ABOUT THIS BOOK
A collection of the most advanced and authoritative agricultural-economic research in the face of increasing water scarcity.
Agriculture has been critical in the development of the American economy. Except in parts of the western United States, water access has not been a critical constraint on agricultural productivity, but with climate change, this may no longer be the case. This volume highlights new research on the interconnections between American agriculture, water resources, and climate change. It examines climatic and geologic factors that affect the agricultural sector and highlights historical and contemporary farmer responses to varying conditions and water availability. It identifies the potential effects of climate change on water supplies, access, agricultural practices, and profitability, and analyzes technological, agronomic, management, and institutional adjustments. Adaptations such as new crops, production practices, irrigation technologies, water conveyance infrastructure, fertilizer application, and increased use of groundwater can generate both social benefits and social costs, which may be internalized with various institutional innovations. Drawing on both historical and present experiences, this volume provides valuable insights into the economics of water supply in American agriculture as climate change unfolds.
TABLE OF CONTENTS
Introduction - Gary D. Libecap, Ariel Dinar
DOI: 10.7208/chicago/9780226830629.003.0001
[water;agriculture;climate change;adaptation]
We highlight the role of agriculture in the American economy and society over time; point to farmerhistorical and contemporary responses to varying climatic conditions; indicate the importance of water as an input to agricultural production; identify possible impacts of climate change on access to water; and briefly summarize 11 papers on these topics. Agriculture has been critical in development of the American society and economy. Except in parts of the US West, water access has not been a critical constraint in agriculture. But this is changing. With climate change, water supplies are apt to be much more problematic in most parts of the country, affecting agricultural production and rural populations. Fortunately, the wide range of spatial climatic conditions encountered affecting water access as settlement and production moved across the continent, provides valuable insights to contemporary climate change. In the research briefly summarized, focus is on farmer interpretation of available climatic data; their reactions and related investments; potential externalities; and institutional/coordination challenges posed by efforts to secure water. (pages 1 - 28)
This chapter is available at:
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1. The Economics of Climatic Adaptation: Agricultural Drainage in the United States - Eric C. Edwards, Walter N. Thurman
DOI: 10.7208/chicago/9780226830629.003.0002
[drainage;agricultural production;marginal product of water;adaptation;climate change]
Agricultural adaptation to climate change will involve water as a key input. In water-scarce areas, the marginal product of water is high and investments are made in irrigation. In water-abundant areas, the marginal product of water can be negative, especially at certain times of the year. In this chapter we examine agricultural drainage as adaptation to excess water, which occurs in many areas of the eastern United States. We take a historical perspective in examining the economic factors behind the emergence of drainage and then discuss its potential role in climate adaptation. Although shifting growing regions and increased precipitation in the eastern US are already leading to the northern expansion of drainage, economic analysis has largely ignored this important issue. (pages 29 - 52)
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2. Estimating the Effect of Easements on Agricultural Production - Nicole Karwowski
DOI: 10.7208/chicago/9780226830629.003.0003
[wetlands;floodplains;easements;agricultural production;crop yields;risk;slippage effect]
US crops face higher losses as destructive disasters such as droughts and floods become commonplace. The Natural Resources Conservation Service (NRCS) easement programs offer a voluntary adaptation strategy to improving agricultural resilience. Easements impact agricultural production directly by reducing planting on marginal land and indirectly by improving yields on surrounding cropland. I use national USDA data from the past three decades to build a county-level panel. I employ a regression model with two-way fixed effects to quantify how easement land share impacts yields, risk, as well as acres planted, failed, and prevented planted. A 100 percent increase in land share of wetland easements increases yields by 0.34 percent, 0.77 percent, and 0.46 percent for corn, soybeans, and wheat. Easements improve yields by mitigating the effect of excess precipitation and extreme degree days. Wetland easements reduce soybean losses from excess moisture, heat, and disease by $3.59, $6.07, and $11.23 for each dollar of liability. I also find evidence of a slippage effect in which producers reduce soybean and wheat acreage but increase corn production. This work quantifies some of the ecosystem benefits of easement habitats, uncovers program externalities, and has policy implications for future NRCS funding and targeting decisions. (pages 53 - 106)
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3. The Cost-Effectiveness of Irrigation Canal Lining and Piping in the Western United States - R. Aaron Hrozencik, Nicholas A. Potter, Steven Wallander
DOI: 10.7208/chicago/9780226830629.003.0004
[irrigation infrastructure;water resources;conveyance losses]
