The Value of Irrigation in a Drought Regime: The Case of 2012

The 2012 drought that bore down on much of the United States Corn Belt left a wide swath of production loss and commodity market spirals. For many dryland crop producers across the country, the short crop will make their economic picture somewhat reliant on crop insurance indemnities - payments, by the way, which will be enhanced by record price levels for the insured crops. But for irrigated crop producers, 2012 will look quite different. And here is where the value of irrigation comes into focus. [Note: The value of water (irrigation) is not to be confused with the cost of water. While the cost of water as an input for production is the cost required to pump and distribute water, the value of the water can be attributed to the difference in irrigation revenue vs. dryland revenue.] The economics of irrigation largely hinges upon the productivity enhancement which irrigation provides from year to year. For example, in the case of corn, Nebraska’s primary crop, yield differentials between irrigated and non-irrigated can range from 60 to 100 bushels per acre in any given year, depending on where one is in the state. However, in addition to this productivity-enhancement pattern, irrigation also serves as a very critical risk management tool for dealing with crop losses due to extreme rainfall-deficit conditions - such as occurred this year. This downside risk of extreme weather events creates a whole new ballgame for the value of irrigation