Pfeiffer, George H.

Whittlesey, Norman K.

English

Research Papers in Economics

Economics  of Water Quality  Improvement  in
an  Irrigated  River  Basin
George  H.  Pfeiffer and Norman K. Whittlesey
It has been traditionally assumed  that the social
benefits  of irrigated  agriculture  far  outweigh  the
social  cost imposed  by its contribution to environ-
mental  degradation.  This assumption  is  now being
questioned  on many fronts, however.  The purposes
of this study were to estimate  the agricultural  con-
tribution to water  quality  problems in the Yakima
Basin  of eastern  Washington,  to evaluate  the  effi-
ciency  and  the impact on agriculture  of alternative
water quality improvement policies in the  area, and
to  recommend  policies which could improve  water
quality  in this and similar irrigated river basins.
The Study Area
The  Yakima  River  Basin  is an  intensively  culti-
vated  area of some  450,000 irrigated acres located
in  eastern  Washington.  Most  of  the  irrigation
water  for  the  Basin  is  diverted  from  the  Yakima
River.  Hence,  the river flow is influenced by irriga-
tion  water  demands  and partially  regulated  by re-
leases  of  water  from  upstream  storage  reservoirs.
Most  of the  land in  the  Basin  is irrigated by tradi-
tional  surface  or  rill  irrigation  methods because of
the  relative  abundance  of  water,  resulting  in  low
irrigation  efficiency  and  high  levels  of runoff and
deep percolation loss.
Irrigation  return flows acquire  suspended  partic-
ulate  matter,  agricultural  chemicals  and dissolved
solids  which  cause  water  quality  degradation.  Be-
cause  80  percent  to 90 percent of the water in the
lower  reaches  of the  Yakima  River  is irrigation  re-
turn flow water during the late  summer,  the quality
of  the  river  water  is  a  direct  consequence  of the
quality  of  the  return  flow.  Furthermore,  the  low
summer  flow volume  in  the river  permits the  water
George  H.  Pfeiffer  is  a  former  research  associate
and  Norman  K.  Whittlesey  is  a  professor  of  agricul-
tural economics, Washington  State University.
to  warm  substantially,  diminishing  its  usefulness
for recreation,  fisheries,  and promoting the growth
of water-borne  organisms. Nitrate nitrogen concen-
tration,  August  water  temperature,  and  sediment
lost from  the farm were  the primary environmental
concerns of the study.
Economic  Theory
Economic  efficiency  is  maximized  when  pollu-
tion is directly controlled through taxation, restric-
tions,  or  bribes  for  abatement.  However,  agricul-
tural effluents  are not subject to the same types of
constraints  that  are  applicable  to smokestack  and
sewage  discharges  because  it is  difficult,  if not im-
possible,  to  identify  the  source  of the  discharges.
Consequently,  agricultural  pollution  abatement
must  be  controlled  through  policies  affecting  the
use  of inputs  causing  the  externality  rather  than
policies directly  affecting the externality.
Langham has  shown  that when externality  out-
put is a  function  of the  use of one input, taxation
or restriction  on the use of that input is equivalent
to  controlling  the  externality  itself  from  an  effi-
ciency  standpoint.  It can  be shown  that when  ex-
ternality  output  is a function of more than one in-
put, the  efficiency  criterion can still be satisfied by
appropriately  taxing  or  restricting  the  use  of  all
those inputs  [Pfeiffer,  pp.  81-86].  Income  or cost
distribution  between the public and private sectors,
however,  depends  on whether input use  is control-
led by taxation, restriction, or bribery.
The Analytical  Model
The  analytical  model  used  was  composed  of
two submodels.  A linear programming submodel of
the  agricultural  sector  of the  Basin and the hydro-
264Pfeiffer and Whittlesey
logy  of the  Yakima  River  was  used to  determine
the profit maximizing  combination  of crop  activi-
ties  and  resource use  subject  to economic  techno-
logical  and hydrological  constraints.  Resource use,
effluent  output,  and  water  flows  determined  in
the linear  programming  submodel  were  used as in-
puts  for an  environmental  quality  simulation  sub-
model.  The  simulation  submodel  used  these  and
exogenously  supplied data concerning  physical and
biological  relationships  governing  environmental
quality  to  estimate  river  nitrogen  concentration,
water  temperature,  and  farm  loss  of  sediment  in
each  of seven river  reaches  and producing regions.
The  effectiveness,  cost, and income distribution of
alternative  policies  designed  to  improve  water
quality  were  then  evaluated  and  compared  from
the  results  of  these  submodels.  Each  policy  was
imposed  with  increasing  intensity  until  pollution
abatement  goals  were  reached  or  approximated.
The  desired environmental  standards  were  a maxi-
mum  river  water  temperature  of 70°F,  and maxi-
mum  average  soil  loss in  the river  basin of one ton
