Jenny Thorvaldson and James Pritchett Dept. of Agricultural and Resource Economics

1. Jenny Thorvaldson and James Pritchett Dept. of Agricultural and Resource Economics Colorado State University James.Pritchett@ColoState.edu Broader Economic Impacts of Reduced Irrigated Acres: Colorado’s South Platte River Basin

2. The Presentation's Path • Economic Baseline of South Platte Basin and Lower South Platte Sub-Basin • Broad description • Economic base • Agricultural sector • Relative water supply and demand amounts • Impact Study • Effects of reduced irrigated cropland • General Overview • IMPLAN • Preliminary results for East South Platte Basin • Ongoing Research at CSU

3. South Platte Basin • Comprised of 14 counties in the northeastern corner of the state (making up 20% of the state’s total land area). • The population of the Basin has increased by 34% since 1990, to 3,031,824, and now accounts for 69% of the state’s total population. The population of this basin is expected to increase by another 65% by 2030.

4. Economic Demographics of the South Platte Basin

5. Economic Demographics of the Lower South Platte Basin

6. Lower South Platte Land Disposition

7. Value of Sales by Irrigated Crop for Lower South Platte Basin

8. Agriculture is the predominant water use, with ~2.2 million AF per year used for irrigation of 1.1 million acres. An additional 880,000 AF per year of groundwater is applied for irrigation and 100,000 AF per year of groundwater is used for other purposes. Water Use in the South Platte Basin

9. The South Platte Basin is Colorado’s most populous, diverse, and industrialized basin, and the South Platte River is arguably the most developed and over-appropriated of Colorado’s major streams. The basin contains both the major population of the state and its most productive irrigated agricultural lands, yet has only 12% of the state’s water supply. The basin is projected to experience the largest increase in M&I and SSI water demand by 2030 (nearly 2/3 of the total increase in the state gross demand). 2 million additional residents projected to live in the South Platte Basin by 2030, and these additional residents need ~ 400,000 AF of water to meet demand. Water Use, Cont’d.

10. Water Use, cont’d. • New water storage projects are needed, but there are still existing water rights that need to be filled (i.e. agricultural). • Demands for water in the South Platte River Basin are the most intense in Colorado and are creating contentious debates over water use.

11. Trends in Irrigated Agriculture • 75% of the total value of Colorado crops is derived from the irrigated sector, highlighting the importance of, and dependence on, a secure water supply. • Although agriculture is still the dominant water use, rapid changes are occurring and the impacts to rural communities are a key concern. • Understanding the impact of these changes on rural Colorado economies, and the effect on the open space provided by farms and ranches, is a key challenge for all Coloradoans.

12. SWSI Projections of ReducedIrrigated Cropland

13. Potential Scenarios • All acres taken out of irrigation converted to grassland (i.e., taken out of production), maintaining original crop-mix with remaining acres • All acres taken out of irrigation converted to dryland farming (which crops?) • Other ideas??? • Farmer survey

14. Economic Impact Analysis • Industries produce goods and services for households and other final users (final demand) as well as for other producers to use as inputs (intermediate demand). • Whenever one of these inputs (e.g., irrigation water) becomes unavailable, or one sector (e.g., irrigated agriculture) is unable to produce its established products, the impact ripples through the other sectors of the economy, reducing demand for their output too, and reducing employment and income in the region. • Economic impact analysis examines the effects of such a change on an entire economy.

15. Impact Analysis Diagram

16. Input-Output Models • I-O models describe commodity flows from producers to intermediate and final consumers. • Can then be used to calculate the resulting output reduction in the total economy (impact analysis). • I-O Models measure 3 types of effects • Direct (lost sales) • Indirect (support industry losses) • Imputed (lost wages and reduced household spending) • Resulting multipliers measure the amount that a decrease in activity of a given local industry causes additional decreases in purchases from other local industries

17. IMPLAN (IMpact Analysis for PLANning) • Combine selected counties to create regional study area • Imports estimated from Regional Purchase Coefficients • RPC’s represent proportion of local demand for a good/service that is provided by local producers (an RPC=1 means that 100% of that good is purchased locally) • Local demands multiplied by RPC’s to create set of netlocal demands (total demand minus imports) • Domestic exports = total production minus local consumption • Result is a balanced set of regional economic accounts and multipliers

18. Impacts When All Lost Acres Converted to Grassland in East South Platte • Total: -$77,948,551 • Direct: -$61,984,519 • Indirect: -$12,372,933 • Imputed: -$3,591,098 • Proportions • 0.08% of overall GDP of region • 4.09% of total ag sales • 26.43% of total crop sales

19. Impacts When All Lost Acres Converted to Grassland in East South Platte • Output Multiplier = 1.26 • Only margin lost, not entire value of crop (many inputs purchased from outside of study area) • Multiplier increasing as move east (fewer base sectors in Lower South Platte so multiplier likely to be higher)

20. Impacts by Sector

21. Limitations of Current Study • Instantaneous (not dynamic) • No Downstream Effects • Local Effects vs. Global Effects What if the reserve acres were clustered together? • Distributional Effects

22. Ongoing CSU Research • Irrigation Optimization Study • Farming systems with limited irrigation water • Net Return Comparison • Investment Analysis • Farmer Survey • Predominant cropping systems • results by March 15th • 5 Regional Economic Analyses • 4 Basins + Lower South Platte sub-basin • Preliminary results in February • Final results in April • Input-Output Models