Economy
Leasing irrigation water for environmental purposes
By George Oamek, PhD
My profession involves placing dollar values on scarce resources at specific locations and points in time. Of course, irrigation water is the scarce resource considered here, and, for the sake of illustration, its current value in alternative uses in the Platte River basin is the location and point in time being considered.
For those distant from major municipalities and without close connections to waterways supporting threatened and endangered species, irrigation is indeed the water’s highest and best economic use, and its value is based on the increased farm profits irrigation provides. It moves up and down in some proportion to crop prices and expectations about future crop prices. Conversely, for those near the Colorado Front Range, municipal usage has driven water prices up in areas with hydrological connections to the cities, with its value subject to negotiation but certainly higher than for irrigation. These values align with theory pretty well.
The valuation that is perplexing economists, or at least me, is for environmental uses, specifically for leasing water to supplement instream flows in sensitive areas. Why is this important? Because those in charge of implementing environmental regulations have neither the desire or financial ability to “buy and dry” irrigated acres or use heavy-handed measures as methods of putting more water in the river. Along with new projects and improvements to existing projects, leasing water from irrigation is being depended upon to provide needed flows for threatened and endangered species.
A multitude of short-term irrigator-to-irrigator leases tells us that irrigators are willing to lease water to one another at prices consistent with water’s irrigation value. At the same terms, however, irrigators are reluctant to lease to an environmental entity or species recovery program. Why? A few possible explanations may be
• a yet-to-be-quantified inconvenience factor associated with dealing with unknown parties. It takes time to familiarize oneself with the environmental entity, plus time to negotiate and execute a lease. Many irrigators have off-farm jobs and simply don’t have the time to deal with something new, especially if the payoff isn’t relatively large.
• a belief farm prices will rise again, especially when dealing with the prospect of a multiyear lease. This belief may dampen the further away in time we get from $7.00 per bushel corn, but it’s still a recent memory.
• the potential legal and administrative transaction costs associated with leases. Depending on the nature of the water right, there will be legal hoops to jump through and other administrative costs associated with temporarily transferring water to a different type of use.
• the fear of potentially drawing unwanted attention upon oneself, whether by regulatory agencies or environmental interests. Along with the next point, this is probably one of the bigger issues. If one is already in a well-managed irrigation district that carefully measures water supplies, this may not be a problem, but there is potentially a lot of leasable water held by smaller, irrigator-run districts. These small districts may not measure water usage as frequently and as carefully as regulatory agencies may desire. In light of potential leases, there is fear that regulators may “drop the hammer” on the small districts when seeking approval for temporary water transfers.
• cultural barriers, in that some folks won’t lease at any price. Irrigated agriculture in the Great Plains represents a value system consistent with folks’ rural lifestyle and religion. The idea of selling or leasing a portion of this valuable resource, especially if it’s viewed for the benefit of environmentalists residing in distant cities, doesn’t get traction in rural communities.
Over the next few months I’ll be speaking with several groups of irrigators and bankers about their willingness to lease irrigation water for environmental purposes. I’ll report back with the results.
George Oamek, PhD, is an economist with Headwaters Corporation and is also on the staff of
the Platte River Recovery Implementation Program’s executive director’s office. His 30-year career has focused on agriculture economics, including irrigation water leases, municipal water supply
planning and methods for managing risks. He received his undergraduate education at Colorado State University and his graduate degree from Iowa State University. He also operates his family’s Century Farm in southwest Iowa. Oamek will be the Economy contributor for all issues in volume 2 of Irrigation Today.
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