Global climate change is already reducing the amount of water available for drinking, sanitation, and agriculture in many areas. Water conservation could mitigate the economic damages associated with water scarcity. In the agricultural sector, many water conservation efforts have focused on farm-level irrigation efficiency. However, since over one-third of water applied for agricultural irrigation in the US comes from off-farm supplies, improvements in delivery and conveyance efficiency could significantly reduce water losses. This study utilizes survey data from irrigation water delivery organizations in the Western US to estimate the impact of lining and piping conveyance infrastructure on conveyance losses. Using a logistic econometric model, we find that at the margin an increase of one percentage point in the share of conveyance infrastructure piped leads to an expected 0.13 percentage point reduction in conveyance losses. Results indicate that lining canals is relatively less effective, a 1 percentage point increase in the share of conveyance lined decreases conveyance losses by approximately 0.06 percentage points. A simulated water-conservation supply curve based on these estimates shows that between 0.3 percent and 1.75 percent of total water brought into conveyance systems could be recaptured with capital cost below $20,000 per acre foot. (pages 107 - 134)
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4. Center Pivot Irrigation Systems as a Form of Drought Risk Mitigation in Humid Regions - Daniel Cooley, Steven M. Smith
DOI: 10.7208/chicago/9780226830629.003.0005
[machine learning;climate change;agriculture;irrigation;crop insurance;technology]
Farmers in humid states of US, traditionally reliant on rainfall, have more than tripled irrigation since 1978. We examine this trend in Illinois where there has been a nearly threefold increase in center pivot irrigation system (CPIS) installations since 1988. Specifically, we analyze where and when CPIS installations occur and their benefits in terms of crop yield, irrigated acreage, crop selection, and changes to drought-related insurance payouts. To do so, we create a novel data set derived from a deep learning model capable of automatically identifying the location of CPIS during drought years. The results indicate CPIS installations are significantly more common over alluvial aquifers after droughts. Some evidence supports CPIS leads to corn appearing more often in the corn-soy crop rotation. Counties with a higher presence of CPIS do not have higher average crop yields. However, in drought years CPIS presence does have a significant positive effect on corn yield and a significant negative effect on indemnity payments for both soybeans and corn. The results provide insights into an emerging trend of irrigation in humid regions, raising potential policy considerations for crop insurance and signaling a potential need to address water rights as demand increases. (pages 135 - 172)
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5. Perceived Water Scarcity and Irrigation Technology Adoption - Joey Blumberg, Christopher Goemans, Dale Manning
DOI: 10.7208/chicago/9780226830629.003.0006
[water scarcity;climate change;irrigation technology adoption;prior appropriation;drought]
Agricultural producers make investment decisions based on expectations of future returns. This article investigates how changes in perceptions about input availability affects the adoption of conservation practices. We develop a theoretical model to examine how a producer's perception of water shortages influences investment in more efficient irrigation technologies. Using publicly available data on water rights and irrigated cropland, we construct a novel dataset to empirically identify the impact of changing perceptions about water availability on conservation decisions. We leverage a natural experiment in Colorado in which a period of severe drought and institutional change in the early 2000s led to an exogenous shock to expectations for some water right holders. It is estimated that producers who experience unprecedented increases in the curtailment of their water right convert 11 percent more land to a more efficient irrigation technology on average. We also present evidence that adoption rates are driven more so by changes in surface water availability than groundwater. This analysis provides useful insight into the role of expectations in incentivizing adaptation to water scarcity in irrigated agriculture. (pages 173 - 202)
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6. Climate, Drought Exposure, and Technology Adoption: An Application to Drought-Tolerant Corn in the United States - Jonathan McFadden, David Smith, Steven Wallander
DOI: 10.7208/chicago/9780226830629.003.0007
[climate change;technology adoption;drought tolerance;drought risk;state-contingent modeling;spatial first differences;location fixed effects;irrigation]
Crop farmers have few short-run options for reducing downside production risk from changes in drought frequency and intensity due to ongoing climate change. However, one recently available option is drought-tolerant (DT) varieties. We determine how recent drought exposure, drought risk, and other climatic features have influenced adoption of DT corn—a water-intensive crop of particular economic importance due to its large share of US agricultural value. Our empirical analysis is motivated by a state-contingent economic framework that accommodates farmers' beliefs about future drought based on objective drought risk and exposure. Using a representative sample of US farmers' fields, we implement a novel econometric method, spatial first differences, that can reduce concerns of omitted variables bias. We find that long-run temperatures and drought risk—rather than short-run drought exposure in recent prior years—led to increased adoption of DT corn varieties in 2016. Farmers are more likely to plant DT corn on highly erodible land and less likely to irrigate such varieties, consistent with the fact that the western Corn Belt was of major marketing focus during the early years of commercialization. (pages 203 - 240)
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7. Cover Crops, Drought, Yield, and Risk: An Analysis of US Soybean Production - Fengxia Dong
DOI: 10.7208/chicago/9780226830629.003.0008
