9 Sep 2008

Are Farmers Dumb?

That's what a new report from the Pacific Institute implies.
Farmers who shift away from water-intensive crops, invest in high-tech watering systems and irrigate only at precise times in the growing cycle could save between 600,000 and 3.4 million acre-feet of water each year, Gleick said.
So if saving water is so easy, why haven't farmers already implemented these ideas? Are they dumb? Probably not
"The idea that farmers are not seeking more efficient ways to do business is an insult to California agriculture," said Mike Wade, executive director of the California Farm Water Coalition, a group aimed at helping farmers boost water efficiency. "Changes are occurring when it's cost-effective and when the technology is available."

[snip]

Wade said the market - not policymakers - drives crop choices.

"It's like saying to a restaurant, 'You have to be a shoe store because it uses less water,'" Wade said.
Wade has his head on straight, but Gleick et al. appear to have lost theirs. Besides calling for a "realignment" of subsidies to discourage farmers from growing low-value crops -- something that makes no sense when farmers grow the most-profitable crops they can -- they think that farmers should get "tax breaks for water-saving irrigation systems." Those tax breaks would change the profitability of certain practices, which means that farmers are bound to react to them -- but at what cost? (Remember ethanol!)

Just to back up my initial impression, I took a deeper look at one scenario in the report -- the one in which farmers shift from lower- to higher-value crops. The report claims that such a shift can reduce water use by 1.1 MAFY (total ag water use is 26.5 MAFY in their baseline scenario) BUT also notes that, first, farmers are already making such a shift, and, second, that such a shift would only occur if it was economically sensible. So what are they saying here? Farmers will use less water when it makes sense to do so. Gee. Thanks.

If you want farmers to use less water, raise prices. One way to do so is by allowing farmers to market their water to each other and cities.* (My all-in-auction design maximizes the "liquidity" of such a market.)

Bottom Line: Farmers are not dumb. This report -- which simulates behavior without paying attention to basic economics -- is.
* Addendum: These solutions assume that farmers' rights are defined. Neither markets nor irrigation will work when farmers can just take more water from surface or ground sources.

11 comments:

  1. "Something for nothing" seems to be quite popular among non-economists who believe that, for example, higher water prices are a loss and a subsidy is free money that doesn't have to come from somewhere. There seem to be many situations where, rather than charge people what they cost, politicians and other people prefer to subsidize a demand-substitute that is less harmful/expensive. This indeed improves incentives at one margin, but of course it screws them up at many others.

    (I had a conversation two days ago discussing my dislike of subways. I really think I had made it perfectly clear that my preferred substitute is, e.g., to walk two miles, and not to go farther than that from my apartment unless I really have to, but she immediately started comparing the subway to driving. On the second margin, subsidizing public transportation makes sense; on the first it doesn't, though I concede that my own behavior is probably unusual enough that it should not be assumed to be universal for purposes of public policy.)

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  2. That report is so out of it, I wonder if they wrote it just to satisfy the dopes who fund their so-called "think tank". I can just imagine some bonheaded water czar decreeing what crops to plant, and doling out subsidies to friends. Markets work, people, and farmers in California are some of the most adaptive and market oriented farmers anywhere. Just create a sound and transparent market, and you will rapidly see water flow to the highest and best uses.

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  3. So what would you do with all the federal ag subsidies that convince farmers to grow higher water usage crops? Those subsidies are driving them as much as the "free market" is. Would you eliminate all federal agriculatural subsidies? How?

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  4. I am in favor of eliminating all federal subsidies on agriculture -- for the reasons you state (and more...)

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  5. What are "all the subsidies that encourage farmers to grow higher water usage crops?" A minority of California's cotton receives a subsidy, but it uses less water than many crops. The grain crops that receive the most subsidy dollars every year use even less water, but they are a small factor in California agriculture. The payment limits make subsidies fairly immaterial for most California farmers anyway. And of course all subsidies should be eliminated for a host of sound economic and environmental reasons.

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  6. 1) The is an old maxim from primitive economic theory that says, "Don't throw out the baby with the bath water". The report has a enormous wealth of specific data on land and water use, possible water savings by irrigation method, crop type, etc. I haven't found this kind of detail anywhere.

    2) He says exactly what you wanted, "Implement new water rate structures that encourage efficient use of water". The problem is that Peter is so anxious to not offend anyone, he dances all around pricing and buries it in a laundry list of nice sounding recommendations. Plus playing kissy face with the Farm Bureau (which may be part of a more subtle plot since he certainly doesn't strike me as a dumb guy).

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  7. The report is not entirely worthless, naturally. A lot of it is a bit tired, obvious, or so general as to be meaningless. But its overall thrust is toward a command & control, central planning authority dictating water rights and irrigation practices. Grand as they are, and carried out by people who are well-educated (and convinced of their own dispassionate genius), these schemes never, ever, work.
    A market based system, allowing water rights holders to decide for themselves whether it is better to sell water in the form of crops or *per se* will be more messy and unpredictable, but will work fast and well. Most important, it will be adaptable to changes in environmental and food demand patterns.

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  8. I agree with "Anonymous"'s comments above. The report is a comprehensive look at a complex issue and offers specific recommendations that would move the market in the right direction. As "Anonymous" pointed out, the authors do suggest pricing policies. Their main difference from Mr. Zetland is that they are hoping to have their recommendations put into action, rather than just scoring "economics rationality" points. Being serious about influencing such a highly charged political issue means accepting the compromises required to get the various parties to the table. That's the point of the various subsidy (increased cost offsets) proposals.

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  9. As one of the authors of the report so inaccurately addressed here by both the post and some of the comments, I'll shortly submit a detailed rebuttal. I hope Zetland will post it.

    But I couldn't resist a reply to some of Anonymous' and 'Philips' comments: First, the idea that I play "kissy face" with the Farm Bureau... Hee, hee. Funny. They hate our analyses -- not because there are any real flaws in them, but because they hate the idea that anyone other than the Farm Bureau itself might weigh in on agricultural policy and upset the status quo. Second, I've never written anything in an effort to avoid offending someone. And clearly, I've been remarkably successful, since so many people on the far left and the far right get offended! The Institute has always called for proper pricing. We've always called for smarter subsidies (and while "Philip" may not believe there are any significant agricultural subsidies in California, its hard to call the CVP contracts, dairy support, and dozens of other farm programs anything other than subsidies). We've always supported smart water markets. And we do not argue for a "command and control" approach (read the report 'Philip'), but to deny that some kinds of regulations are appropriate is to pretend the market is perfect and externalities don't exist.

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  10. This comment has been removed by a blog administrator.

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  11. I've deleted Gleick's second comment because it's a duplicate of the one here, where I reply.

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