Farm level financial impacts of water policy on the southern Ogallala Aquifer

The Texas Southern High Plains relies heavily on irrigation water provided by the Ogallala Aquifer. Throughout history, the agricultural economy and production capabilities in the Texas Panhandle has evolved to become an important supplier of food and fiber around the world. There is no question that this precious resource is finite, as current pumping withdrawals exceed recharge rates in most areas, particularly in the Southern Ogallala. Concerns over future supplies and the sustainability of irrigated agriculture have attracted the attention of policy makers throughout the eight states overlying the Ogallala. Recent legislation in Texas (Senate Bills 1 & 2) has shown a strong commitment towards increasing the efforts of water conservation through water policy implementation.

Due to the increasing likelihood of water management policies being implemented on the Texas High Plains, this study evaluated the response of a representative farm to the implementation of a water policy which restricts the amount of irrigation water availability such that 50% of the current saturated thickness must remain in 50 years, commonly known as the 50/50 water policy. This policy was evaluated over a ten year planning horizon with the primary goals of determining how the farm reacts to the 50/50 policy in terms of enterprise and crop selection and how the farm would be impacted financially both in risk profile and cash positions.

An integrated two step approach was used in the evaluation. First, a non-linear dynamic optimization model was developed to determine farm level response decisions and crop selection, and second a stochastic simulation model was utilized to understand the changes in cash positions of the farm resulting from the policy implementation. Baseline models were run for four different water availability scenarios (120ft, 100ft, 80ft, and 60ft saturated thickness) representing status quo farming practices. Constrained models were then run under the restriction of the 50/50 water policy to determine the changes from the baseline scenario. Primary results for the optimization models indicate that LEPA irrigated cotton and dryland sorghum are the optimal crops under both baseline and constrained models which maximize net returns per acre. Additionally the policy did affect the producers optimal decisions of crop selection in that total dryland acres increased. Financial viability of the farm decreased under the 50/50 water policy as the probability of negative net cash income and ending cash reserves increased for all scenarios, with the greatest impacts being on the moderate to high saturated thickness levels. The probability of negative net cash income and ending cash reserves was similar for the baseline models and constrained models for the lower saturated thickness scenarios. Finally, significant water savings occurred only on moderate to high levels of initial saturated thickness.