Drought & Water Management

• Title: What the Current Drought Means for the Future of Water Management in Colorado
• Date: 1/1/2003
• Description: 2002 Drought Impact Report
• Basin: Statewide
• Drought Mitigation - Doc Type: Reports

Hay, silage and all other crops including fruit, amount to $300 million in a normal year,
but nearly $500 million in 2001. The drought probably hurt hay modestly, but silage may
have actually increased as growers cut some corn early and converted it to silage. The
fruit crops, with their very senior water rights on the Colorado and Arkansas Rivers, lost
only small amounts of yield. No estimate of losses is available. With the high prices for
hay during the summer, the hay producers probably gained, but at the expense of hay
consumers.
The total losses in livestock and crop value appear to be about $0.5 billion in direct losses
from this year's drought. These are sale values. The net income losses within the
agriculture industry would be much smaller, perhaps $0.2 billion. Net farm and ranch
income in Colorado varies widely from year to year, but has averaged less than $1 billion
total per year in recent years (out of total sales over $4 billion). The reduction this year
will be substantial and some farmers and ranchers will not survive. For others who did
not plant or did not harvest their crops and did not tend as many cattle cost reductions
will temper losses. In addition, crop insurance and federal payments from various
drought relief and disaster programs, including some not yet passed by Congress, will
further mitigate losses.
3. Overall Effect of Agricultural Losses on State's Economy
The impact on the Colorado economy is greater than the net income loss by farmers and
ranchers. Some of their costs are wages to farm workers and some are payments to
suppliers. The economic impact includes all losses except costs that go out of state for
things like tractors and fertilizer. Further, what income the farmers do earn is spent and
creates a multiplier effect on the economy as a whole. The multiplier that is usually used
is between 2.5 and 3. If that multiplier is correct, the drought's impact is $0.5 to $0.6
billion in agriculture alone.
It is common to add the value created by processing agricultural products to agriculture's
economic impact, which roughly doubles the total impact. That calculation also has the
interesting effect of making Denver the biggest agribusiness county in the state due to
concentration of processors. Since Colorado processors are likely to substitute produce
from other states and continue their work with little or no loss of output, they are unlikely
to contribute additional economic loss to the state economy as a result of the drought.
While some irrigators made money in 2002 by selling or leasing their water to cities to
make up for the cities' shortages, those profits can be regarded as transfers. The
irrigators' gains equal the costs to the city who bought the water. Hence there is no net
gain or loss from such transactions.
In summary, agricultural losses, primarily from raising cattle, appear to be the major
component of drought- related costs in Colorado. Income may have dropped by as much
as 30% from an average year. Looking at all state income, this figure represents 0.11 %.
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