Economics of Agricultural Water Conservation: Empirical Analysis and Policy Implications AWRA NM Section O’Niell’s Pub 4310 Central SE Albuquerque Frank.

Economics of Agricultural Water Conservation:

Empirical Analysis and Policy Implications

AWRA NM Section  O’Niell’s Pub

4310 Central SE AlbuquerqueFrank A. Ward

NMSU ACESApril 6, 2012

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• Climate Change: more floods/droughts, greater conflict potential in dry places like NM

• Continued population growth• Growing values of shrinking key ecological assets• Growing values of treated urban water (pop +

econ)• Irrigated ag consumes 85-90% of water in NM• Ongoing search for ways to conserve water

in irrigated agriculture– technology (drip, sprinkler, water saving crops)– policy (subsidies, regulations, pricing,

… )– Projects (infrastructure, leveling, … )

Background

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Ways to reduce ag water use

• Reduce land in production– Cities buy or rent water or water rights from ag– Farm prices deteriorate

• Alter crop mix, e.g.:– More acres in cotton– Fewer acres in alfalfa, pecan orchards– Develop more drought tolerant crop varieties

• Reduce water application rates (deficit irrigate)• Shift to water conserving irrigation technology

– To sprinklers– To drip irrigation

A ReminderEvaporation v Transpiration

Water Use/AcreWeighted Ave over Crops

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Technology

Apply ET E? T? Return

Flood 4.63 2.11 0.21 1.90 2.51

Drip 2.48 2.48 0.12 2.36 0.00

Separating E from TZ. Samani, NMSU, March 30, 2012

• No simple empirical methods for separating E and T. His satellite ET map of EBID does not split E-T.

• Theoretical approaches could be used, but they are hard to test.

• For any given crop, drip irrigation typically produces higher yields, so takes more ET than surface irrigation.

• For any given crop, Samani’s satellite ET map should show higher ET for drip than surface irrigated ones.

• But drip acreages in EBID map area are small. He has not yet made that test.

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Rio Grand

e Basin

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Gaps• Little work in NM (or elsewhere) explaining

what affects irrigation water savings that integrates– Farm economics: profitability– Farm hydrology: water application– Agronomy: yields by crop– Basin hydrology: net water depletions– Basin institutions: protect senior water rights

• Big gap in NM• Big gap in the world’s dry regions

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Aims• Data: Assemble data on crop water

applications, crop water use, yields, land in production, crop mix, cost, and prices that characterize economics of irrigated ag in NM’s RG Project Area

• Economic analysis: Conduct analysis that explains profitability, production, land and water use in the Project Area.

• Policy Analysis: Forecast land and water use, crop production, farm income, and economic value of water in the Project Area for:– Several (5) drip irrigation subsidies

– Selected (2) water supply scenarios

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Study Region: Elephant Butte Irrigation District

• http://www.ebid-nm.org/

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Acreage

Not Ordering

Misc

Grain, Hay, Forage

Vegetables

Cotton

Alfalfa

Pecans

EBID recent history (acreage)

Cash Receipts Doña Ana and Sierra Counties

(2005, $million)

County Doña Ana Sierra TotalTotal 167.9 44.9 212.9 Hay 22.0 1.9 23.8 Chile 21.7 22.4 44.1 Onions 32.5 18.4 51.0 Pecans 91.7 2.3 94.0

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Approach

• Analyze water conservation subsidies that reduces capital cost to convert from surface to drip. – Public policy: Taxpayer $ to reduce the

costs of drip irrigation conversion– Private effect: Makes it cheaper to convert

• Integrates farm economics and basin hydrology

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Farm Level Economics• NMSU Farm costs and returns

• Published by NM county, year, crop, and irrigation technology

• Web -- http://aces.nmsu.edu/cropcosts/

• Our analysis: Assumes growers maximize income while limited by water allocations, land, and available crop choices

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Basin Hydrology:Water Rights Administration

• Requires water depletions in the basin to be no larger with water conservation subsidies than without them

• Distinguishes crop water application from water depletion for both surface and drip irrigation

