- Producer decisions around input use and technology depend on prices, price variability, and policies. Policy changes include greater water trading, limited allocations, and subsidies for precision irrigation. - Higher energy prices could increase or decrease total water use depending on impacts to biofuel production, pumping costs, and conveyance costs. Water trading allows farmers to adopt conservation technologies by selling unused water. - Estimates show a 100% water price increase could reduce applied water by 38-54% by changing crops or irrigation methods. Current research examines risk, production decisions, and groundwater trading program design.

1. PRODUCER RESPONSES TO
CHANGING AGRI-ENVIRONMENTAL
POLICIES
Dr. Karina Schoengold
Transatlantic Conference
October 17-18, 2011

3. Outline of Talk
 Producer decisions about input use and technology
depend on:
 Prices
 Average price
 Price variability
 Decisions affected include:
 Water
 Total water use
 Precision irrigation technology
 Land use
 Irrigated land

4. Policy changes and water use
 Greater use of water trading
 Limited water allocations
 Government land purchases for water rights (e.g.,
New Mexico, Oregon, Kansas)
 Groundwater/surface water connection recognized
in policy decisions
 Subsidies for precision irrigation technology
 Need to consider recharge and consumptive use
measures

5. Intensive Margin Effect

6. Drivers of Changing Water Use
 Total water use
 Food prices: positive effect, output is more profitable
 Energy price: uncertain, depends on mix of biofuel and food
products
 Water “price” (shadow value): negative effect
 Precision irrigation technology (e.g., drip, drop nozzles)
 Food prices: uncertain, depends on irrigation restrictions
 Energy price: uncertain, depends on relative costs for
pumping/conveyance versus pressurization
 Water “price” (shadow value): positive effect, applied
water is more costly

7. Higher Energy Prices and Water Use
 Four impacts of higher energy prices on water use:
 Biofuel effect (+)
 Diversion cost effect (-)
 Pressurization cost effect (-)
 Conveyance cost effect (+/-)

8. Determining the Value of Water
(shadow values)
“When the well's dry, we know the worth of water.” - Benjamin
Franklin (1706-1790), Poor Richard's Almanac, 1746
The value of water in a market or the bargained
price in a trade will depend on several factors:
 Time (within season and between seasons)
 Location (Phoenix versus Atlanta)
 Quality (urban water users demand a higher quality)

9. Trends in Water Market Activity, All Uses
90
80
70
60
Number of cases
50
Sales
40 Leases
30
20
10
0
1990 1992 1994 1996 1998 2000 2002
Figure from Brown, T. C. (2006), Trends in water market activity and price in the western United
States, Water Resour. Res., 42, W0942, doi:10.1029/2005WR004180

10. Trend in the Median Price in Two Water Markets
(2003 dollars)
80
70
60
Dollars/ML/year
50
40
30
20
10
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
N. Platte (WY) municipal N. Platte (WY) irrigation
Rio Grande (TX) municipal Rio Grande (TX) irrigation
Figure from Brown, T. C. (2006), Trends in water market activity and price in the western United States, Water Resour. Res.,
42, W0942, doi:10.1029/2005WR004180

11. Implications of Water Trading for Irrigation Water Usage
 Optimal pricing/trading will reduce water use
resulting in:
 Adoption of conservation technologies
 Transfer from agricultural users to cities
 Reduction in acreage of low value crops (cotton vs.
strawberries)
 Less water project construction over time (due to more
efficient use of water)

12. Trading and the Adoption of Water-Conserving
Technologies
 Water trading allows rights-holders to trade water
they do not use
 The adoption of water-conserving technologies (drip,
sprinkler, drop nozzles) is expensive
 Water trading might make it worthwhile to pay
those costs (farmers can sell the unused water)
 Recent research suggests that increasing the price of
water promotes adoption and fallowing with Central
Valley farmers (Schoengold, 2005, 2006)

13. Current Trends in Irrigation Technology
Use (United States)
Irrigation Technology Trends
35,000
30,000
25,000
Acres (thousands)
20,000
Gravity
Sprinkler
15,000
Drip or Trickle
10,000
5,000
0
1988 1994 1998 2003 2008
Source: USDA Farm and Ranch Irrigation Survey

14. Estimates of Water Price Impacts (Central
Valley, California)
 Previous research (Schoengold, 2006) shows:
 Direct response = 0.38 (reducing applied water while
keeping the same crop)
 Indirect response = 0.54 (changes in crop choice and/or
irrigation technology)
 Translation:
 An price increase of 100% for irrigation water:
 Reduces applied water on existing crops by 38%
 Reduces applied water due to shifts in crop/irrigation
technology by 54%

15. Extensive Margin Effect

16. Policy changes and land use
 Land in irrigated agriculture
 Food prices: positive effect, production is more
profitable
 Energy prices: uncertain effect, depends on mix of food
and biofuel crops
 Water “prices” (shadow values): negative effect, shift to
more land fallow or dryland farming

17. Current Research at UNL
 Risk and production decisions
 Water/irrigationtechnology
 Weather and climate risk - land use/tillage practices
 Design of groundwater trading programs
 Inter- and intra-seasonal requirements

18. Questions?
Contact information:
Karina Schoengold
kschoengold2@unl.edu