Economic Value of Irrigation Water in Sac Valley 95

The Economic Value of Irrigation Water in the Sacramento Valley-95
Project Leader and Principal UC Investigators Daniel A. Sumner - Professor, Department of Agricultural Economics, UC Davis Richard E. Howitt - Professor, Department of Agricultural Economics, UC Davis	It's a given that water is the lifeblood of agriculture and, therefore, to the economy of much of the Sacramento Valley. To what extent would the economies of the Valley's agriculturally rich counties suffer if irrigation water were to begin drying up? That was the focus of this study, which concentrated on eight counties: Tehama, Glenn, Butte, Colusa, Yolo, Yuba, Sacramento and Sutter. Each of these counties has large agricultural industries and, except for Sacramento and Yolo counties, farming itself is the dominant contributor to the local economy. This study examined crop acreage changes and other agricultural responses under four scenarios of reduced surface water for irrigation. These scenarios involved two different base situations from which cuts were hypothetically made. From each of these base situations the economists looked at the economic impact to a range of commodities with and without additional groundwater pumping to mitigate the effects of the surface water reduction. A detailed economic model was used to quantify how a reduced supply of irrigation water reduces farming activities and lowers farm revenue. In response to less available and more costly water, the economists reasoned, farmers would most likely alter their production patterns by attempting to reduce intensive water use by adopting alternative technologies, reducing the number of acres planted or switching to less water-intensive crops. The combination of actions farmers might actually take in response to reduced water supplies would depend on agronomic and weather conditions, suitability of alternative crops and the magnitude of the water constraints. The economic model used in this study bases its projections on how farmers in the region have responded in the past to changes in economic incentives and restraints. In a normal water year with no additional groundwater usage, overall farm revenue loss from a 25 percent reduction in surface water could run as high as $34 million for the Sacramento Valley. Approximately 80 percent of those losses would occur in those areas most dependent upon agriculture. Revenue losses would occur for most crops but would be largest for rice. This is true in part because rice tends to be particularly dependent on surface water and because rice is the most valuable crop in most counties. Rice revenues have the largest share of revenue in Colusa, Glenn, Sutter, Butte and Yuba counties. The magnitude of the impact on the overall economy depends on what mitigating adjustments farmers might take in response to reduced water supply and the relative importance of agriculture to the region. The researchers also examined how employment and income would likely be affected by reductions in the avail- ability of surface water. Losses would be highest in absolute terms for those counties with more agricultural output and especially in those counties associated with rice production. Under each of the scenarios Colusa County is the hardest hit, not only by losing the largest amount of income ($12.5 million) but also by losing the largest percentage of personal income from the county economy (5 percent). In counties already struggling with high unemployment and low per capita income, the potential consequences of surface water reductions are substantial. Total employment losses would exceed 300 jobs. The largest number of jobs would be lost from rice-related crop losses. Regionwide as many as 185 lost jobs would be associated with rice reductions caused by a loss of irrigation water. Overall, from 60 percent to 88 percent of the potential job losses in the Sacramento Valley would be attributable to losses in rice revenue. The largest of these job losses would occur in Colusa County, where 34 percent of all employment is in agriculture. Employment in Colusa County would fall by more than 80 jobs under a 25 percent cut. Three other counties - Glenn, Butte and Sutter - would also suffer a relatively large number of lost jobs (153). This is a major loss for a region with relatively few employment opportunities. This study documents the economic importance of irrigation water to the Sacramento Valley. Even with an economic model that allows substantial adjustments by farmers to respond to changes in water availability, the researchers still project significant farm revenue losses. In areas where agriculture is a major share of the economy, which includes all the rural counties of the Sacramento Valley, these farm revenue losses translate into significant losses of county income and employment.

The Economic Value of
Irrigation Water in the
Sacramento Valley-95

Project Leader and Principal UC Investigators

Daniel A. Sumner - Professor, Department of Agricultural Economics, UC Davis

Richard E. Howitt - Professor, Department of Agricultural Economics, UC Davis

It's a given that water is the lifeblood of agriculture and, therefore, to the economy of much of the Sacramento Valley. To what extent would the economies of the Valley's agriculturally rich counties suffer if irrigation water were to begin drying up?

That was the focus of this study, which concentrated on eight counties: Tehama, Glenn, Butte, Colusa, Yolo, Yuba, Sacramento and Sutter. Each of these counties has large agricultural industries and, except for Sacramento and Yolo counties, farming itself is the dominant contributor to the local economy.

This study examined crop acreage changes and other agricultural responses under four scenarios of reduced surface water for irrigation. These scenarios involved two different base situations from which cuts were hypothetically made. From each of these base situations the economists looked at the economic impact to a range of commodities with and without additional groundwater pumping to mitigate the effects of the surface water reduction.

A detailed economic model was used to quantify how a reduced supply of irrigation water reduces farming activities and lowers farm revenue. In response to less available and more costly water, the economists reasoned, farmers would most likely alter their production patterns by attempting to reduce intensive water use by adopting alternative technologies, reducing the number of acres planted or switching to less water-intensive crops.

The combination of actions farmers might actually take in response to reduced water supplies would depend on agronomic and weather conditions, suitability of alternative crops and the magnitude of the water constraints. The economic model used in this study bases its projections on how farmers in the region have responded in the past to changes in economic incentives and restraints.

In a normal water year with no additional groundwater usage, overall farm revenue loss from a 25 percent reduction in surface water could run as high as $34 million for the Sacramento Valley. Approximately 80 percent of those losses would occur in those areas most dependent upon agriculture. Revenue losses would occur for most crops but would be largest for rice. This is true in part because rice tends to be particularly dependent on surface water and because rice is the most valuable crop in most counties. Rice revenues have the largest share of revenue in Colusa, Glenn, Sutter, Butte and Yuba counties.

The magnitude of the impact on the overall economy depends on what mitigating adjustments farmers might take in response to reduced water supply and the relative importance of agriculture to the region. The researchers also examined how employment and income would likely be affected by reductions in the avail- ability of surface water.

Losses would be highest in absolute terms for those counties with more agricultural output and especially in those counties associated with rice production. Under each of the scenarios Colusa County is the hardest hit, not only by losing the largest amount of income ($12.5 million) but also by losing the largest percentage of personal income from the county economy (5 percent). In counties already struggling with high unemployment and low per capita income, the potential consequences of surface water reductions are substantial.

Total employment losses would exceed 300 jobs. The largest number of jobs would be lost from rice-related crop losses. Regionwide as many as 185 lost jobs would be associated with rice reductions caused by a loss of irrigation water. Overall, from 60 percent to 88 percent of the potential job losses in the Sacramento Valley would be attributable to losses in rice revenue.

The largest of these job losses would occur in Colusa County, where 34 percent of all employment is in agriculture. Employment in Colusa County would fall by more than 80 jobs under a 25 percent cut. Three other counties - Glenn, Butte and Sutter - would also suffer a relatively large number of lost jobs (153). This is a major loss for a region with relatively few employment opportunities.

This study documents the economic importance of irrigation water to the Sacramento Valley. Even with an economic model that allows substantial adjustments by farmers to respond to changes in water availability, the researchers still project significant farm revenue losses. In areas where agriculture is a major share of the economy, which includes all the rural counties of the Sacramento Valley, these farm revenue losses translate into significant losses of county income and employment.