Dr. Bill Golden Department of Agricultural Economics

1. Economics of Groundwater Conservation to Agriculture Dr. Bill GoldenDepartment of Agricultural Economics Kansas Water Congress - Summer Conference Manhattan, KansasJuly 31, 2014

2. Big Question • What happens to agriculture and the rural economy as we reduce groundwater usage? • The evidence is not consistent !!!

3. What We Think We Know Example from Southwest Kansas. Both curves exhibit diminishing marginal returns to applied groundwater. Curves vary by crop, location, precipitation, and time

4. Future Projections for Sheridan #6 LEMA • 20% Reduction by Limiting Water Use

5. What We Have Observed: Wet Walnut Creek IGUCA: Irrigated Crop Revenue • Statistically significant short-run and a statistically insignificant long-run reduction in annual irrigated crop revenue. Figure 6. Time Series Comparison of the Indexed Values of Irrigated Crop Revenue

6. Comparison of GMD #1 and GMD#4 • Target and Control Group

7. Total Irrigated Acres • Statistically significant reduction in annual irrigated acreage  Source: Water Right Information System

8. Water Use per Acre • Statistically significant reduction in water use per acre Source: Water Right Information System

9. Total Value of All Crops • No statistically significant reduction in the annual total value of all crops. Source: www.ipsr.ku.edu

10. Total Annual Payroll • No statistically significant reduction in total annual payroll. Source: www.ipsr.ku.edu

11. Irrigated Cropland Price • Irrigated cropland prices have inflated at similar rates. Source: Farm Management Guide MF-1100; Kansas Land Prices and Cash Rental Rates by Dhuyvetter and Taylor

12. Lessons Learned • We may be over estimating direct economic impacts • Irrigators operate in a dynamic setting and implement long-run strategies to mitigate negative economic impacts • It is difficult to predict in advance what these long-run strategies will be • We may not be as economically efficient in ground water use as we think.

13. New Question: Which is More Important – the Well Being of the Producer or Rural Economy Source: Potential Economic Impact of Water Use Changes in Southwest Kansas

14. Why Conserve Groundwater?

15. The Value of Groundwater in Alternative Uses • Aylward et al. (2010) estimated that: • The value of water in irrigated agriculture ranged from $12.33/ac-ft to $2466.96/ac-ft with an average figure of $345.37/ac-ft • The value of water in domestic use ranged from $9.87/ ac-ft to $3552.43/ ac-ft, with an average value of $715.42/ ac-ft • The value of water in industrial use, ranged from $12.33/ ac-ft to $8560.36/ ac-ft, with an average value of $1060.79/ ac-ft.

16. The Value of Groundwater in Alternative Uses • Guerrero et al. (2010) estimated, that with the same volume of water, ethanol production in western Kansas and eastern Colorado created 87 times more Value Added than corn • Guerrero et al. (2012) suggests that, accounting for only the direct water use, dairies are a relatively high-value user of water generating over $93,000 per acre-ft. • After studying Sunflower Electric Power Corporation’s Holcomb expansion, Leatherman and Golden (2010) estimated the reduction in agricultural producer income at $1,179,713 per year. The annual gain in income from coal fired electricity production was estimated as $195,057,652.

17. Conclusions • The Economics of Groundwater Conservation Depends on Who You are Conserving it for: • The agriculture producer • The rural economy • Higher valued water users

18. Questions