There is plenty of agricultural land in the midwest to grow vegetables, it's just that for the most part they are growing commodity crops (corn and soy) and not vegetables because California is cheaper and can provide fresh produce year-round (or nearly so). Regional farms could provide local produce that's more scalable than suburban gardens, but both are seasonal (without greenhouses and other infrastructure at least).
I think in the future we might see either community greenhouses, more local farming, and/or more suburban gardens and even greenhouses (HOAs permitting).
The thing is that the current model is basically export water in the form of crops from California because as you said it's much cheaper, but that low cost comes at the expense of water and the environment, a low cost to which Californian farmers are probably not bearing and certainly society in general isn't. Really we're exporting water from a arid locations to places like the Great Lakes. That's not to include transportation costs via cheap oil/energy.
