Irrigated agriculture provides economic engine in rural communities

By James Pritchett

Water is an important natural resource that contributes to Colorado's economic, cultural, and social well-being. But our limited water supply has many competing uses and is undergoing rapid changes.

Water rights are being voluntarily transferred from irrigated agriculture to municipal use, groundwater supplies are being depleted so that pumping is too costly relative to the value of the crops, and wells without sufficient augmentation are being retired. Ultimately, this means fewer irrigated acres, and the economic impacts of this reduced activity are a key concern for rural communities.

Irrigated-agriculture impact

How important is irrigated agriculture to rural communities? Quantifying cash receipts is one way to measure the impact of irrigated agriculture to Colorado's economy. When tallied as sales at the farm gate, agricultural receipts generated roughly $5.4 billion in 2005, or about 2 percent of Colorado's general economic output. About 40 percent is derived from crop sales, with the remainder from livestock sales. Irrigated cropping generates approximately $1.62 billion per year, or about 75 percent of all crop receipts.

The economic contribution of agriculture doesn't stop at the farm gate. For example, irrigated crop production supports commercial livestock, meat-packing, and dairy industries. These primary industries encourage economic development directly, through the purchase of inputs, and indirectly, through the wages and salaries of employees. Without other viable local base industries, a reduction in the revenue generated in the agricultural sector will have adverse economic impacts throughout the regional economy.

Regional economy

How important is irrigated agriculture's activity to the regional economy? Irrigated agriculture’s contribution to economic activity varies by region. Economic activity is high when high-value crops are sold outside the region, when revenues from the crop sales are spent on locally produced inputs, and when local support industries use local labor and inputs.

Limited irrigation, versus “buy and dry” of irrigated land, is better for the regional economy when compared to fallowing or converting large swaths of land to dryland cropping. Simply put, limited irrigation provides greater direct, indirect, and induced economic activity. While not as large as the economic activity shown under full irrigation, the economic activity generated by limited irrigation is greater than for dryland cropping.

The economy’s tipping points also must be considered. A critical mass is needed to support businesses in rural economies. If revenues slide below the tipping point, then businesses may close down in spite of efforts to shift to other revenue streams.

For more information, access the full article in Ag Family (Page 4).

James Pritchett, pritchet@lamar.colostate.edu, is an assistant professor of agricultural and resource economics at Colorado State University.