| Title |
Investigators | Department | Objectives | Approach Keywords | Progress Reports | Impact Statements | Publications | |
Project * COL00657 | |
| Title | *Water Management and Western Irrigated Agriculture: Opportunities and Consequences |
| Investigator(s) | Frasier, WM; Schuck, EC; |
| Department | Agricultural and Resource Economics |
| Objectives | The overall objective of this project is to evaluate the economic benefits and costs of alternative water resource policies that influence the allocation and use of water with specific attention to water markets and market-like institutions, irrigation technology adoption, and quantity-quality interactions. Impacts will be assessed for irrigated agriculture, other users of the hydrologic system (including groundwater users and instream and out-of-stream users of surface waters), and the regional economies that are dependent upon these users. Specific objectives are 1) to estimate the economic costs and benefits of alternative means for irrigated farms to utilize water supplies under existing and emerging technologies available to them and evaluate the factors that influence the adoption of competing technologies (or lack thereof) and 2) to evaluate the effectiveness of alternative policy instruments available to government entities to achieve local, state , regional, and national goals for water utilization in private and public uses. |
| Approach | In an economic context, the goal of water management is to use available water resources such that they maximize the net benefit to society. This project will develop and apply economic techniques to identify opportunities for increasing the net benefits to the citizens of Colorado from: (a) managing on-farm use of existing water supplies in an economically efficient manner and (b) transferring water to other uses when all interests can be met, and (c) quantifying the economic relationship between water quantity and quality that affects both on-farm water use and transfers. Two distinct procedures will be employed sequentially to achieve the specific objectives of this research. The first procedure is to quantify the direct value of water in irrigation applications under a range of typical Colorado conditions. The direct economic impact to agriculture is measured as the associated change in net income with a change in the timing and quantity of water use. Representative farm models will be constructed to reflect the diversity of agricultural production, coupled with the hydrologic characteristics (timing and availability) across the state of Colorado. Results from recent surveys of Colorado irrigators will be used extensively in defining representative farms. Further intensive surveys will be conducted as necessary to fully characterize opportunities available on the farms of interest. The second procedure will utilize information from the first procedure to conduct institutional and bioeconomic analysis of the private and public economic benefits from water reallocations through a variety of institutional settings. Techniques involve formal benefit-cost analysis of researcher-suggested policy changes as well as "official" policy proposals of federal and state agencies. Estimates of non-agricultural uses will be derived from previous studies. These values will include private benefits such as municipal and industrial uses and public benefits such as instream flows for endangered species or recreation. A major component will be evaluating the third-party impacts accompanying the transfers. |
| Keywords | economics, irrigation technology, water policy, water quality, drought response, water transfers |
| Progress Reports | |
| 2000 | The primary effort in the first 6 months of this project has been to conduct baseline research aimed toward both of the project objectives. For Objective 1, hydrologic and economic models have been formulated and linked to enable the assessment of basin-level water management policies designed to achieve designated streamflow targets in the Platte River basin. Upon full parameterization and calibration of the models, estimates of farm-level cropping activities and associated profitability will be derived and reported. For Objective 2, the methodology reported above is being applied to a range of representative farms in the basin so that the aggregate impact of the river management alternatives can be assessed for relative effectiveness in meeting the designated targets. On another front for the second objective, data has been collected and an economic model formulated to evaluate the impact of alternative institutional structures on groundwater allocation in the High Plains region. The hedonic property method is being applied to discern empirical differences in the value of groundwater endowments in Colorado, Kansas, and Nebraska. Each of the three states uses a different method of allocating and administering groundwater usage over a common hydrologic and climatic setting. Final analysis of the data will provide evidence of the economic differential induced by the respective legal structures. |
