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Dr. Bill GoldenDepartment of Agricultural Economics
Economics of Groundwater Conservation
to Agriculture
Kansas Water Congress - Summer ConferenceManhattan, 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
Statistically significant short-run and a statistically insignificant long-run reduction in annual irrigated crop revenue.
Figure 6. Time Series Comparison of the Indexed Values of Irrigated Crop Revenue
0
0.5
1
1.5
2
1985 1990 1995 2000 2005
Year
Revenue
Control Target
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 Normal Weather Drought Weather
Subarea 1: Cumulative Groundwater Use -9.5% -14.8%
Subarea 2: Cumulative Groundwater Use -31.7% -31.6%
Subarea 3: Cumulative Groundwater Use -14.7% -19.6%
Subarea 1 : Cumulative Net Producer Revenue 4.3% 12.8%
Subarea 2 : Cumulative Net Producer Revenue -0.9% 5.7%
Subarea 3 : Cumulative Net Producer Revenue -1.3% 1.6%
Subarea 1 : Cumulative Total Industry Output 6.0% 15.0%
Subarea 2 : Cumulative Total Industry Output 5.8% 11.1%
Subarea 3 : Cumulative Total Industry Output 0.8% 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
