Download AWRA WARD April 6 2012 April 4 Final

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
– policy
– Projects
(drip, sprinkler, water saving crops)
(subsidies, regulations, pricing, … )
(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
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
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
Rio
Grande
Basin
6
Gaps
• Little work in NM (or elsewhere) explaining what
affects irrigation water savings that integrates
–
–
–
–
–
Farm economics:
Farm hydrology:
Agronomy:
Basin hydrology:
Basin institutions:
profitability
water application
yields by crop
net water depletions
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: 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
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
75,000
70,000
65,000
60,000
Not Ordering
Misc
Grain, Hay, Forage
Vegetables
Cotton
Alfalfa
Pecans
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
1959
1957
1955
0
1953
Acreage
55,000
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 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
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 from
water depletion for both surface and drip
irrigation
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
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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
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
Our Empirical Analysis of NM Ag
Water Conservation
• Maximize
– Objective: Farm Economic Returns
• Subject to
– Constraints
• Hydrologic
• Agronomic
• Institutional
22
Policy Assessment Approach
Data
Headwater
supplies
Policy
Process
Outcomes
Crop prodn
Baseline: no
new policy
Crop ET
Law of the
River
Crop prices
Crop costs
Water price
Land supply
Alternative :
Various drip
irrigation
subsidies
Crop Mix
Maximize
NPV for EBID
Water Use
Water Saved
Farm Income
NPV
23
Ag Water Balance
24
Crop Water Data Used, EBID, NM
A
Crop
Tech
ET
Yield
Ret tons/ac
ac-ft/ac/yr
A
Tech
ET
Yield
Ret tons/ac
ac-ft/ac/yr
Alfalfa
f
5.0
2.2
2.9
8.0
d
2.7
2.7
0.0
10.0
Cotton
f
2.8
1.2
1.6
0.4
d
1.5
1.5
0.0
0.5
Lettuce
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
Green Chile
Red Chile
Pecans
f
f
f
f
2.5
4.6
5.0
6.0
1.1
2.0
2.2
2.6
1.4
2.6
2.9
3.4
4.6
11.0
1.7
0.6
d
d
d
d
1.4
2.5
2.7
3.2
1.4
2.5
2.7
3.2
0.0
0.0
0.0
0.0
5.8
13.8
2.2
0.7
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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
NBAuckt
Max NPV Ag  
t
(1

r
)
u
c
k
t
u
u  location
c  crop
k  irrig tech ( flood v. drip )
t  year
NBAuckt  [ Pct Yielduckt  Cost uckt ] Luckt
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
% 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
31
Table 5. Total Water Applied by Technology and Subsidy
Rio Grande Basin, NM, USA, 2006, ac-ft / yr
Tech
flood
Total all
Crops
drip
Total Water Applied
Water Conserved
(Reduced Applications
ref: no subsidy)
Water
Supply
% Capital Subsidy, Drip
0
25
50
75
100
normal
251,394 245,003 238,612 232,221 225,830
dry
211,384 205,992 200,026 193,635 187,244
normal
12,214
15,169
18,124
21,079
24,034
dry
5,320
7,814
10,572
13,527
16,482
normal
263,608 260,172 256,736 253,300 249,864
dry
216,705 213,806 210,598 207,162 203,726
normal
0
3,436
6,872
10,308
13,744
dry
0
2,899
6,107
9,543
12,979
32
Table 6. Total Water Depletion by Irrigation Technology and Drip
Irrigation Subsidy Rio Grande Basin, NM, USA, 2006, acre feet/yr
Technology
flood
Total all
Crops
drip
Water
Supply
Water Conserved
(Reduced Depletions
Ref: No Subsidy)
0
25
50
75
100
normal
114,752 111,797 108,842 105,887 102,932
dry
96,253 93,759 91,001 88,046 85,091
normal
12,214 15,169 18,124 21,079 24,034
dry
Total Water Depleted
% Capital Subsidy, Drip irrigation
5,320
7,814 10,572 13,527 16,482
normal
126,966 126,966 126,966 126,966 126,966
dry
101,573 101,573 101,573 101,573 101,573
normal
0
0
0
0
dry
0
0
0
0
0
33
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  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.
34
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
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