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Economic impact analysis of reduced irrigated acreage in four river basins in Colorado

Colorado’s water is an important natural resource that contributes to the state’s economic, cultural and social well-being (Pritchett, et al., 2005). However, this resource is of limited supply and has many competing uses. Although agriculture is still the dominant water use, rapid changes are occurring, and the impacts to Colorado’s agricultural communities are a key concern. In the next twenty-five years, Colorado’s population is expected to exceed 7 million people and an additional 632,000 acre-feet of water will be needed in cities to support their growth. An increasing consensus in the western water community is that new demands must be met primarily through the reallocation of existing supplies (Committee on Western Water Management, 1992). Because agriculture is the marginal-valued user of water supplies, the majority of this new water demand will be supplied through rural-tourban water transfers, with an estimated 400,000 irrigated agricultural acres “drying up” as these transfers occur (Pritchett, et al., 2005). Rural-to-urban water transfers create contentious, emotionally charged discussions that often center on the health of rural economies whose irrigated agricultural base is reduced with each transfer. The difference between the net value of water used for agriculture and municipalities’ willingness-to-pay for water is substantial, so much so that both the buyers and sellers of water stand to gain from out-of-basin water transfers. However, water is a resource with productive capacity, and transferring productive capacity affects more than just the buyer and seller—third parties such as local governments and businesses are affected as well (Pritchett, Frasier, and Schuck, 2003). For example, temporary or permanent income losses may occur to factors of production in sectors with backward or forward linkages to irrigated agriculture. If depressed economic conditions persist, factors of production of agriculture, agricultural supplying activities, and agricultural processing activities can be idled for long periods of time, leading to real efficiency losses. State and regional planning bodies, researchers, and the public are very concerned about the adequacy of available water supplies to sustain Colorado’s population and economic growth. Clearly, it is important to quantify and describe the economic impact of a reduction in irrigated agriculture, to disaggregate the impact among different industries in the region and among households, and to determine how government revenues might shrink. This information will be valuable to many water stakeholders