| 2001 | Efforts under this project continue to build upon baseline research under both of the project objectives. For Objective 1, hydrologic and economic models have been formulated and linked to enable the assessment of basin-level water management policies designed to achieve designated stream flow targets in the Platte River basin to augment habitat for endangered species. Preliminary results indicate that options that obtain water from the highest reaches of the basin are most cost effective whereas water obtained from areas near the critical reach may cost over five times as much even with the lower transmission losses. Publication of the final results is expected in the coming year pending final calibration of the models. Under Objective 2, an economic model was formulated to evaluate the impact of alternative institutional structures on groundwater allocation in the High Plains region. The hedonic property method was applied to discern empirical differences in the value of groundwater endowments in Colorado, Kansas, and Nebraska. Each of these three states uses a different method of allocating and administering groundwater usage over a common hydrologic and climatic setting. Preliminary results indicate significant differences in the value of irrigated lands between the three states when controlling for farm attributes, land productivity, and aquifer characteristics with Colorado having land values the greatest and Kansas the least. These results imply significant opportunities for gain through adjusting water management institutions in several states. |
| 2002 | Supplies of water resources in Colorado, specifically, and the western United States, in general, are under continual pressure from an ever-expanding set of demands. Most available water has been allocated among these wide range of uses, and the opportunities for developing additional sources are quite limited. Currently irrigated agriculture accounts for the vast majority of water use in these states. However, many of the emerging demands, most notably municipal and environmental uses, place higher values on marginal water use than most irrigation enterprises are able to generate with the same unit of water. Consequently, some reallocation of these resources must take place to move our society closer to an economically efficient outcome. The difficulty is in estimating the relative benefits and costs of such transactions and identifying institutional arrangements that will achieve the desired outcomes . This project addresses these complex issues through both of its primary objectives. Under Objective 1, hydrologic and economic models have been formulated and linked to enable the assessment of basin-level water management policies designed to achieve designated stream flow targets in the Platte River basin to augment habitat for endangered species. The hydrologic model is able to estimate stream flow at any node along the river in response to changes in both the physical and institutional aspects of the basin. The economic model represents the farmer's profit maximization problem and estimates his/her response when water availability is modified. Using this modeling construct, five different agricultural areas in the basin were subjected to a range of institutional policies and evaluated for their impact on stream flow at the critical habitat. Results indicate that options that obtain water from the highest reaches of the basin in western Wyoming, while least effective per unit of water taken from irrigation, are most cost effective in delivering water to the critical reach, costing $33 per acre foot delivered. Water obtained from all other areas would be much more expensive ranging to as high as $177 per acre foot for water acquired near the critical reach in Nebraska. Efforts are continuing to extend the modeling approach to the Arkansas River basin to estimate the cost-effectiveness of policies to mitigate salinization of agricultural lands due to high water tables. Results from both of these studies will imply significant opportunities for gain through adjusting water management institutions in several states. Manuscripts for publication are in final stages of completion for studies under both objectives. |
| 2003 | The project was initiated in July, 2003. To date, most efforts have been spent on the second and third elements of the project, specifically irrigation technology adoption and water quality controls. An irrigation technology adoption model built upon pre-existing survey data has been constructed, and indicates that water supply reliability is a crucial factor in the adoption of more technically efficient irrigation systems in Colorado. These results were presented at the Western Agricultural Economics Association conference in July, 2003 and have since been submitted to a journal for review. On the water quality side of the project, a mathematical programming model identifying relative profits to producers under alternative levels of saline water conditions has been developed. This model is currently being integrated with the irrigation technology adoption model to show how changes in cropping patterns and irrigation systems in response to saline water conditions affect producers' profits, and what types of management decisions lead to improvements in both profits and water quality. In the coming year, these efforts will continue and be expanded to incorporate alternative water management policies. This will capture the effects of the first element of the project, namely how water transfer polices relate to on-farm irrigation technology and water quality decisions . |
