An Economic Feasibility Study of Irrigated Crop Production in the Pecos Valley of Texas

Public concern over the potential effects of energy price increases on the U.S. food and fiber system has been dramatically justified in the Trans Pecos region of Texas where a 450 percent increase in the price of natural gas was followed by the idling of thousands of irrigated acres and the departure of many of the farmers. This study was conducted to provide the answers to two questions: (l) Can an irrigated farm survive in the Trans Pecos? and (2) If it survives, how profitable will it be? Coyanosa, one of the irrigated areas of the Trans Pecos, was selected as a study area, and the St. Lawrence area of the Edwards Plateau was selected to provide comparative estimates of survival and profitability. A modified MOTAD linear programming-simulation model was developed to generate estimates of survival and profitability by recursive simulation of multiple time periods, as follows: (l) development of a farm plan, (2) generation of stochastic prices and yields, (3) simulation and evaluation of the farm plan in operation, and (4) update of the planning situation to reflect adjustments in expected prices, expected yields, and credit restrictions. The model then returns to step l for simulation of the next time period. The model was applied to the Coyanosa and St. Lawrence regions under alternative future scenarios for inflation rates, energy prices, crop prices, and interest rates. The Coyanosa model was also applied under most likely scenario conditions to analyze the effects of alternative levels of risk-aversion and alternative tenure situations. Each application included 20 simulations of a 1O year planning horizon to develop a distribution of outcome. The Coyanosa farm survived about 8 years under the optimistic scenario and 5 years under all other scenarios. The most likely rate of survival was 20-30 percent with a range of 1O percent to 65 percent for other scenarios. The average life and rate of survival was higher for the St. Lawrence farm under all scenarios. The internal rate of return on equity capital for the Coyanosa farm was 36.8 percent under the optimistic scenario and negative under all other scenarios. The rate of return for St. Lawrence was not significantly different for the optimistic scenario; however, it was higher than Coyanosa for all other scenarios. The level of risk-aversion described by the baseline model appears to be relatively high compared to other studies, but there are indications that it may be relatively low for the St. Lawrence area. Both rate of return and survival increased in response to decreased levels of risk-aversion, however, the latter result may be related to the specification of the risk restraint. Land purchase provided higher estimates of survival and profitability than rental or combined rental and purchase. These results seem to relate to the finding that traditional crop share rental arrangements are unsatisfactory for the Coyanosa area. It was concluded from this study that (l) survival and profitability of irrigated crop production in the Coyanosa area will depend greatly upon future levels of inflation, energy prices, crop prices, and interest rates, (2) survival and profitability for Coyanosa will most likely be lower than St. Lawrence, and (3) land purchase provides greater potential survival and profitability than traditional crop share rental arrangements. These conclusions were limited by need for additional research regarding the effects of beginning equity levels and consideration of risk in farm planning. Conclusions were also limited by the data and assumptions utilized in the study

The Impact of Energy Shortage and Cost on Irrigation for the High Plains and Trans Pecos Regions of Texas

The High Plains and Trans Pecos regions of Texas are semi-arid crop production regions located in the western part of the state. Relatively low levels of rainfall are supplemented by irrigation from groundwater supplies. These regions produced 51 percent of the cotton, 42 percent of the grain sorghum, and 48 percent of the wheat produced in Texas in 1974 (Texas Crop and Livestock Reporting Service). Considering only irrigated production these percentages were 75, 85, and 91 percent of Texas irrigated crop production for cotton, grain sorghum and wheat respectively. The importance of the High Plains and Trans Pecos regions to Texas crop production are not limited to these three crops, however, these statistics do serve to illustrate the significance of these regions in the Texas agricultural economy. While it is easily seen that the majority of irrigated production (for the crops mentioned) in Texas occurs in these regions, it should be noted that the importance of irrigation in the High Plains and Trans Pecos regional economies is much greater than these statistics show. On the High Plains 86 percent of the cotton, 90 percent of the grain sorghum, and 75 percent of the wheat produced in 1974 was harvested from irrigated acreage. Rainfall is somewhat less in the Trans Pecos region and 100 percent of the production of these crops was under irrigation (Texas Crop and Livestock Reporting Service). More than 60 percent of the value of agricultural crops in Texas is produced on irrigated land (Knutson, et.al.). Thus, the crop production of these regions is vitally important to the Texas and respective regional economies. Crop yields are heavily dependent on groundwater irrigation and extremely sensitive to any factor which may affect the availability or cost of irrigation water. Availability and price of fuel used in pumping groundwater are the critical factors which directly affect the availability and cost of irrigation water. About 39 percent of the energy used in Texas agriculture in 1973 was utilized in pumping water, compared to 18 percent used in machinery operations. Of this irrigation fuel, 76 percent was natural gas, the majority of which was consumed in the High Plains (Coble and LePori). Current supplies and reserves of natural gas have reached critically low levels in recent years and producers in the High Plains and Trans Pecos regions are faced with possible curtailments of, and certain price increases for their irrigation fuel (Patton and Lacewell). The threat of possible curtailment of fuel supplies during the irrigation season imposes greatly increased risk to irrigated crop production since curtailment of natural gas supplies during a critical water use period would significantly reduce yields (Lacewell). This threat would also increase financial risk and restrict availability of credit. Continued price increases for natural gas will increase costs of pumping irrigation water and hence the costs of irrigated crop production (Patton and Lacewell). The Ogalalla aquifer underlying the High Plains and many of the alluvium aquifers underlying the Trans Pecos are exhaustible; i.e., there is a negligible recharge from percolation and other sources. Therefore, even with unchanged natural gas prices, these groundwater supplies are being "economically" exhausted over time as pumping depth increases. Increases in fuel prices will lead to reduced groundwater pumpage and result in less groundwater being economically recoverable. Although life of the physical supply will be exhausted, a greater quantity of groundwater will be economically unrecoverable for irrigation without significant product price increases