> Why do we still do so much farming in regions that have such marginal water supplies?

Often farmers don't pay for their water usage. Instead they paid once, long ago, for the right to some portion of the river (not sure how that's measured). As a result the amount that a farmer would save by halving their water usage is often $0, so they don't.

(This is my understanding. I heard it specifically in the context of California but assume it happens elsewhere too. Would be very interested to hear more from someone who knows the details.)