| 2004 | Progress in this project continues on several parallel fronts. First, a hedonic price model was completed to estimate the implicit prices of farms' characteristics and to assess differences in prices of irrigated lands in Colorado, Nebraska, and Kansas. Holding other characteristics constant, the model was used to examine the effects of different institutions and water rights on irrigated land prices in the three states. The results of the model suggest that differences in groundwater management institutions across the three states have led to differential irrigated land values. Colorado had the most valuable parcels, holding all other characteristics constant. A second model was estimated to examine the effects of a groundwater management institution in Nebraska that restricts annual pumping to a given amount but allows farmers to build a reserve stock of groundwater allocation if it is unused in a given year. The results of this model suggest that while the more restrictive annual allocation may have depressed Nebraska irrigated land prices relative to those in Colorado, the ability for irrigators to build a drought reserve increased the value of the land relative to Nebraska parcels without drought reserves. Thus, similar institutions may be a mechanism to reduce the amount of water withdrawn from aquifers while mitigating the effects of reducing annual water allocations on the values of irrigated parcels. On a second front, efforts were completed to evaluate variable-rate technology (VRT) to variably apply crop inputs to manage in-field variability. Although growers have begun to adopt VRT, its profitability has been uncertain in N management. The economics of uniform vs. variable-rate N fertilizer application were assessed under two N application scenarios (farmer vs. custom applications). On-farm data was used for continuous corn fields in northeastern Colorado under furrow and center-pivot irrigation during the 2000 and 2001 growing seasons. The N management strategies evaluated were uniform, grid-based, site-specific management zone with a constant yield goal and a variable yield goals. Profitability under each N management strategy was determined. Results from three site-years consistently indicated that less total N fertilizer (6-46%) was used with the variable-rate N management strategy when compared with uniform N management. Net returns from the variable-rate N management strategy were $7.37 to $11.97 per acre more than uniform N management. Results of this study suggest variable-rate N application utilizing site-specific management zones are more economically feasible than conventional uniform N application. Finally, modeling efforts continue to evaluate irrigation technology adoption and water quality controls as outlined in the 2003 progress report. |
| 2005 | Adoption of technically efficient irrigation systems can mitigate the effects of drought by allowing irrigators to maintain water consumption with reduced applications. Data from a survey of drought response conducted previously by this project was analyzed to examine how drought conditions affect the choice of irrigation system by irrigators. Results indicate that drought conditions did significantly increase the percentage of farms using more efficient sprinkler systems relative to gravity systems. The key factors affecting the decision were land tenure, farm scale and available water supply, suggesting that those enterprises with the most owned land, the highest number of acres and the most reliable water supplies are most likely to invest in more efficient irrigation systems during severe droughts. Research also continued in evaluating the adoption of higher efficiency irrigation systems as an alternative for reducing the impact of waterlogging and salinization within a region of Colorado's Lower Arkansas River Valley. A detailed hydrologic model, which has been calibrated from extensive field data for a three-year period, was linked to an economic optimization model to estimate the productivity and profitability of agriculture under current irrigation technology and a set of proposed alternative systems. Although the results of the study indicate that increasing irrigation efficiency across the study area will reduce the negative impacts of waterlogging and soil salinization, the costs associated with achieving these higher efficiency irrigation systems were estimated to exceed the benefits to crop productivity. Although the costs associated with reducing aquifer recharge through improved irrigation efficiency were greater than the benefits to productivity, these alternatives were also found to reduce salt load to the river. Future research could evaluate the downstream benefits of reducing salt loads to the river to determine whether the inclusion of these benefits might justify the expense of increasing irrigation efficiency within the study area. In addition, the ability to estimate the benefits of these alternatives beyond three years may reveal further insights. If longer-term hydrologic modeling predicted the baseline conditions to further degrade over time given no action, the benefits associated with each alternative may be expected to increase significantly. |
| 2006 | Agricultural runoff, such as dissolved mineral salts and selenium, creates pronounced downstream impacts to agricultural producers and to wildlife. The ability to manage these problems efficiently depends critically on the institutional pricing structure of irrigation water delivery agencies. An important characteristic of irrigation water delivery is whether irrigators pay per unit of water received or make one payment regardless of the quantity of water received. In this project we compared the effectiveness of agricultural runoff reduction policies in two regions that employ these different water pricing structures. We found that reduction policy is more effective and can be achieved at a lower cost when water is priced on a per unit basis and that growers have greater incentive to act on their own to reduce runoff problems. Operating under a per unit pricing system encourages water conservation and runoff reduction, which creates public benefits that are not achieved under the single-payment, fixed allotment method of irrigation water delivery. |
| Impact | |
| 2000 | Estimates of the economic costs and benefits of alternative water use practices on irrigated farms will enable producers to identify the best means to respond to the changing physical and institutional environment in which they operate. This information will also be of use to policy makers in assessing the impact and relative desirability of alternative water management policies. |
