Martin, William E.

English

Research Papers in Economics

Discussion:  New  Federal  Reclamation
Law  and Its Implications
William  E.  Martin
At  the  1978  meetings  of  the  AAEA,  I
presented  a  paper  titled  "Economics  of
Size  and  the  160-Acre  Limitation:  Fact
and  Fancy."  Interior  Secretary  Cecil An-
drus  had just  recently  published  the Pro-
posed  Rules  and  Regulations  as  ordered
by  the  Federal  Court.  The  EIS  had  not
yet been  written and  it was generally  be-
lieved  that  the  rules  would  be  revised
either  administratively  or  legislatively.
Thus, my  paper contained  some  facts  de-
scriptive  of  the  current  physical  and  in-
stitutional  situation,  but  much  more  of
fanciful  prognostications.  I  examined
studies on  economics of size.and  conclud-
ed that if the 160-acre  limit was enforced
effectively, there could be consumer losses
of  as  much  as  $24  per  year  per  capita.
However,  it  was highly  unlikely  that  the
rules proposed by Secretary Andrus would
be adopted,  or if they were adopted, would
be effective.  Part of the problem of  being
effective  was the possibility of  trusts or of
management  companies  allowing  large
acreages  to be  operated almost  as  usual.
Now  5 years  later, after much research
on  the  general  subject  of  acreage  limita-
tion  by  our  two  authors  and  others,  and
after passage  of the 1982 Reclamation  Re-
form  Act,  our  two  authors  still  differ  in
their evaluation  of the possible  impacts of
William  E.  Martin  is Professor  of  Agricultural  Eco-
nomics  at the University  of Arizona,  Tucson.
Arizona  Agricultural Experiment  Station Journal Ar-
ticle No:  3774.
This paper  is a  discussion  of two papers presented  at
the annual meeting of the Western  Agricultural Eco-
nomics  Association,  Laramie,  WY,  July  10-12,  1983.
the  Act  and  still  rely  largely  on  fancy.
Moore  concludes  that  virtually  nothing
will be changed  by the new law,  whereas
LeVeen  argues that the law will cause  sig-
nificant  changes  in  the structure  of  west-
ern  irrigated  agriculture.  Let  us examine
their  areas  of  agreement  and  disagree-
ment  and  ask  why  disagreement  on  im-
pacts still exist.
Moore  and  LeVeen  basically  agree  on
most of the political and  legal  facts lead-
ing up to passage  of the 1982 Act. Political
action by the landholding  groups was cru-
cial  in  forcing  legislation  on  reclamation
reform. Their  major  successes  were to  (1)
exclude the Imperial  Valley  and Corps  of
Engineers  areas  from  acreage  limitation,
(2)  eliminate  the  residency  requirement,
(3)  eliminate sale by lottery, (4) eliminate
the  age  requirement  for  ownership,  and
(5) raise the acreage ownership limitation
to  960 acres  per individual  family.  Their
major  losses  were  to  accept  (1) cross-dis-
trict  compliance,  and  (2)  full-cost  water
for  any  water  received  for  an  operating
unit in excess of 960 acres whether owned
or not.  Large  corporations  must  pay full-
cost  for  water  on  operations  above  320
acres and are limited to  ownership of 640
acres.
Our  authors  also  seem  to  agree  that  a
960-acre operation is large enough to cap-
ture  the  potential  economies  of  size,  al-
though larger units will face diseconomies
as they face  full-cost water pricing.  Thus,
whatever the ultimate effect on  the struc-
ture  of  agricultural  production,  the  con-
sumer is unlikely to be affected  adversely,,
as, was  originally  a  source  of concern  un-
der the  1978  proposed  rules.
Western Journal  of Agricultural Economics, 8(2):  267-269
©  1983  by the Western  Agricultural  Economics  AssociationWestern Journal of Agricultural Economics
Finally, both authors  agree  that few,  if
any,  of the original  proponents  of enforc-
ing the  original  law-National  Land  for
People,  Inc.,  small  farmers,  and  farm
workers-will  receive direct benefits.
The disagreements  seem to be based  on
disagreements  of  economic  facts  and  fu-
ture  political  realities.  Moore  recognizes
that if the new law is enforced effectively
farmers  in  some  districts,  especially  the
Westlands,  will be  faced with  higher  cost
water and the necessity  to sell land under
recordable  contract.  But  Moore,  a  long-
time observer of the western water scene,
foresees  continuing  court  battles  and  en-
forcement  problems, does not believe  that
full-cost  water  pricing  will  reduce  farm
size  in  most  areas,  and  generally  con-
cludes that the whole exercise  in challeng-
ing administration  of the original law will
have been futile. He notes that land trusts
may  be  formed  or  professional  manage-
ment-service  companies  may  provide  the
vehicle  for  the  operation  of  very  large
units.  His  current  fancies are  very  much
like those  of mine  as of  1978.
LeVeen,  while  writing  off  the  small
farmers  and  farm  workers,  suggests  that
the  landowners  may have  won  the battle
but  lost  the  war.  I  attribute  his  view  to,
first, seeing what he wants to see; and sec-
ond,  computing  the  full  cost  of  water
much  higher than does Moore.
Without  belaboring  the  point,  it  has
been my impression  over the last few years
that  LeVeen  has  held  a  more  favorable
view toward enforcement of the 1902  law
and  encouragement  of  small-scale  farm-
ing  than  Moore.  LeVeen  agrees  that the
small-scale  farmers  lost  but  wants  to  see
some  "good"  in  the  revised  act.  Perhaps
he  is  just  less  cynical  than  Moore  and  I.
He argues that the ".  . pricing provisions
of the new law are significant ...  Western
