As far as industries go, farming is in a rather unique situation. Manufacturing and processing plants, which can use a fair amount of water, simply pass on their increased costs to the consumer. Water conservation increases somewhat, which is good, while overall prices go up. Farmers, on the other hand, cannot pass on their costs to consumers. They are price takers. So simply making farmers pay more for water may help somewhat, but ultimately it will just drive farmers out of business. If enough farmers are driven out of business and production plummets (a likely scenario), supply will dwindle and prices will go up, which benefits the farmers who help on by the skin of their teeth. But overall it's a huge negative to everyone.
It's unfortunately that urban and rural areas are beginning to clash over water. More and more urban populations are so far removed from food production that they don't realize that cutting off farmers entirely is cutting off their own food supply, at least in part. CA is in a position where a lot of water is virtually exported in the form of exported foods, which is a problem (although a lot of food gets imported as well), but if consumers are willing to pay for it, farmers can and will switch to growing foods exclusively for local consumption.
Currently, as far as I can tell, most cities don't recycle water very much. They are dependent on a fresh source (hence the desalination plant), which goes through the city, and is then treated and released. There's very little technical reason why nearly 100% of the water that isn't lost to runoff or evaporation can't be recycled and put back into the potable supply. Surely if people are willing to shut farmers down they should be willing to recycle their own waste water, including sewer water. Maybe only 25-30% of water can be recycled, but that'd be a good help.