| 2001 | The US Fish and Wildlife Service estimates that additional annual flows of up to 373,000 acre-feet are needed in the study area to recover the species. With cost differentials between suggested sources estimated at over $100 per acre-foot, the cost of selecting the wrong alternative could be in the tens of millions of dollars per year. Results from this project should aid policy makers in making the best choices. |
| 2002 | The US Fish and Wildlife Service estimates that additional annual flows of up to 373,000 acre-feet are needed in the study area to recover the species. With cost differentials between suggested sources estimated as high as nearly $150 per acre-foot, the cost of selecting the wrong alternative could be in the tens of millions of dollars per year. Results from this project should aid policy makers in making the best choices. |
| 2003 | Rising urban water demands are placing increased pressure on limited water supplies in the western United States. Agriculture is increasingly seen as a source of water for urban areas, but transfers of water from agriculture to municipal use can be very disruptive to both producers and rural communities. This research seeks to identify on-farm water management methods and water transfer policies that are more profitable to producers and reduce pressures on scarce water resources while minimizing disruption to agricultural production and rural areas. |
| 2004 | As groundwater resources in eastern Colorado become more scarce, particularly with the settlement of the Republican River Compact dispute, the State will be searching for ways to improve water allocation. This study suggests that the current water allocation institution in Colorado imposes significantly less cost on groundwater users than current institutions in either Nebraska or Kansas (up to $150 per groundwater irrigated acre). Awareness of this difference will help avoid implementation of costly policies. In a separate study, precision farming techniques were shown offer promise for improved efficiency. With nearly one third of Colorado's 3.4 million acres producing corn annually, the potential direct benefits of state-wide adoption of variable rate nitrogen application could amount to $10 million additional net return annually with the added benefit of significantly less nitrogen fertilizer applied, reducing environmental hazard from nitrate leaching. |
| 2005 | Waterlogging and salinization have contributed to the demise of ancient civilizations and continue to threaten the sustainability of irrigated agriculture today. The study in the lower Arkansas River Valley shows that reductions in aquifer recharge from ten to fifty percent would be expected to increase annual net returns in the region from $5.81 to $17.28 per acre, respectively. For the study area alone, this can amount to more than one million dollars annually. Unfortunately, these returns cover only about two thirds of the current cost estimates of the means used to achieve the reduction. Study to identify more cost-effective technologies continues. |
| 2006 | Estimates of the economic costs and benefits of alternative water use practices on irrigated farms will enable producers to identify the best means to respond to the changing physical and institutional environment in which they operate. This information will also be of use to policy makers in assessing the impact and relative desirability of alternative water management policies. |
| Publications | |
| 2003 |
Pritchett, J., Frasier, M. and Schuck, E. 2003. Third party compensation for out-of-basin water transfers: comments on HB 03-1113. Agricultural and Resource Policy Report APR 03-08. Department of Agricultural and Resource Economics, Colorado State University, August. Schuck, E. and Frasier,M. 2003. Management responses by agricultural producers during the 2002 drought. Agricultural and Resource Policy Report APR 03-10. Department of Agricultural and Resource Economics, Colorado State University, October. |
| 2004 |
Byrd, H.A. 2004. Estimating the Value of Groundwater Rights to Irrigated Agriculture: An Application of the Hedonic Price Model in the Northern High Plains. MS Thesis. Colorado State University. Koch, B., Khosla, R., Frasier, W.M., Westfall, D.G. and Inman, D. 2004. "Economic Feasibility of Variable-Rate Nitrogen Application Utilizing Site-Specific Management Zones." Agron. J. 96:1572-1580. |
| 2005 |
Houk, E., Frasier, W.M., and Schuck, E.S. 2005. Evaluating the Adoption of Higher Efficiency Irrigation Systems in the Presence of Salinization and Waterlogging. Global Business and Economics Review. Vol. 7, No. 4, pp.343-352. Schuck, E.S., Frasier, W.M., Webb, R.S., Ellingson, L.J., and Umberger, W.M. 2005. Adoption of More Technically Efficient Irrigation Systems as a Drought Response. International Journal of Water Resource Development. Volume 21, no. 4, pp. 651-662. |
| 2006 |
Clements, J. 2006. Selenium Remediation and Factors Influencing Water Use in the Gunnison River Basin. MS Thesis. Colorado State University. Houk, E.E., W.M. Frasier, and E.C. Schuck. 2006. The Agricultural Impacts of Irrigation Induced Waterlogging and Soil Salinity in the Arkansas Basin. Agricultural Water Management. 85:175-183. Schuck, E.C., G.P. Green, J. Clements, and W.M. Frasier. 2006. The Importance of Institutional Structure in Controlling Agricultural Runoff. J. American Water Resources Association. 42(6):1483-1492. Thorvaldson, J. 2006. Colorado's Evolving Irrigated Agriculture: Economic Accounting and Impact Analysis. MS Thesis. Colorado State University. |