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

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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 Reminder Evaporation v Transpiration

Water Use/Acre Weighted 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 T Z. Samani, NMSU, March 30, 2012

•  No  simple  empirical  methods  for  separa2ng  E  and  T.    His  satellite  ET  map  of  EBID  does  not  split  E-­‐T.      

•  Theore2cal  approaches  could  be  used,  but  they  are  hard  to  test.    

•  For  any  given  crop,  drip  irriga2on  typically  produces  higher  yields,  so  takes  more  ET  than  surface  irriga2on.        

•  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 Grande 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/

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Acreage

Not OrderingMiscGrain, Hay, ForageVegetablesCottonAlfalfaPecans

EBID recent history (acreage)

Cash Receipts Doña Ana and Sierra Counties

(2005, $million)

County   Doña  Ana   Sierra   Total  Total   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  prices  Crop  costs  Water  price  Land  supply  

Process  

Maximize  NPV  for  EBID      

Outcomes  

Crop  prodn    Crop  ET    Crop  Mix    Water  Use      Water  Saved    Farm  Income    NPV  

Baseline:  no  new  policy        Alterna2ve  :    Various  drip  irriga2on  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/ac  Tech    

A   ET   Ret  Yield    

tons/ac  ac-­‐7/ac/yr   ac-­‐7/ac/yr  

Alfalfa   f     5.0   2.2   2.9   8.0   d     2.7   2.7   0.0   10.0  

CoBon     f     2.8   1.2   1.6   0.4   d     1.5   1.5   0.0   0.5  

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

NM Pecans: Water Balance Total ET: higher with Drip

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Drip 6’

2.6’

3.4’

Flood

3.2’ 3.2’

0 Return 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 Agr

u locationc cropk irrig tech flood v dript 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

    Tech  Water  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  ApplicaVons  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

    Technology  Water  Supply  

%  Capital  Subsidy,  Drip  irrigaVon  

0   25   50   75   100  

Total  all  Crops  

flood   normal   114,752  111,797  108,842  105,887  102,932  

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

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  Depleted   normal   126,966  126,966  126,966  126,966  126,966  

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

Water  Conserved  (Reduced  DepleVons    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.

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Thank you