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

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, … ) 2

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 3

A Reminder

Evaporation v Transpiration Water Use/Acre

Weighted Ave over Crops

Technology Apply ET

Flood

4.63 2.11

E? T?

Return 0.21 1.90

2.51

Drip

2.48 2.48

0.12 2.36

0.00

4

Separating E from T Z. 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.

5

6

Rio Grande Basin

Gaps

• Little work in NM (or elsewhere) explaining what affects irrigation water savings that integrates – Farm economics: profitability – Farm hydrology: – Agronomy: water application 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 7

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: Project Area.

Conduct analysis that explains profitability, production, land and water use in the • 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 8

Study Region: Elephant Butte Irrigation District

• http://www.ebid-nm.org/ 9

EBID recent history (acreage)

95,000 90,000 85,000 80,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 75,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 Not Ordering Misc Grain, Hay, Forage Vegetables Cotton Alfalfa Pecans

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

County Total Hay Chile Onions Pecans Doña Ana 167.9

22.0

21.7

32.5

91.7

Sierra 44.9

1.9

22.4

18.4

2.3

Total 212.9

23.8

44.1

51.0

94.0

Approach • Analyze water conservation from surface to drip.

of drip irrigation conversion • Integrates subsidies

that reduces capital cost to convert

– Public policy: Taxpayer $ to reduce the costs – Private effect: Makes it cheaper to convert

farm economics and basin hydrology

12

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 13

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 water depletion irrigation from for both surface and drip 14

Pecans, drip irrigated

15

Pecans, surface irrigated

16

Pecans: Drip or Surface Irrigated 17

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 18

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 19

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 20

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 21

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Our Empirical Analysis of NM Ag Water Conservation

• Maximize – Objective: Farm Economic Returns • Subject to – Constraints • Hydrologic • Agronomic • Institutional

Policy Assessment Approach

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

Ag Water Balance

24

Crop Water Data Used, EBID, NM

Crop Alfalfa Cotton Lettuce Onions Sorghum Wheat Green Chile Red Chile Pecans Tech f f f f f f f f f A ET Ret 5.0

ac-ft/ac/yr 2.2

2.9

2.8

2.5

1.2

1.1

1.6

1.4

4.0

2.0

2.5

4.6

5.0

6.0

2.3

0.9

1.1

2.0

2.2

2.6

1.7

1.1

1.4

2.6

2.9

3.4

Yield tons/ac 8.0

0.4

12.5

16.9

Tech d d d d d 2.0

4.6

11.0

1.7

0.6

d d d d A ET Ret 2.7

ac-ft/ac/yr 2.7

0.0

1.5

1.4

1.5

1.4

0.0

0.0

2.9

1.1

1.4

2.5

2.7

3.2

2.9

1.1

1.4

2.5

2.7

3.2

0.0

0.0

0.0

0.0

0.0

0.0

Yield tons/ac 10.0

0.5

15.6

21.1

2.5

5.8

13.8

2.2

0.7

25

NM Pecans: Water Balance

Total ET: higher with Drip

Flood Drip

6’ 3.2’ 3.2’ 2.6’ 3.4’ Return to system 0 Return to system 26

Under the Hood

27

Ag Water Use Objective

Max NPV Ag

 

u c k t NBA uckt

(1 

r u

)

t t u



location c k



crop



irrig tech



year

( )

NBA

uckt

 [

P Yield

ct uckt



Cost

uckt

]

L

uckt

28

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 29

Results

• Ag Water Use and Water Savings

– 0 pct drip conversion subsidy – 25 pct conversion subsidy cost – 50 pct – 75 pct – 100 pct 30

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 Normal Dry % Capital Subsidy, Drip irrigation 0 25 50 75 100 0.00

11.58

23.16

34.75

46.33

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 0 % Capital Subsidy, Drip 25 50 75 100 Total all Crops flood drip normal dry normal dry 251,394 245,003 238,612 232,221 225,830 211,384 205,992 200,026 193,635 187,244 12,214 5,320 15,169 7,814 18,124 10,572 21,079 13,527 24,034 16,482 Total Water Applied normal dry Water Conserved (Reduced Applications ref: no subsidy) normal dry 263,608 260,172 256,736 253,300 249,864 216,705 213,806 210,598 207,162 203,726 0 0 3,436 2,899 6,872 6,107 10,308 9,543 13,744 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 Total all Crops Technology flood drip Total Water Depleted Water Supply normal dry normal dry normal dry Water Conserved (Reduced Depletions Ref: No Subsidy) normal dry % Capital Subsidy, Drip irrigation 0 25 50 75 100

114,752 111,797 108,842 105,887 102,932 96,253 93,759 91,001 88,046 85,091 12,214 15,169 18,124 21,079 24,034 5,320 7,814 10,572 13,527 16,482 126,966 126,966 126,966 126,966 126,966 101,573 101,573 101,573 101,573 101,573 0 0 0 0 0 0 0 0 33 0 0

Lessons Learned

• Irrigators invest more heavily in water-saving technologies when faced with lower costs for converting from surface to drip. • Drip irrigation subsidies food production, and   farm income,  crop water applied.

crop yields,  value of • 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 m 3 depleted with 20%  supplies. 34

Research Questions

• Ag water use and conservation: • Need better measurement hard to define, measure, forecast, evaluate, alter.

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 35

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? 36

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?

37

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 38

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 39

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