Economics of Groundwater Conservation to Agriculture

Report
Economics of Groundwater Conservation
to Agriculture
Dr. Bill Golden
Department of Agricultural Economics
Kansas Water Congress - Summer Conference
Manhattan, Kansas
July 31, 2014
Big Question
 What
happens to agriculture and the rural
economy as we reduce groundwater
usage?
 The
evidence is not consistent !!!
What We Think We Know
Example from Southwest Kansas. Both curves exhibit diminishing marginal returns to
applied groundwater. Curves vary by crop, location, precipitation, and time
Future Projections for
Sheridan #6 LEMA
 20%
Reduction by Limiting Water Use
What We Have Observed: Wet
Walnut Creek IGUCA: Irrigated
Crop Revenue
Figure 6. Time Series Comparison of the Indexed Values of Irrigated Crop Revenue
2
Revenue
1.5
1
0.5
0
1985
1990
1995
2000
2005
Year
Control
 Statistically
T arget
significant short-run and a
statistically insignificant long-run reduction
in annual irrigated crop revenue.
Comparison of GMD #1 and
GMD#4
 Target
and Control Group
Total Irrigated Acres
 Statistically
significant reduction in annual
irrigated acreage
Source: Water Right Information System
Water Use per Acre
 Statistically
significant reduction in water
use per acre
Source: Water Right Information System
Total Value of All Crops
 No
statistically significant reduction in the
annual total value of all crops.
Source: www.ipsr.ku.edu
Total Annual Payroll
 No
statistically significant reduction in total
annual payroll.
Source: www.ipsr.ku.edu
Irrigated Cropland Price
 Irrigated
cropland prices have inflated at
similar rates.
Source: Farm Management Guide MF-1100; Kansas Land Prices and Cash Rental Rates by Dhuyvetter and Taylor
Lessons Learned

We may be over estimating direct economic impacts

Irrigators operate in a dynamic setting and implement
long-run strategies to mitigate negative economic
impacts

It is difficult to predict in advance what these long-run
strategies will be

We may not be as economically efficient in ground water
use as we think.
New Question: Which is More
Important – the Well Being of the
Producer or Rural Economy
Table 36. Impacts of the GMD#3 Reallocation Scenarios Relative to the Status Quo Scenarios
Metric
Subarea 1: Cumulative Groundwater Use
Subarea 2: Cumulative Groundwater Use
Subarea 3: Cumulative Groundwater Use
Subarea 1 : Cumulative Net Producer Revenue
Subarea 2 : Cumulative Net Producer Revenue
Subarea 3 : Cumulative Net Producer Revenue
Subarea 1 : Cumulative Total Industry Output
Subarea 2 : Cumulative Total Industry Output
Subarea 3 : Cumulative Total Industry Output
Normal Weather
-9.5%
-31.7%
-14.7%
4.3%
-0.9%
-1.3%
6.0%
5.8%
0.8%
Drought Weather
-14.8%
-31.6%
-19.6%
12.8%
5.7%
1.6%
15.0%
11.1%
3.6%
Source: Potential Economic Impact of Water Use Changes in Southwest Kansas
Why Conserve Groundwater?
The Value of Groundwater in
Alternative Uses

Aylward et al. (2010) estimated that:



The value of water in irrigated agriculture ranged
from $12.33/ac-ft to $2466.96/ac-ft with an average
figure of $345.37/ac-ft
The value of water in domestic use ranged from
$9.87/ ac-ft to $3552.43/ ac-ft, with an average value
of $715.42/ ac-ft
The value of water in industrial use, ranged from
$12.33/ ac-ft to $8560.36/ ac-ft, with an average value
of $1060.79/ ac-ft.
The Value of Groundwater in
Alternative Uses

Guerrero et al. (2010) estimated, that with the same volume of
water, ethanol production in western Kansas and eastern Colorado
created 87 times more Value Added than corn

Guerrero et al. (2012) suggests that, accounting for only the direct
water use, dairies are a relatively high-value user of water
generating over $93,000 per acre-ft.

After studying Sunflower Electric Power Corporation’s Holcomb
expansion, Leatherman and Golden (2010) estimated the reduction
in agricultural producer income at $1,179,713 per year. The annual
gain in income from coal fired electricity production was estimated
as $195,057,652.
Conclusions
 The
Economics of Groundwater
Conservation Depends on Who You are
Conserving it for:



The agriculture producer
The rural economy
Higher valued water users
Questions

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