per  acre.  Economic  efficiency  of  achieving  these
goals  was  measured  by  net  social  cost.1 Agricul-
tural  impact  and  income transfer was measured  by
reduction  in  farm  income,  acreage  and  crop  sales
reductions,  and taxes and charges collected.
Policy  Options
The  policies  evaluated  are represented  by Solu-
tions  1 through 6 below:
Solution 1  represents  existing  agricultural  pro-
duction  and environmental  quality  in the  Yakima
Basin for use as  a comparison  with other policies.
Solution 2 imposed  a tax  on nitrogen  fertilizer
to  control  the  level  of its  use  for pollution  abate-
ment.
Solution 3  imposed  a  per-acre-foot  charge  for
irrigation  water  delivered  to  the  farm  to  reduce
water use.
Solution 4  reduced  water  rights  by  a uniform
percentage  in  all regions of the Basin.
Solution  5  combined  a nitrogen  fertilizer  tax
with a charge for irrigation water.
Solution  6  combined  a nitrogen  fertilizer  tax
with a uniform reduction of water rights.
1Net  social  cost  is  defined  as  the  reduction  of
producer  income  minus  taxes  and  charges  collected
for abatement  purposes (when  applicable).
Results
Table  1 shows the  results of policies which met
the  proposed  maximum  nitrogen  concentration
and  water  temperature  goals.  All  policies  except
the nitrogen tax, Solution 2, satisfied the  sediment
loss goal.
The  means  by  which  the  policies met environ-
mental  goals  depended  on  which  inputs  were  af-
fected.  The  nitrogen  tax of $.60  per pound (Solu-
tion  2)  reduced  fertilizer  use  by  46  percent  and
irrigated  acreage  by  9  percent.  Fertilizer  use  was
reduced  on  all  crops, but most noticeably  on  for-
age  crops.  The  increase  of water  flow in the lower
river  caused  by  reduced  water  diversions  was  suf-
ficient  to  reduce  water  temperature  below  70°F.
Sediment  loss  was  also  improved,  but  remained
above  one  ton per acre.  Crop income  in the  Basin
was  reduced  41  percent  by  the  nitrogen  tax.  The
income  reduction was caused by a major reduction
in forage  crop  output, small  reductions in row and
field  crops,  and  the  collection  of  approximately
$30.8  million  in  nitrogen  taxes  from  agriculture.
The  redistribution  of income  would clearly  reduce
land  values  and  the  limited  forage  output  would
reduce  livestock  dependent  on harvested  feed dur-
ing the  winter.
A  water  charge  of $20.00  per acre-foot,  Solu-
tion 3,  satisfied the nitrogen concentration  goal by
simultaneously  reducing  nitrogen  leaching and  in-
creasing  river  flow which had  a  diluting effect on
remaining  effluents.  The  42  percent  reduction  of
irrigated  land  was  largely  forage  crops,  leaving the
output  of high  value  crops  relatively  unaffected.
The  water  temperature  goal  was  met  as a result of
the  increased  water  flow.  This  policy  of charging
for  water  reduced  farm  income  by  $28  million,
$16  million  less  than the  nitrogen  tax  in meeting
desired  water  quality  standards.  In  addition,  the
water  charge  fostered  the  use  of  more  efficient
irrigation  systems  and  would  clearly  induce better
irrigation  management.  Also,  the  adoption  of im-
proved  irrigation  systems  substantially  diminished
sediment  loss.  However,  the expected  adoption of
sprinkler  and  tailwater  reuse  irrigation  systems
would  require  substantial  capital  investment  by
farmers.
Proportionally,  reducing  water  rights,  Solution
4, had  effects  similar  to those  of the water charge
except  that income  was not redistributed  by input
charges.  Consequently,  producer  income  was  re-
265
Water Quality ImprovementWestern J. Agr. Econ.
Table  1. Summary  of policies  meeting  proposed  nitrate  nitrogen  concentration, water  temperature,  and
soil loss standards  in the Yakima  River  Basin
Solution
Item  Unit  1a  2  3  4  5  6
Policy Constraint
Ntax  $/lb.  - .60  - - .20  .20
Water charge  $/ac.  ft.  - 20  - 10
Water  rights reduction  Percent  - - - 50  - 40
Agricultural  Impact
Crop acreage  1,000 acres  453  420  261  288  296  322
Net  crop income  $1,000  106,910  62,972  78,959  90,317  75,233  81,757
Net  producer cost  $1,000  - 43,938  27,951  16,593  31,676  25,153
Taxes and  charges  collected  $1,000  - 30,774  16,057  - 22,012  12,772
Net social cost  $1,000  - 13,164  11,894  16,593  9,664  12,431
N  applied  per acre  Ibs.  209  122  269  237  203  198
Water  diverted  1,000 ac.  ft.  2,393  1,916  1,069  1,219  1,344  1,464
Environmental  Impact
River flow, Augustb  1,000 ac.  ft.  100  176  251  228  219  170
N concentration,  August  mg/1  0.87  0.28  0.28  0.30  0.27  0.30
Sediment  lost per  irrigated acre  tons  1.74  1.30  0.35  0.37  0.77  0.40
Maximum  temperature  F  75.5  69.8  67.6  67.8  68.5  68.6
aBenchmark  solution
bFlow at river mile 30
duced  by  only  $17  million,  16  percent,  by  a  50
percent  reduction  of water rights which was neces-
