30 Jul 2008

How NOT to Market Water

This article tells of farmers selling water to cities. The farmers are getting ten times the price that they did years ago ($17,500/AF), but what are they selling?

Although the article is right to say that "overselling" water can destroy communities (and I agree -- that's why my All-in Auction leaves rights with the farmers), it misses an even bigger problem, i.e., that the Office of the State Engineer (OSE) appears to be allowing farmers to sell their diversionary quantities to cities. That's a big problem, and I left this comment:
This article is missing a HUGE element, namely a discussion of the difference between diversion rights and consumption rights. If a farmer diverts 10AF of water, 2-3AF may evaporate be used, but the rest returns to the river. If that same farmer sells 10AF to a city, the groundwater is NOT recharged, reducing flow in the river and available water for all. I sure hope that OSE is taking these differences into account. If not, the river will be dry long before “all” the rights are sold.
Bottom Line: I am all in favor of selling water, but the buyer must use the water in the same way as the seller. If not, hydrological adjustments to the rights are necessary. They may be expensive, but failure to make adjustments will destroy the market, those who participate in it, and innocent bystanders.

Addendum: I found this in the NM OSE's regulations [PDF]: "For applications proposing to change the purpose of use, only the consumptive use established and available at the move-from location may be considered for transfer to the new purpose of use." Although the article did not mention consumptive vs. diversionary use, it appears that the OSE is only allowing diversions equal to consumptive use. Good.

Addendum 2: After an email exchange from the author of the article, I learn that farmers in Middle Rio Grande area (as discussed in the story) are allowed to divert 3AF/acre of land they possess. If/when they want to transfer their diversionary rights, the OSE decides how many acres are really being irrigated (i.e., excluding buildings, fallowed land, etc.) and then allows 2.1AF/acre of "consumptive use" to be sold. The obvious problem with this 2.1AF/acre figure is that it's an estimate of actual use. Which brings me back to my original point: If sales of water exceed consumed water (because less than 2.1AF/acre are actually consumed before the transfer), then the sales are removing "too much" water from the area.

Another concern that matters, no matter how much water is exported, is the reduction of water within irrigation systems, i.e., "the cumulative impact [reduction] on head pressure and the like — that they all benefit when there's more water in the ditch because it flows faster and more efficiently."

hattip to CC


  1. Of the 10 AF the farmer diverts more like 6-8 AF will evaporate (mostly evapotranspirate), unless the irrigation is incredably inefficient.

    There are cases where overapplication of irrigation water is encouraged by water purveyors to in effect recharge groundwater...sort of banking it for a drought.

    If the 10 AF is sold to a City (or farm for that matter) out of basin, then all that water is lost to the local river. If it is diverted to a local City. Then it is likely a large percentage of the interior useage,...ie 5 AF, does get returned to the river and/or local groundwater. Some of the outside water does return to the rivers and groundwater too due to overwatering. Many naturally ephemeral streams run year round after urban development occurs. But since that is generally poor quality (worse than typical farm runoff) I wouldn't count that as a positive return to the local river. But, on balance, most urban areas, acre for acre, use less water than agriculture and return a higher percentage of water used to the local watershed.

    I don't think any of these finer points change your main arguement that hydrological price signaling is important.....it is especially true when water is diverted out of the hydrological basin for any use.

  2. That comment about the diversion right and evaporation is wrong. In New Mexico and other states operating under versions of the 'Colorado Doctrine' of water law - which you should know about given you advocate water marketing, would not allow for the "diversion right" to be sold and completely used, theoretically. Only what is consumed by the crop can be sold the rest which returns to the river is someone else's water. Technically when a sale occurs the timing of the return flows should not even be changed as the other users have a right to the stream as it was when it was when their right was appropriated.
    This blog is interesting though, being somebody who has and still is studying water marketing and water management this is very interesting.

  3. @Tyler -- "would not allow for the "diversion right" to be sold and completely used, theoretically." Theoretically is an important word. I saw no sign of your point in action in the article, and I've got a call into the OSE to get a clarification.

    You are right (crazy!), but I've seen many examples of where practice contradicts theory to dismiss the possibility that diversionary rights are being sold.

  4. @David,
    Theoretically is definitely a key word because even though state engineers try to enforce the return flows remaining the same, it is very hard to do and would require some manipulation of water control structures. The point in the article that I would cite however is the non-impairment (no-injury in CO) reference, because this basically means that only the consumptive use transfers and the other users have the right to the stream. A loaded term and again hard to enforce. I've done some stuff on NM, but most of my reference is in CO where they really enforce this rule, even with on farm conservation and the salvage rules in the law. That said base flows and return flows from transfers is still always one of the main points of contention along with the third-party effects associated with transfers.

  5. I know nothing about agriculture, so maybe this will sound ignorant, but...

    If you need 36 inches of water (actually more since not all land is farmed) on top of the rainfall, um, maybe it's time to:

    1) Figure out what you're doing wrong.

    2) Grow something else.

  6. @Tyler -- we agree but see the addenda in the main post.

    @Silas -- 3AF is nothing. Down in Imperial ID, they use 6-8AF/acre -- to grow such luxuries as switchgrass.

  7. Silas - we've chosen irrigated agriculture in the arid American west as a matter of policy. The federal and state governments have heavily invested in a system of water collection and transport to enable precisely the act of watering fertile soils in areas that are lacking in rainfall but blessed with everything else. Whether that now needs to be altered via reasonable re-orientation of policy and market incentives is another question, but to basically imply that farmers are doing something wrong misses the point. They are doing what is precisely right under the current system.


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