Broader Economic Impacts of Reduced Irrigated Acres: Colorado’s South Platte River Basin Jenny Thorvaldson and James Pritchett Dept. of Agricultural and.

Broader Economic Impacts of Reduced Irrigated Acres: Colorado’s South Platte River Basin

Jenny Thorvaldson and James PritchettDept. of Agricultural and Resource EconomicsColorado State University

[email protected]

The Presentation's Path

Economic Baseline of South Platte Basin and Lower South Platte Sub-Basin Broad description Economic base Agricultural sector Relative water supply and demand amounts

Impact Study

Effects of reduced irrigated cropland General Overview IMPLAN Preliminary results for East South Platte Basin

Ongoing Research at CSU

Comprised of 14 counties in the northeastern corner of the state (making up 20% of the state’s total land area).

The population of the Basin has increased by 34% since 1990, to 3,031,824, and now accounts for 69% of the state’s total population. The population of this basin is expected to increase by another 65% by 2030.

South Platte Basin

Economic Demographics of the South Platte Basin

Industry Value of Sales (million

$)Percent of

Total

Total $251,465 100.00%

Notable Contributors (Sectors)

Manufacturing $32,035 12.74%

Information $31,580 12.56%

Government and non-NAICs $23,913 9.51%

Real estate and rental $21,626 8.60%

Construction $20,502 8.15%

Finance and insurance $20,315 8.08%

Professional-science and technical services $17,848 7.10%

Wholesale trade $13,197 5.25%

Retail trade $11,938 4.75%

Health and social services $11,779 4.68%

Economic Demographics of the Lower South Platte Basin

IndustryValue of Sales

(million $)Percent of

Total

Total $3,310.13 100.00%

Notable Contributors (Sectors)

Animal, except poultry, slaughtering $678.01 20.48%

Cattle ranching and farming $596.47 18.02%

Cheese manufacturing $212.89 6.43%

Owner-occupied dwellings $110.27 3.33%

State & Local Education $109.13 3.30%

Power generation and supply $90.12 2.72%

Grain farming $79.58 2.40%

Wholesale trade $72.47 2.19%

Hospitals $64.49 1.95%

New residential 1-unit structures, non-farm

$64.121.94%

Lower South Platte Land Disposition

2,350,3362,143,324

1,139,118

155,841

983,277

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Total

Land Area

(Ac)

Land in

Farm and

Ranch

Cropland I rrigated

Cropland

Dryland

Value of Sales by Irrigated Crop for Lower South Platte Basin

CropsTotal Productionof Irrigated Crops

Value of Irrigated Crop

Sales (million $)Percent of

Total

Total   $89,323,719 100.00%

Notable Contributors

Corn Grain (bu) 23,190,000 $53,568,900 59.97%

Hay (ton) 139,025 $12,512,250 14.01%

Potatoes (cwt) 1,187,500 $11,043,750 12.36%

Corn Silage (ton) 480,000 $9,840,000 11.02%

All Wheat (bu) 322,500 $993,300 1.11%

Agriculture is the predominant water use, with ~2.2 million AF per year used for irrigation of 1.1 million acres.

An additional 880,000 AF per year of groundwater is applied for irrigation and 100,000 AF per year of groundwater is used for other purposes.

Water Use in the South Platte Basin

Water Use, Cont’d.

The South Platte Basin is Colorado’s most populous, diverse, and industrialized basin, and the South Platte River is arguably the most developed and over-appropriated of Colorado’s major streams.

The basin contains both the major population of the state and its most productive irrigated agricultural lands, yet has only 12% of the state’s water supply.

The basin is projected to experience the largest increase in M&I and SSI water demand by 2030 (nearly 2/3 of the total increase in the state gross demand).

2 million additional residents projected to live in the South Platte Basin by 2030, and these additional residents need ~ 400,000 AF of water to meet demand.

Water Use, cont’d.

New water storage projects are needed, but there are still existing water rights that need to be filled (i.e. agricultural).

Demands for water in the South Platte River Basin are the most intense in Colorado and are creating contentious debates over water use.

Trends in Irrigated Agriculture

75% of the total value of Colorado crops is derived from the irrigated sector, highlighting the importance of, and dependence on, a secure water supply.