sary  to  meet environmental  goals.  However, social
cost  was  almost  $5  million higher than when using
a  water  charge  because  an inefficient distribution
of  water  among regions  resulted  from  uniformly
reducing  water  rights in  all regions.  From a policy
standpoint,  these  inefficiencies  might  well  be  out-
weighed  by  the  more  acceptable  reduction of pro-
ducer  income  caused  by  this  policy.  Required
capital  investment  for  improved  irrigation systems
induced  by  this  policy  might  be  ameliorated
through  subsidized  loans  if  that  were  a  political
restraint.
Solution  5  combined  a nitrogen tax of $.20 per
pound  with  a  $10.00  per  acre-foot  charge  for
water,  while  Solution  6 combined  the  same  nitro-
gen tax with a 40 percent reduction of water rights.
Solution  5  resulted  in  the lowest net social cost of
all  policies considered  because  it affected  both  of
those  inputs  primarily  related  to  environmental
degradation.  However,  the  taxes  and  charges col-
lected  caused  farm  income  to  decline  more  than
any  other policy except a nitrogen tax, Solution 2.
This  income  redistribution  would adversely  affect
the  farm  sector  as  would  the  capital  expenditure
caused by the water charge.
Solution  6,  a  combination  $.20  per  pound tax
on  nitrogen  and  40  percent  reduction  of  water
rights,  had  29  percent  higher  social  costs  than
Solution  5,  but was  less costly to producers.  Farm
income  fell  by  23  percent in  Solution 6,  while  it
fell  by  30  percent under  Solution  5.  For this  rea-
son this policy,  though  less efficient,  would prob-
ably  be  more  politically  acceptable  than  the  use
of a water charge.
Conclusions
This  research  has  shown  that  it  is  possible  to
improve water quality in the Yakima River to high-
quality  river  standards  by  controlling  agricultural
inputs  or  activities.  The  environmental  improve-
ment  was  accomplished  with  a  reduction  of farm
income  ranging  from  16  percent  to  41  percent,
depending  on  the policy  employed.  In addition to
reducing  farm  income,  these  policies  would  also
impose  a  burden  on  the  agricultural input  supply
and  agricultural  processing  firms.  In  all  cases,  the
primary  crops  affected  were  low  value  forage
crops.  Consequently,  the livestock sector would be
affected most.
Net social cost  ranged  from  $9.7  to $16.6  mil-
lion  depending  on  the  policy  used. A trade-off ex-
isted  between  economic  efficiency  and producer
cost. For example,  a combination  nitrogen  tax and
water charge  had the lowest net social cost but was
266
June 1977Water Quality Improvement
relatively  expensive  to  farmers.  Reducing  water
rights  uniformly  had  the  highest  social  cost  of
policies  evaluated  but  the  least  cost  to  farmers.
This  policy  would  minimize  adverse  agricultural
impacts.
These  results  show  that  considerable  improve-
ment  in  water  quality,  approximately  50 percent
of the distance  to desired water  quality standards,
can  be  achieved  without  significant  costs  to  agri-
culture  or  the  public  [Pfeiffer,  pp.  153-217].
However,  additional  improvement  becomes  very
expensive  as indicated by  the above discussion.
The ultimate  choice of policies to control water
pollution  depends  upon  many  factors.  Efficiency
will  be  of primary concern, but the distribution of
costs  between  the  public  and  private  sectors  will
probably  carry  greater  importance  in the  political
arena.  In  any  case,  state  and  federal  agencies  are
proceeding  to  develop policies  to meet the desired
standards  of  water  quality,  often  with  less  than
perfect  information  regarding  the  effectiveness  or
cost  of  such  policies.  It  is  expected  that  this  re-
search  will  be  a  valuable  input  in  designing  these
policies.
This  research has  estimated  the costs to society
and  agriculture  that might  be  imposed  by policies
to improve  water quality. However, society desper-
ately needs  a  better measure  of the  benefits to be
derived  from  higher  water  quality.  In  some  cases,
the Yakima  River Basin for example,  it is doubtful
that  societal  benefits  from  having  a  river meeting
the environmental  standards  evaluated  here would
be  as high  as the  costs of achieving that  standard.
Hopefully,  someone  can  address  this  important
problem  with  well-designed  research  in  the  near
future.
References
Langham,  M.  "The Theory  of the  Firm  and the  Manage-
ment  of  Residuals,"  Am.  J.  Agr.  Econ.  54  (1972):
315-322.
Pfeiffer,  G. H.  "Economic  Impacts  of Controlling  Water
Quality  in  an  Irrigated  River  Basin,'  unpublished
Ph.D.  dissertation, Dept. Agr. Econ., Washington  State
University,  1976.
267
Pfeiffer and Whittlesey

ECONOMICS OF WATER QUALITY IMPROVEMENT IN AN IRRIGATED RIVER BASIN

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Research Papers in Economics