Describing and quantifying revenue risk producers face when adopting water conserving cropping systems

Abstract

Demand for water in Colorado is increasing rapidly due to the growth of population along the Front Range. Water resources in Colorado are mostly allocated with majority of the water being diverted for agricultural uses. Thus, in order to meet increasing municipal and industrial demand, water must be reallocated from agricultural uses. One way to reallocate water is for farmers to lease water rather than produce crops. This implies a change in production practices for the formerly irrigated cropland, and adaptations may include dryland cropping or fallowing. When water leasing is introduced, and production practices are adjusted, the profit risk that a farm business faces from uncertain yields and prices is affected. This research examines four alternative cropping systems that producer may choose when seeking to conserve water and compares these to the two baseline cases of representing irrigated cropping systems. The research focuses on Weld and Logan counties of Colorado within the South Platte River Basin. The results are aimed to inform producers, researchers, water engineers and other stakeholders in order to make better water management decisions. A historical simulation method is used to quantify the difference in profits between the baseline cases and the alternative cropping systems. Results suggest foregone profits have the lowest mean and smallest distribution when switching from a fully irrigated corn rotation to a 2/3 irrigated corn and 1/3 fallow rotation. Results suggest a potential minimum level of payment for water leases.