Under the deal, all California sales of chlorpyrifos will end on Feb. 6, 2020, and farmers will have until the end of 2020 to exhaust their supplies.
The pesticide is used on numerous crops in the nation's largest agriculture-producing state - including alfalfa, almonds, citrus, cotton, grapes and walnuts.
State regulators have said chlorpyrifos has been linked to health defects in children, including brain impairment, and to illnesses in others with compromised immune systems.
"For years, environmental justice advocates have fought to get the harmful pesticide chlorpyrifos out of our communities," Gov. Gavin Newsom, a Democrat, said in a statement after the deal was announced.
He added: "Thanks to their tenacity and the work of countless others, this will now occur faster than originally envisioned. This is a big win for children, workers and public health in California."
The president of the California Citrus Association, which represents about 5,000 growers, said in an interview that he believes the risks were not as great as the state made them out to be.
"We really thought the exposure assessments and risks were just inflated and it wasn't a true characterization of the protections that were already in place," said Casey Creamer.
Creamer added he appreciated that officials have agreed to budget $5.6 million to help pesticide manufacturers develop a safer alternative to chlorpyrifos.
"But just so you're aware, that's what agriculture does every day, we're always looking for new products, safer products that are effective," he said.
When California announced earlier this year it was moving toward banning the pesticide, the state's environmental secretary, Jared Blumenfeld, said it was doing so because the federal government was allowing it to remain on the market.
"The swift end to the sale of chlorpyrifos protects vulnerable communities by taking a harmful pesticide off the market," Blumenfeld said after Wednesday's announcement.
The Obama administration announced in 2015 that it would ban chlorpyrifos after scientific studies funded in part by the federal Environmental Protection Agency showed the potential for brain damage in children. After President Donald Trump was elected, the EPA reversed that ban, questioning the studies' validity.
Hawaii and New York are already phasing in chlorpyrifos bans.
Blumenfeld said the agreement reached with chlorpyrifos' manufacturer, Corteva Agriscience, "avoids a protracted legal process while providing a clear timeline for California farmers as we look toward developing alternative pest management practices."
Corteva said in a statement that it reached the agreement "in the best interests of the affected growers."
"Through recent actions, the state of California has improvised and implemented several uniquely challenging regulatory requirements for chlorpyrifos. These new, novel requirements have made it virtually impossible for growers to use this important tool in their state," Corteva said.
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