Pecans, drip irrigated

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Pecans, surface irrigated

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Pecans: Drip or Surface Irrigated

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Farm Economics• Drip compared to surface irrigation

– Drip: better applies quantity and timing of water that the plant needs for max yields

– Drip: higher yields (higher ET)– Drip: reduces water applied– Drip: conversion costs are high

• Farmers need economic advantage to convert from surface to drip irrigation.– Growers convert not to conserve water, but for

income– At low water prices the economic advantage of

converting typically is weak or negative– Yield gain must be very large

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Cost of Converting:Surface to Drip Irrigation

• Conversion Capital Costs: – About $1500 / ha for 10 year life– About $150 / ha per year

• Conversion is a major investment, so for the conversion to increase income:– Yield gain must be high – or– $ Value of saved water must be high

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Basin Hydrology

• NM water administration (NMOSE) is charged to protect existing water rights

• This means

– Applications / acre fall with drip irrigation– Depletions cannot increase– For a given crop, yields are higher under

drip than under surface irrigation – Higher yields consume higher ET

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• Basin-wide Evapotranspiration mapping

• Demand forecasting, water operations support

• Depletion changes with:– Management options

– Changing crops

– Drought cycles

• Informs sustainable water management

EBID Remote Sensing: NMSU

• Maximize– Objective: Farm Economic Returns

• Subject to – Constraints

•Hydrologic•Agronomic•Institutional

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Our Empirical Analysis of NM Ag Water Conservation

Policy Assessment Approach

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Data

Headwater supplies

Law of the River

Crop pricesCrop costsWater priceLand supply

Outcomes

Crop prodn

Crop ET

Crop Mix

Water Use

Water Saved

Farm Income

NPV

Baseline: no new policy

Alternative : Various drip irrigation subsidies

Policy

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Ag Water Balance

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Crop Water Data Used, EBID, NM

Crop Tech

A ET Ret

Yield tons/a

cTech

A ET RetYield

tons/acac-ft/ac/yr ac-ft/ac/yr

Alfalfa f 5.0 2.2 2.9 8.0 d 2.7 2.7 0.0 10.0

Cotton f 2.8 1.2 1.6 0.4 d 1.5 1.5 0.0 0.5

Lettuce f 2.5 1.1 1.4 12.5 d 1.4 1.4 0.0 15.6

Onions f 4.0 2.3 1.7 16.9 d 2.9 2.9 0.0 21.1

Sorghum f 2.0 0.9 1.1 2.0 d 1.1 1.1 0.0 2.5

Wheat f 2.5 1.1 1.4 4.6 d 1.4 1.4 0.0 5.8Green Chile f 4.6 2.0 2.6 11.0 d 2.5 2.5 0.0 13.8Red Chile f 5.0 2.2 2.9 1.7 d 2.7 2.7 0.0 2.2Pecans f 6.0 2.6 3.4 0.6 d 3.2 3.2 0.0 0.7

NM Pecans: Water BalanceTotal ET: higher with Drip

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Drip 6’

2.6’

3.4’

Flood

3.2’ 3.2’

0Return to system Return to system

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Under the Hood

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Ag Water Use Objective

[ ]uckt ct uckt uckt ucktNBA P Yield Cost L

(1 )

( . )

ucktt

u c k t u

NBAMax NPV Ag

r

u location

c crop

k irrig tech flood v drip

t year

• Irrigable land, EBID supplies• Hydrologic balance• Institutional

– Endangered Species Act

– Rio Grande Compact (CO-NM; NM-TX)

– US Mexico Treaty of 1906

– Rio Grande Project operation agreement (NM/TX)

– No increase in water depletions: NM OSE

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Constraints

•Ag Water Use and Water Savings– 0 pct drip conversion subsidy– 25 pct conversion subsidy cost– 50 pct – 75 pct – 100 pct

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Results

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Table 3. Price (Scarcity Value) of Water by Water Shortage and Drip Subsidy, Rio Grande Project, USA, 2006, $US/Ac-Ft ET

