those farmers may benefit, the taxpayers will end up paying the price.

California is currently experiencing one of the most severe periods of water shortage in the last decade, thanks to eight years of drought conditions along the Colorado River coupled with regulatory restrictions and increasing demand. This year’s first survey of the snow pack in the Sierra Nevada, the spring snowmelt that provides another important source of water in the state, estimated a snow depth of less than 60 percent of normal for the season. Prices for water, normally around $50 an acre-foot (3.9 million gallons) of water, may rise to as much as $200 per acre-foot this year.

As a result, farmers who grow annual crops such as rice, cantaloupes and tomatoes around Sacramento and the San Joaquin Valley, and who — thanks to state and federal subsidies — are paying only $30 to $60 per acre-foot of water, may make more money by selling their water than by growing and selling the crops that water would normally irrigate. A spokesperson for the State Water Contractor Association, which represents 29 water agencies, noted that “virtually every agricultural district in the Sacramento Valley is thinking about selling their water this year.”

Who can blame them? These farmers are just doing what makes the most economic sense for them. This situation, however, is less beneficial for taxpayers. Because the farmers’ water is subsidized, when they, in turn, sell the water to a municipal supplier rather than using it to grow their crops, the taxpayers are paying for food security they aren’t getting. While it’s difficult to predict the precise impact the water situation will have on food prices, rising prices are a distinct possibility as planted acreage decreases.

Further, when the subsidized water is sold on the open market, the cost of water reflects these artificial prices rather than the short supply and high demand. As this means that city water rates don’t accurately reflect the shortage, the costs won’t necessarily encourage consumers to conserve as much as they would if the water was appropriately priced.

More regulation could address situations such as prohibitions on reselling irrigation water, for example. However, regulations on the water supply system are already complex, and in some cases, exacerbating the situation. A December federal court ruling has forced water managers to limit pumping in the Sacramento-San Joaquin Delta to protect the Delta smelt, an endangered fish.

This situation illustrates why governments need to be extremely cautious in allocating subsidies and passing policy that supports one segment of the market over another. No industry exists in a vacuum, not even agriculture, and the ripple effect can cause unintended and negative consequences in times of stress.

Amy Kaleita is a public policy fellow for environmental studies at the Pacific Research Institute, San Francisco.