The Economic Cost of Unanticipated Water Supply Reductions for Agricultural Producers in the Humboldt River Region

Abstract

This article develops economic models for a cow-calf ranching operation and an alfalfa hay operation in the Humboldt River Region (HRR) that use surface water for irrigation. The models were built and parameterized through consultation with ranchers and farmers in the HRR in order to represent typical agricultural operations in the region. The models were used to calculate the economic value to an operation of an acre-foot of water not received due to an unanticipated supply reduction. This analysis was conducted to support the conjunctive management of surface and groundwater in the HRR by providing estimates of the economic value of the water that surface water users expect but do not receive due to interference from upstream groundwater pumping. For the cow-calf ranch model, reduced water deliveries impact ranch profits by reducing the amount of low-cost feed grown on the ranch. The increase in average feed costs forces the ranch to reduce its herd size, which lowers the number of new calf births and, as a result, lowers future profits from livestock sales. The cow-calf ranching model predicts an economic value of an acre-foot of water for the cow-calf ranch in the range of $215 per acre-foot for unanticipated supply interruptions that occur in normal water years, and upwards of $290 per acre-foot for supply interruptions that occur during drought. Model results do not provide evidence that the economic value of an acre-foot of water increases with the length of the unanticipated supply reduction. For the alfalfa hay farm model, results indicate that unanticipated reduced water deliveries impact farm profits by first preventing the farm from planting a cover crop during fallow years and then, for more significant interruptions, reducing its acreage of alfalfa hay. The alfalfa hay model predicts that the economic value of an acre-foot of water increases with both the volume of water not received and the length of the unanticipated supply reduction. The economic value of water per-acre-foot predicted by the alfalfa hay model ranges from less than $10 per acre-foot for unanticipated supply interruptions that occur in normal water years, in the range of $100-$200 per acre-foot for single-year supply interruptions that occur during a below average water year, and over $300 per-acre-foot for supply interruptions that occur in successive below average water years.