Economy Regional economic impacts of irrigation


What is the real effect of irrigation water transfer on our rural communities? By George Oamek, PhD


P


ressures from urban growth and environmental restoration have caused decision-makers to look


e concept of rural economic tipping points isn’t new but has historically been difficult to quantify.


to irrigated agriculture as a source of water supply. To the degree that it helps equalize water’s marginal value across different uses and increases the irrigator’s net worth, transfers from irrigation to other uses are theoretically great. However, many of these transfers result in “buy and dry” and are accompanied by unintended third- party impacts to the rural communities where the irrigator (or former irrigator) lives.


This column and my column in the January issue will focus on irrigation’s impact to the rural


communities it lies within. Regional economic impacts are


usually measured by multipliers translating specific actions into larger economic consequences. For instance, irrigated agriculture may have a regional multiplier ranging from 1.50 to 2.50 depending on the degree the irrigated crop is locally utilized (higher multiplier) or exported to another region for processing (lower multiplier). Therefore, for every dollar of direct effect from irrigation, there is an additional $0.50 to $1.50 of indirect effect.*


The economic impact multipliers can be estimated through different models and methods, but a model with the acronym IMPLAN is generally used by economists. I’ll spare the reader its longer definition, but overall, the model has grudging acceptance among academics for measuring impacts in the short term.


The regional economic impacts of irrigation work in both directions. On the plus side, a historical correlation between irrigation development and economic activity is easily documented for many regions in the West. Promotion of these indirect impacts, or benefits, as part of settling the West formed part of the basis used by the Bureau of Reclamation when evaluating proposed water projects.


On the negative side, more recent purchases of water rights by municipalities, with associated reductions in irrigated acres, have had similar multiplier effects in reverse. Google-search “Crowley County, Colorado, irrigation loss” for example, to see numerous articles about what happens when outside interests remove 50,000 acres from irrigated production and leave only 5,000 acres remaining. Save for two prisons located there since the dry-up and some cattle feedlots, the remainder of the county has experienced large drops in nonprison population and has a ghost town feel.


Although Crowley County is an extreme example, concerns


* The indirect effect includes both indirect and induced impacts. Indirect impacts account for supply chain impacts to the demand for fertilizer, seed and other inputs, for example, while induced impacts track the spending by the households supporting that supply chain.


32 Irrigation TODAY | October 2018


remain about the viability of rural communities in light of possible “buy and dry” by cities and environmental interests. Economic studies conducted using the industry standard IMPLAN- based multipliers have estimated possible impacts of smaller-scale water purchases. However, it’s probable these studies underestimate the actual potential impacts because of inherent shortcomings with the established model and, possibly most importantly, a lack of consideration for potential economic “tipping points” in rural communities.


The concept of rural economic tipping points isn’t new but has historically been difficult to quantify. However, U.S. Department of Commerce data has recently been used by the author to statistically predict the number and types of businesses that might decide to close or relocate as a result of declining irrigated acreage and population.


The analysis has shown that there are indeed tipping points with rural businesses in which, faced with a declining economic base, they reach a threshold where they decide to close. These thresholds, or tipping points, are not counted within traditional analyses and will tend to accelerate the decline of the affected communities.


George Oamek, PhD, is


an economist with Headwaters Corp. and is also on the staff of the Platte River Recovery Implementation Program’s executive director’s office.


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