Economics of Agricultural Water Conservation: Empirical Analysis and Policy Implications

1. Economics of Agricultural Water Conservation: Empirical Analysis and Policy Implications AWRA NM Section O’Niell’s Pub 4310 Central SE Albuquerque Frank A. Ward NMSU ACES April 6, 2012

2. Background • 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, … )

3. 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

4. A ReminderEvaporation v TranspirationWater Use/AcreWeighted Ave over Crops

5. 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.

6. Rio Grande Basin

7. 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

8. 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

9. Study Region: Elephant Butte Irrigation District • http://www.ebid-nm.org/

10. EBID recent history (acreage)

11. Cash Receipts Doña Ana and Sierra Counties (2005, $million)

12. 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

13. 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

14. 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

15. Pecans, drip irrigated

16. Pecans, surface irrigated

17. Pecans: Drip or Surface Irrigated

18. 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

19. 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

20. 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

21. EBID Remote Sensing: NMSU • Basin-wide Evapotranspiration mapping • Demand forecasting, water operations support • Depletion changes with: • Management options • Changing crops • Drought cycles • Informs sustainable water management

22. Our Empirical Analysis of NM Ag Water Conservation • Maximize • Objective: Farm Economic Returns • Subject to • Constraints • Hydrologic • Agronomic • Institutional

23. Policy Assessment Approach Data Policy Outcomes Process Headwater supplies Law of the River Crop prices Crop costs Water price Land supply Maximize NPV for EBID Crop prodn Crop ET Crop Mix Water Use Water Saved Farm Income NPV Baseline: no new policy Alternative : Various drip irrigation subsidies

24. Ag Water Balance

26. NM Pecans: Water BalanceTotal ET: higher with Drip Flood Drip 6’ 3.2’ 3.2’ 2.6’ 3.4’ 0 Return to system Return to system

27. Under the Hood

28. Ag Water Use Objective

29. Constraints • 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

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

34. 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 m3depleted with 20%  supplies.

35. 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

36. 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?

37. 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?

38. 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

39. 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

40. 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.

41. Thank you