[cover crops;drought adaptation;yield;risks;soybeans]
Besides a variety of production and environmental benefits, cover cropping has been promoted as a means to increase resilience to drought. I explore factors influencing farmers’ adoption of cover crops and examine the effects of cover crops on soybean yield and their risk using USDA’s 2018 ARMS Phase II Soybean Production Practices and Costs Report and Phase III Soybean Costs and Returns Report. Incorporating data on drought occurrence in the current year and the previous 5 years into our analysis, I find that the previous occurrence of drought did not affect farmers’ adoption of cover crops and the effects of cover crops on yield and its risk are mixed. Under a drought condition, cover crops reduced soybean yield and increased yield variation; but in the meantime, they reduced the risk of crop failure, or made yield less negatively skewed. The insignificant effect of the previous drought on cover crop adoption and the mixture of positive and negative effects of cover crops on yield and its risk imply that farmers are divided over the use of cover crops to build resilience to drought. (pages 241 - 268)
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8. Climate Change and Downstream Water Quality in Agricultural Production: The Case of Nutrient Runoff to the Gulf of Mexico - Levan Elbakidze, Yuelu Xu, Philip W. Gassman, Jeffrey G. Arnold, Haw Yen
DOI: 10.7208/chicago/9780226830629.003.0009
[agricultural production;nitrogen;fertilizer;Gulf of Mexico;hypoxia]
The use of nitrogen (N) fertilizer in agricultural production is a significant determinant of surface water quality. As climate changes, agricultural producers are likely to adapt at extensive and intensive margins in terms of planted acreage and per hectare input use, including the use of fertilizers. These changes can affect downstream water quality. We investigate the effect of climate-driven land productivity changes on water quality in the Gulf of Mexico using an integrated hydro-economic agricultural land use (IHEAL) model. Our results indicate that land and N use adaptation in agricultural production to climate change increases N delivery to the Gulf of Mexico by 0.5 to 1.6 percent (1,690 to 5,980 metric tons) relative to the baseline scenario with no climate change. (pages 269 - 296)
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9. Nutrient Pollution and US Agriculture: Causal Effects, Integrated Assessment, and Implications of Climate Change - Konstantinos Metaxoglou, Aaron Smith
DOI: 10.7208/chicago/9780226830629.003.0010
[crops;environmental externalities;hypoxia;integrated assessment;nutrient pollution]
We study the relationship between water nutrient pollution and US agriculture using data between the early 1970s and late 2010s. We estimate a positive causal effect of corn acreage on nitrogen concentration in the country's surface water quality. We find that a 10 percent increase in corn acreage causes an increase in nitrogen concentration in water by at least 1 percent and show that the magnitude of the acreage effect increases with precipitation but not with extreme-heat degree days. Based on the average streamflow of the Mississippi River at the Gulf of Mexico during this period and damages of about $16 per kilogram of nitrogen, this 1 percent increase in average nitrogen concentration implies an annual external cost of $800 million. Using recent climate models to project the implications of climate change for the magnitude of the estimated effects, we conclude that climate change will not materially change the estimated relationship between corn acreage and nitrogen concentration. (pages 297 - 342)
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10. The Political Economy of Groundwater Management: Descriptive Evidence from California - Ellen M. Bruno, Nick Hagerty, Arthur R. Wardle
DOI: 10.7208/chicago/9780226830629.003.0011
[groundwater;agriculture;collective action;policy instrument choice;tragedy of the commons]
We use California's Sustainable Groundwater Management Act (SGMA), a statewide framework for local institutional change, to study the drivers of collective action and policy instrument choice over groundwater. We evaluate how SGMA altered the bargaining environment, place it in the context of the literature on the political economy of common-pool resource management, and characterize cross-sectional patterns in proposed demand management strategies. We find that by reducing the costs of collective action, SGMA brought about a significant departure from the prior status quo of open access, with a majority of basins now proposing incentive-based policies for groundwater management. Understanding the political economic forces that explain how, where, and why management is occurring is critical to the sustainability of groundwater-dependent agricultural regions worldwide. (pages 343 - 366)
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11. Estimating the Demand for In-situ Groundwater for Climate Resilience: The Case of the Mississippi River Alluvial Aquifer in Arkansas - Kent F. Kovacs, Shelby Rider
DOI: 10.7208/chicago/9780226830629.003.0012
[groundwater value;climatic change;sustainability]
A drier and hotter climate diminishes the natural recharge of underground aquifers, which leads to a greater decline in the water table, lower agricultural profits, and reduced property values. The empirical magnitude of the effect of climate change on land and groundwater values is what we measure in this chapter. Eastern Arkansas overlays the Mississippi River Alluvial Aquifer, and we use the hedonic framework in this region to study how land prices and the agricultural demand for groundwater responds to climatic change. We find that a decrease of an inch in expected rainfall during the growing season due to climate change decreases the per acre value of irrigated farmland with an average 120 feet saturated thickness by $170 to $180. (pages 367 - 382)
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