The value of water in agriculture: A typology of water valuation methods and estimate of economic activity from water in agriculture and associated mutual uses in the Arkansas river basin, Colorado

The water-­stressed Arkansas River Basin is experiencing a greater frequency of water transfers from agriculture to municipal and industrial uses. Removing water from agriculture may harm rural communities, impact ecosystems, and change recreation opportunities. In order to better understand the implications of transfers, the economic activity created by these water uses must be calculated. Previous water valuation efforts have neither included all stakeholder interests, nor quantified externalities of water allocation scenarios and thus do not accurately estimate the potential impact of transfers. This paper evaluates methods for calculating the value of water in agriculture, the value of water to recreational users, the economic spillovers from agriculture and recreation, and the value of environmental flows. Direct, indirect and induced economic activity from agriculture is estimated using IMPLAN; economic activity from recreation related to agricultural water is estimated using benefit transfer and IMPLAN. Implications to ecosystem benefits are described quantitatively. Impacts to economic activity in the region from potential reductions in irrigated acreage are considered, including hypothetical impacts from reduced water recreation. The results show that the vast majority of agriculture, and thus economic activity from agriculture, depends upon irrigation water. That said, irrigated crop farming makes up just 1% of employment and economic activity in the Arkansas Basin. However, the great quantities of water that are allocated to agriculture (almost 90% of all water withdrawn from basin water ways) offer recreation opportunities that generate employment and economic activity and support agro-­ecosystems that have economic and consumer surplus benefits.