Study shows how price can impact groundwater use by farmers

Story adapted from a press release courtesy of the University of Chicago

Groundwater has been free to farmers in most of the world, including California, leading to rapid resource depletion. A new study, co-authored by Colorado State University’s Matt Woerman, assistant professor in the Department of Agricultural and Resource Economics, finds that when California farmers have to pay for that water, they use less, switching their land to crops that require less water or no crops at all.

To cope with extreme heat and drought conditions, farmers often tap into the groundwater lying deep below their land for irrigation. But now, more groundwater is being used than is naturally recharged, leading to a water crisis that is forcing some states to take policy action — including charging for water use.

Woerman and co-authors Fiona Burlig, assistant professor at the University of Chicago Harris School of Public Policy, and Louis Preonas, assistant professor at the University of Maryland, College Park, collaborated on a study that looked at how farmers responded when the water they’d been using for free (other than the cost of pumping) cost money. The study found that farmers meaningfully reduce groundwater use when prices rise. What’s more, the study found that farmers achieve these cuts in part by reducing their fruit and nut crop acreage by about a quarter, increasing their land left with no crop at all by 50% and switching to annual crops that require less water.

California farmers produce 18% of total U.S. crop value, according to the study, and rely heavily on groundwater for irrigation. Notably, the state recently instituted new groundwater regulations: the Sustainable Groundwater Management Act. The act is designed to achieve state-wide groundwater sustainability by 2042, which will require reducing groundwater pumping by 19% on average. Local implementing agencies have discretion and may achieve these reductions through various policy mechanisms, including taxes and fees, pumping restrictions or conservation incentives. More than half are choosing some form of a price on groundwater.

“Groundwater pricing can achieve California’s new water sustainability targets,” Woerman said. “Meeting these targets will likely involve a shift away from the fruit and nut crops we all enjoy from the state today, illustrating the challenges countries around the world will face in balancing the need for water conservation and food supplies in a world impacted by climate change.”

The study found that over short time horizons, higher groundwater pumping costs lead farmers to change how they irrigate their crops, but not what they grow, because it would be costly to switch away from their perennial crops. But when faced with permanent increases in the cost of groundwater — as is expected under the California policy — farmers do change what and how much they plant, in turn cutting their water use.

For every 10% increase in groundwater pumping costs, farmers reduce their land in fruit and nut perennial crops, which require a lot of water, by 1.4%. Farmers also increase the land they don’t plant on by 0.72%. This translates into an overall reduction in groundwater pumping of 3.6%.

“Water does have value, and we learn that lesson when there is less of it to go around — but it shouldn’t get to the point where some are starved for water,” Burlig said. “That’s why policies that put a price on groundwater are so important. Our study shows that they lead farmers to treat water as a commodity that should be conserved, changing how or what farmers grow in a way that is more suitable to the land conditions and natural resources that we all have to share — rather than using up natural resources for free to make the greatest profit.”

In measuring how cropland would change as policy measures impose a price on groundwater, the researchers found that meeting California’s goals of reducing groundwater pumping by 19% would require a groundwater pumping tax of about 60%. Such a stringent tax would cause nearly 9% of cropland to be switched to alternate uses that require less water — including a 24% decline in fruit and nut perennials and a 50% increase in land not used for growing.

“While farmers don’t change crops in response to short-lived price changes, due mostly to the nature of farming, they do start changing what they grow — and whether they grow at all — when they are charged permanent fees,” Preonas said. “This underscores the need for research like ours that evaluates the long-term impacts of policies.”