Although agriculture is still the dominant water use, rapid changes are occurring and the impacts to rural communities are a key concern.

Understanding the impact of these changes on rural Colorado economies, and the effect on the open space provided by farms and ranches, is a key challenge for all Coloradoans.

SWSI Projections of ReducedIrrigated Cropland

Source # irrigated acres lost

Transfers 40,000-79,000

Urbanization (development)

38,000-57,000

Other Reasons 55,000-90,000

Total 133,000-226,000 (29%-49% of total irrigated acres in Eastern South Platte Basin)

Potential Scenarios

All acres taken out of irrigation converted to grassland (i.e., taken out of production), maintaining original crop-mix with remaining acres

All acres taken out of irrigation converted to dryland farming (which crops?)

Other ideas??? Farmer survey

Economic Impact Analysis

Industries produce goods and services for households and other final users (final demand) as well as for other producers to use as inputs (intermediate demand).

Whenever one of these inputs (e.g., irrigation water) becomes unavailable, or one sector (e.g., irrigated agriculture) is unable to produce its established products, the impact ripples through the other sectors of the economy, reducing demand for their output too, and reducing employment and income in the region.

Economic impact analysis examines the effects of such a change on an entire economy.

Impact Analysis Diagram

Feed Lot

Corn Farmer

Seed Company Fertilizer Company Irrigation Company

Input-Output Models

I-O models describe commodity flows from producers to intermediate and final consumers.

Can then be used to calculate the resulting output reduction in the total economy (impact analysis).

I-O Models measure 3 types of effects Direct (lost sales) Indirect (support industry losses) Imputed (lost wages and reduced household spending)

Resulting multipliers measure the amount that a decrease in activity of a given local industry causes additional decreases in purchases from other local industries

IMPLAN (IMpact Analysis for PLANning)

1. Combine selected counties to create regional study area

2. Imports estimated from Regional Purchase Coefficients RPC’s represent proportion of local demand for a good/service

that is provided by local producers (an RPC=1 means that 100% of that good is purchased locally)

3. Local demands multiplied by RPC’s to create set of net local demands (total demand minus imports)

4. Domestic exports = total production minus local consumption

5. Result is a balanced set of regional economic accounts and multipliers

Impacts When All Lost Acres Converted to Grassland in East South Platte

Total: -$77,948,551 Direct: -$61,984,519 Indirect: -$12,372,933 Imputed: -$3,591,098

Proportions 0.08% of overall GDP of region 4.09% of total ag sales 26.43% of total crop sales

Impacts When All Lost Acres Converted to Grassland in East South Platte

Output Multiplier = 1.26Only margin lost, not entire value of

crop (many inputs purchased from outside of study area)

Multiplier increasing as move east (fewer base sectors in Lower South Platte so multiplier likely to be higher)

Impacts by SectorDirect Indirect Induced Total

Irrigated Crop Sales -$42,174,507 -$575,521 -$401,605 -$43,151,633

Wholesale trade $0 -$8,809,051 -$759,688 -$9,568,739

Machinery & equipment rental/leasing

$0 -$4,550,087 -$19,892 -$4,569,979

Commercial machinery repair and maintenance

$0 -$2,123,600 -$13,693 -$2,137,293

Scientific research and development

$0 -$2,070,535 -$10,080 -$2,080,615

Ag and forestry support activities

$0 -$1,994,511 -$2,955 -$1,997,466

Real estate $0 -$1,395,902 -$588,505 -$1,984,406

Petroleum refineries $0 -$1,708,752 -$153,730 -$1,862,483

Owner-occupied dwellings $0 $0 -$1,524,105 -$1,524,105

Warehousing and storage $0 -$902,440 -$22,165 -$924,606

Total-$61,984,519 -$36,958,492 -$11,122,950

-$110,065,962

Limitations of Current Study

Instantaneous (not dynamic)

No Downstream Effects

Local Effects vs. Global EffectsWhat if the reserve acres were clustered

together?

Distributional Effects

Ongoing CSU Research

Irrigation Optimization Study Farming systems with limited irrigation water Net Return Comparison Investment Analysis

Farmer Survey Predominant cropping systems results by March 15th

5 Regional Economic Analyses 4 Basins + Lower South Platte sub-basin

• Preliminary results in February• Final results in April

Input-Output Models