The bread lines in the Soviet Union were due to the need to hide the favoritism

Hide? I don't think the fact that party apparatchiks didn't stand in those lines was a secret to anyone.

the legacy of a system designed for a different environment, where water was not a binding constraint.

I think you're factually mistaken. Water rights were always a big deal in the Western US precisely because water is the binding constraint in a lot of places. All the special water rights, the quotas, etc. reflect the system which always recognized that water was precious and in short supply.

I don't see any central planning in California.

No? source:

Gov. Jerry Brown on Wednesday imposed mandatory water restrictions for the first time on residents, businesses and farms, ordering cities and towns in the drought-ravaged state to reduce usage by 25%. ... The reduction in water use does not apply to the agriculture industry.

and more:

environmentalists ... have forced the state to abandon critical water-storage reservoir projects to avoid disruption of wildlife and ecosystems. But that's not all they've done. They also divert 4.4 million acre-feet of water every year — enough to supply the same number of families — to restore water runs such as the San Joaquin River, allowing passage of salmon and other fish. Without paying a dime, environmentalists have taken control of nearly half of California's water.

If I am a farmer, can I buy water on the open market?

And the system is stupid, too. As far as I know some farmer water quotas are "use it or lose it" -- if you don't draw the water allocated to you this year, your quote will get reduced next year. Any guesses as to the consequences?