By Caroline Stauffer
SAO PAULO (Reuters) - After a grueling election campaign in which officials faced fierce criticism for downplaying the effects of a year-long drought, Brazil's most populous state is finally coming to terms with an uncomfortable reality: it is running out of water.
São Paulo state accounts for a third of Brazil's economy and 40 percent of its industrial production, and the water crisis is already crimping factory and farm output as well as the service sector in a stagnant economy.
"There is absolutely no doubt that this is having an impact on industrial production," said Nelson Pereira dos Reis of the São Paulo state industry association Fiesp, which hasn't yet quantified the economic impact.
Hit by Brazil's worst drought in 80 years, the two main reservoirs serving metropolitan São Paulo, South America's largest city, could dry out by February if relief does not arrive in the upcoming rainy season.
Even if rains return to normal levels, which forecasters don't expect anytime soon, it may take four or five years to reach comfortable levels.
The drought has prompted soul-searching in resource-rich Brazil, which has the world's largest renewable fresh water supplies and yet repeatedly grapples with water and energy crunches caused by dry spells.
Critics say the pattern shows a general lack of planning in a country that has long struggled to live up to its economic potential.
Critics say São Paulo's state government, controlled by the opposition party that just lost Brazil's presidential election, failed to impose fines or other measures aimed at curbing water use earlier in the year out of fear of alienating voters with unpopular measures.
"Politics in an electoral year truly punished the management of water resources," said Antonio Carlos Zuffo, a civil engineering professor at the state university in Campinas who led a study on São Paulo's reservoirs this year.
The drought has slashed output of sugarcane, São Paulo's main cash crop, and pushed up local beef prices to record highs, driving up inflation in Brazil and causing price swings on global commodities markets.
Brazil is the world's largest producer of sugarcane, beef, coffee and orange juice, and the crops of all four in its southeast region have been affected by the drought.
After slipping into a recession in the first half of the year, Brazil's economy is showing signs of a timid recovery but Pereira warned the water shortages could slow it down.
Leftist President Dilma Rousseff, who was re-elected by a slim margin last Sunday, used the water crisis during the election campaign to attack her centrist opponent Aecio Neves, whose Brazilian Social Democracy Party has governed São Paulo state for two decades.
"Failing to plan in the richest state of the country is an embarrassment," Rousseff said in the final campaign debate.
Neves tried to deflect the blame from his party, retorting that all of southeastern Brazil was suffering from drought and that the federal government should have done more to help.
Most voters, however, didn't buy it. In a poll taken just days before Sunday's election, 66 percent of respondents in São Paulo blamed the state government for not doing enough to prevent the water crisis.
The São Paulo governor's office declined comment, deferring interview requests to Brazil's largest water utility Sabesp,, which it controls.
The political imbroglio deepened days before the election, when local media reported a leaked recording of Sabesp's top executive saying orders from "higher ups" prevented her from revealing the severity of the drought.
Sabesp said in an e-mailed statement it is doing everything it can to avoid rationing by running publicity campaigns on water conservation and giving bonuses to clients who cut usage.
Dozens of towns served by other utility companies in the state are already limiting water.
Rationing in Barretos forced the world's largest beef producer JBS to put some 800 workers on paid leave for a month, the local utility and a workers' union said.
Chemical firm Rhodia, controlled by Belgium's Solvay, was forced to halt output at up to four factories in the city of Paulinia due to low river levels, a local spokesman said.
Grains exporters like U.S.-based Cargill [CARG.UL] are facing higher freight costs because waterways are too low for river barges. Cellulose makers and breweries are looking into contingency plans, such as trucking in water.
Outages are also occurring as Sabesp turns down water pressure at night in São Paulo, a megalopolis of some 20 million people, leaving higher elevations dry. For many, that counts as rationing.
Bartenders in São Paulo's hilly bohemian enclave of Vila Madalena, home to the city's busiest strip of bars, are relying on roof-top containers to store water during the day, with taps shutting off at night. Restaurants have turned to plastic dishes to limit washing.
NO EASY SOLUTIONS
Some relief should be on the way as November through January are traditionally the rainiest months in southeastern Brazil. But forecasters keep scaling back rain forecasts for the region and the government's electrical grid operator expects rains of just 62-65 percent of the historical average in November.
That means the water problem will likely resurface next year, with few options to get more water in the medium term.
One proposal, transferring water from the Paraiba do Sul river basin, faces opposition from neighboring Rio de Janeiro state which relies on it for its own water supplies.
For specialists who have warned about wasting water for years, the situation is frustrating.
"We don't plan; we do crisis management," said Ivanildo Hespanhol, a sanitation engineer at the University of São Paulo, who believes more water could be treated and re-used.
The lack of government foresight has ruffled many feathers, even abroad. The United Nations' special rapporteur on sanitation, Catarina de Albuquerque, said the situation could have been avoided and that leakage from the water system is unacceptably high at 40 percent.
State governor Geraldo Alckmin responded by accusing de Albuquerque of interfering in local politics and said leakage was much lower, at 31.2 percent.
In the longer term, the federal government is investing some 2 billion reais ($833 million) to transport water from nearly 100 kilometers away, by 2017.
For many, though, the short term is a serious concern.
"The problem could be even more severe next season if we don't get the reservoirs back to pre-drought levels," said Pereira.
($1 = 2.4 reais)
(Editing by Todd Benson and Kieran Murray)