Water Supply

Scenario

% Capital Subsidy, Drip irrigation

0 25 50 75 100

Normal 0.00 11.58 23.16 34.75 46.33

Dry 69.35 79.00 89.54 101.12 112.70

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Table 5. Total Water Applied by Technology and Subsidy Rio Grande Basin, NM, USA, 2006, ac-ft / yr

TechWater Supply

% Capital Subsidy, Drip

0 25 50 75 100

Total all Crops

flood normal 251,394 245,003 238,612 232,221 225,830

dry 211,384 205,992 200,026 193,635 187,244

drip normal 12,214 15,169 18,124 21,079 24,034

dry 5,320 7,814 10,572 13,527 16,482

Total Water Applied normal 263,608 260,172 256,736 253,300 249,864

dry 216,705 213,806 210,598 207,162 203,726 Water Conserved

(Reduced Applications ref: no subsidy)

normal 0 3,436 6,872 10,308 13,744

dry 0 2,899 6,107 9,543 12,979

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Table 6. Total Water Depletion by Irrigation Technology and Drip Irrigation Subsidy Rio Grande Basin, NM, USA, 2006, acre feet/yr

TechnologyWater Supply

% Capital Subsidy, Drip irrigation

0 25 50 75 100

Total all Crops

floodnormal 114,752 111,797 108,842 105,887 102,932

dry 96,253 93,759 91,001 88,046 85,091

dripnormal 12,214 15,169 18,124 21,079 24,034

dry 5,320 7,814 10,572 13,527 16,482

Total Water Depletednormal 126,966 126,966 126,966 126,966 126,966

dry 101,573 101,573 101,573 101,573 101,573

Water Conserved (Reduced Depletions

Ref: No Subsidy)

normal 0 0 0 0 0

dry 0 0 0 0 0

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Lessons Learned• Irrigators invest more heavily in water-saving technologies when

faced with lower costs for converting from surface to drip.

• Drip irrigation subsidies farm income, crop yields, value of food production, and crop water applied.

• However, by increasing crop yields and raising crop water ET, drip irrigation subsidies put upward pressure on water depletions.

• Where water rights exist, authorities need to guard against depletions with growing subsidies to reduced water applications.

• Where no system of water rights exists, expect increased depletions of the water source to occur with increased drip irrigation subsidies.

• In the RG Project Area, a 100% subsidy of the cost of converting from surface to drip irrigation raises the economic value of water from $36 to $101 per 1000 m3 depleted with 20% supplies.

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Research Questions• Ag water use and conservation: hard to

define, measure, forecast, evaluate, alter.• Need better measurement of water use by

field, farm, district, basin (accounting)• What policies motivate growers to reduce ag

water depletions? (importance of water rights adjudication)– At any cost

– At minimum taxpayer cost

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Research Questions

• How will adjudication of Middle Valley’s water rights increase ag water conservation and make more water for urban and environmental uses?

• How will climate change influence the choice of policies to promote ag water conservation?

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Research Questions: NM Statewide• Level of historical (or current) ag water use,

by: – Crop– Year– River basin (Colorado, RGR, Pecos…)– Location

• How has historical irr water use been affected by supplies available?

• What has climate change done to NM’s headwater supplies?– reduced by 25% in RGB hws since 2000– but is it statistically significant?

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Research Questions• What policies would protect and sustain NM’s

aquifers affordably?

• What actions would reduce ag water use likely to occur?

– Without climate change

– With climate change that affects:• Yields

• Evaporation

• ET

• Supplies

– With high, medium, low future: • Prices

• Yields

• Costs

Big research/policy question• Cheapest way to reduce ag water

use to supply water for other uses– Urban– Domestic– Key ecological assets– Energy

• In the face of– Recurrent Drought– Climate change

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Tentative answers• Better water measurement, e.g.

– Gauges– Tracking use by crop (application, ET)

• Better water accounting– Current use patterns– Potential use patterns: future mgmt,

policy

• Adjudications– Who has the senior/junior rights in the

face of future supply variability. Important as drought/climate intensifies. 40

Thank you