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Comparative profitability of irrigated cropping activities for temporary water transfers

Date

2019

Authors

Kelley, Timothy, author
Mooney, Daniel, advisor
Goemans, Christopher, committee member
Andales, Allan, committee member

Journal Title

Journal ISSN

Volume Title

Abstract

In response to a projected gap in water supply and demand, Colorado's Water Plan calls for up to 50,000 acre-feet of temporary water transfers from agricultural to municipal and industrial uses by 2030. Water stakeholders, however, want to avoid buy and dry scenarios, implying that a portion of agricultural water-right holders' consumptive use (CU) should remain available for on-farm agricultural production. Alternative Transfer Methods (ATMs) represent the regulatory mechanisms that enable temporary water transfers without permanent drying of agricultural land. To participate in an ATM, water-right holders must first establish a historical consumptive use (HCU) baseline which can then be allocated to agricultural production or temporary transfer. When faced with less water, producers may pursue several management options, including: rotational fallow, deficit irrigation, changes to crop mix, or changes to other practices like harvest timing. Yet, previous research on the risk profile of these options and their effect on producers' expected adaptation behavior is limited. This research develops a framework to compare the expected profitability of irrigated cropping activities, and in doing so, accounts for differences in risk and water-leasing potential. The framework is applied to a case study of twelve selected irrigated cropping activities on a well-drained silt loam soil in northeastern Colorado using stochastic enterprise analysis. Specifically, we compare gross margins for two corn (grain and silage) and two alfalfa (two cut and three cut) cropping enterprises on a per water-unit basis (one unit equals 12.94 acre-inches of CU); each under full irrigation, deficit irrigation, and partial fallow water management strategies. First, we simulate producers' expectations about gross margins based on empirical distributions of precipitation, price, and cost data for 1992 – 2017 and the FAO crop water production function. Second, we employ econometric analysis of the first, second, and third moments of the simulated gross margin distributions to estimate a risk premium for each activity. Fully-irrigated corn is set as the reference activity (one acre requires 1 water-unit of irrigation or 12.94 acre-inches of CU) and we find that crop choice, harvest timing, and deficit/fallow strategies all significantly affect producers' risk exposure relative to the reference activity. Activities remaining in the efficient set are primarily the rotational fallow strategies which would enable 3.24 – 7.14 acre-feet of CU to be leased for every twelve water-units of their HCU baseline enrolled in an ATM at a breakeven cost of $386.05 to $791.51 per acre-foot. More land could be maintained in agricultural production for an identical amount of transferable water under deficit irrigation, but it would typically come at a higher breakeven cost of $381.95 to $850.19 per acre foot depending on the producers' choice of crop and harvest strategies. The results should be of interest to academic, producer, and policy audiences, respectively, as they provide insight on (i) a novel methodology for comparing irrigated cropping activities that incorporates expected profitability, risk, and leasable water into a single metric, (ii) a ranking of potential adaptation strategies for producers who participate in ATMs, and (iii) insight into the economic tradeoffs between maintaining agricultural working land while also allowing for temporary water transfers to other beneficial uses.

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Subject

farm planning
stochastic budget
risk
alternative transfer methods

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