landowners  . . will experience greater in-
centivies  to  utilize  existing  supplies  more
efficiently  ..  both pricing provisions and
the new acreage limits will serve to weak-
en  support  for the Reclamation  program.
In  sum,  over  the  long  run,  higher  water
prices  may  well  portend  the  end  of  new
federal  irrigation  projects,  greater  con-
cern with water conservation and ground-
water  management,  and  perhaps  even
profound  impacts  on  the  agrarian  struc-
tures  of some Western  states."
While,  as  an  economist,  I  agree  with
these conclusions in principle,  I  do not see
as  rapid  nor as drastic  change  as  LeVeen
appears  to suggest.  Of  course, new  recla-
mation  projects will  be  few, but that  will
be a function  of little new  cheap water to
develop-not  a function  of the  Reclama-
tion  Reform  law.  Fewer  projects  will  be
built  in any  case.  Further,  LeVeen's  con-
clusions about the significance  of full-cost
water  pricing  for  operations  larger  than
960 acres appear to be  related to his  eco-
nomic  interpretation  of  the  reform  law
and its probability of strict enforcement.
Moore,  in his Table 2, has estimated the
Preliminary Rules and Regulation full-cost
water  price per acre-foot  for 1983  (at the
farm  headgate)  and  compared  it  to  the
estimated  maximum  ability-to-pay  (in
1978).  Exactly  how  either  measure  was
computed  is  not  specified,  but  he  esti-
mates  full-cost  as  less  than  ability-to-pay
in  six  of  the  nine  districts  examined.  In
two  of  the  remaining  three  districts,  in-
cluding the Westlands  District, the differ-
ence is so  small that without  precise defi-
nitions  of  the  two  measures,  no  hard
conclusions  about  the  advantage  or  dis-
advantage of farming more than 960 acres
can be drawn.
LeVeen  also  presents  data  on  full-cost
water.  His estimates  are two to  ten times
higher than Moore's  for eight of the  nine
districts for which both give data.  The one
exception  is  for  the  Westlands  where
LeVeen's estimate given in his table is only
half of Moore's. However, when the West-
lands are discussed  in the text, full-cost for
the  Westlands  is  150  percent  of Moore's
estimate.  Obviously,  LeVeen  would  see
more  significant  effects  on  farmers  than
would  Moore,  if LeVeen  believes  his own
268
December 1983Discussion: Reclamation Act
data.  However,  it appears that LeVeen  is
using estimates from an  earlier  EIS study
where  it  was  assumed  that  the new  full-
cost price must include interest on  deficits
accumulated  from past  inflation  of  oper-
ation and maintenance  costs.  Both Moore's
and my reading of the proposed rules find
that unpaid interest  prior  to the 1982  Act
is  forgiven.  I  admit that interpretation  of
the proposed rules as presented in 17 pages
of small type  in  the Federal  Register  is  a
difficult,  if not impossible  job.
Both  Moore  and  LeVeen  suggest  that
farmers  may  blend  their  water  costs  and
look  at  average  factor  costs  rather  than
marginal  factor  costs.  But neither  define
their  cost  or  value  estimates  in  concep-
tually  precise  terms,  so  these  conclusions
do not necessarily  follow. Clearly, one does
not increase profits by buying water whose
marginal factor  cost  exceeds  its marginal
value  product.  But  Moore's  estimates  of
full-cost  water compared to ability-to-pay
are  close enough that one might conclude
that  profitability  might  occur  with  full-
cost  water.  LeVeen's estimates  lead me to
wonder  how  he  concludes  that  averaging
would  be profitable.
Surprisingly,  after  stressing  the  signifi-
cant  effects  of  the  new  law  throughout
most  of his paper, LeVeen  concludes with
five significant areas of interpretation  that
could  cause  "less  than  rigorous  enforce-
ment  of the new  law."  First,  the  equiva-
lency  rule  allows  owners  of inferior  land
additional access to cheap water.  This rule
may  allow  many  landowners  to  escape
acreage restrictions  altogether. The rule is
hardly  a  conservation  measure.  Second,
complex  annual  reporting  of  farm  own-
ership  and  operation  will  be  required.
Third, districts will have little incentive to
enforce  the  full  operations  and  mainte-
nance  cost  rule  where  individuals  have
amended  their  contract  and  the  district
has  not.  Fourth,  the  exact  nature  of  an
individual  operating  unit  has  not  been
and will be difficult to define. Finally, and
in my  view the  most important  problem,
what does full-cost pricing actually mean?
The rules say  only that standard  account-
ing procedures be  used on  that portion  of
the repayment  responsibility that has been
assigned  to  irrigation.  Given  reclamation
history,  I  assume  full-cost  will  mean  av-
erage  historical  cost  based  on  as  small  a
portion  of  the  total  project  as  possible.
These potential problems with the law look
very  important  to me and  I am surprised
LeVeen  does  not  see  the  Reform  Act  as
futile as  does Moore.
In  conclusion,  we  now  have a  new  act
and new  proposed rules,  but little more is
known  of  the  future  economic  effect  of
attempting  to  enforce  a  reclamation  law
than was known in  1978  when this whole
exercise  began.  Perhaps  the  only  really
significant effect of the new law is to elim-
inate the clause  in the  1902  Act that pro-
hibited the use of Mongolian labor in proj-
ect construction.  I agree  that it  was  time
to make that  change.
269
Martin

DISCUSSION: NEW FEDERAL RECLAMATION LAW AND ITS IMPLICATIONS

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