Shadow price of water for irrigation—A case of the High Plains

• Water is underpriced in the US High Plains.
• Wheat and sorghum production was unprofitable in the High Plains in 2010.
• The 2011 drought in Texas increased unprofitability of crop production.
• The highest shadow prices were found for cotton in Texas Northern HP ($865.9/af).
• Higher water prices for irrigation could protect the environment.

The 2011 and 2012 droughts considerably affected the Ogallala Aquifer supplying irrigation water for agricultural production in the US High Plains (HP). Shrinking water resources and growing demand for water create a challenging tradeoff situation. This also poses a question about the value of water and efficient water allocation. Currently, water rates for irrigating crops paid by farmers do not reflect the actual value of water that can be expressed solely as a shadow price. Also studies are missing that would comprehensively compare different states and different crops in one methodological framework. This paper helps to fill this gap. Farm-budget residual valuation is applied to estimate the shadow price of water for irrigation in three High Plains states: Texas, Kansas and Nebraska, for five prevailing crops: corn, cotton, sorghum, soybean, and wheat.Among the analyzed High Plains states the highest shadow price of water was found for wheat production in the Texas Northern High Plains ($865.99/af = $0.70/m3), while the lowest shadow price was found for corn in the Texas Southern High Plains ($5.13/af = $0.004/m3). The study can be helpful to stakeholders and policy makers to evaluate scenarios and tradeoffs between profitable crop production and conservation of water resources.