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<br />
<br />The Economic Setting
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<br />af/ac for pasture, $134 per af/ac for corn silage, and $459 per af/ac for green
<br />chile. The calculation for pasture requires some additional explanation.
<br />Note that the net earnings for pasturage is negative, i.e., the farm business
<br />incurs a net loss, even under full-water conditions. This finding does not
<br />mean that every owner of pasture incurs a net loss, but that farm businesses,
<br />on average, do so. Reducing the supply of water by one af/ac reduces the net
<br />loss, on average, by $19 per af/ac. The overall average net earnings
<br />attributable to a reduction of 1 af/ac in the supply of water available for
<br />irrigation for the major crops grown within the boundaries of MRGCD in
<br />1995 is $105 per af/ac.
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<br />The data in Table 2.5 have important implications for any assessment of the
<br />economic consequences of altering the allocation of water in the Middle Rio
<br />Grande area, because they indicate that, at the margin, the value of water
<br />used for irrigation is no greater than zero. That is, increasing the supply of
<br />water for the lowest-value irrigated crop, pasture, does not yield an increase
<br />in output that is more valuable than the costs of capital, labor, and other
<br />factors of production.
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<br />This conclusion is not unique to the Middle Rio Grande Valley. A 1990
<br />analysis published by the Economic Research Service of the U.S. Department
<br />of Agriculture examined the entire Basin from the headwaters through
<br />El Paso County and concluded that, at the margin, the value is zero for water
<br />diverted from the Rio Grande and used for irrigation (Hansen and Hallam
<br />1990).
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<br />Another factor reinforces the conclusion that the marginal value of water
<br />used for irrigation is zero. Most irrigators in the Basin use water made
<br />available through extensive federal expenditures on dams, channel
<br />maintenance, and other items. The irrigators do not incur the full costs of
<br />obtaining, storing, and delivering water to their fields and, hence, the federal
<br />expenditures, in effect, subsidize use ofthe water.s
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<br />8 Some observers, especially those who benefit from federal expenditures, object to calling
<br />these benefits subsidies. The objections take several forms, but typically involve one or both of
<br />these two arguments: (1) food and water are essential to human life and, hence, promoting
<br />agricultural and urban water development is not a subsidy but an essential expenditure of
<br />public funds; and (2) because Congress has approved water-development projects, they reflect
<br />societal preferences rather than subsidies. We intend no offense through our use of the term,
<br />which reflects the standard economic treatment of public expenditures that extract fiscal
<br />resources from the general economy to benefit a particular sector or group. With respect to the
<br />economic consequences of resource-management policy, the terminology is far less important
<br />than the fact that, whenever resource users do not incur the full cost of their activities, they
<br />have powerful economic incentives to use more than they otherwise would. This incentive
<br />potentially applies to all resource users: irrigators, urban households, industries,
<br />recreationists, and resource conservationists.
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<br />CC,2938
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