Water Subsidies:

Impact of Higher Irrigation Rates on Central Valley Project Farmers

RCED-94-8: Published: Apr 19, 1994. Publicly Released: May 20, 1994.

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Pursuant to a congressional request, GAO reviewed the Bureau of Reclamation's Central Valley Project (CVP), focusing on: (1) the mandated higher irrigation rates' and other rate increases' impact on farmers' profits; (2) the financial benefits to the federal government of increasing irrigation rates; and (3) how farmers could mitigate the impacts of increased rates.

GAO found that: (1) higher irrigation rates would on average reduce farm profits in one CVP sector by 11 percent to 34 percent and 4.3 percent to 6.9 percent in the other sector under various rate scenarios; (2) farms would remain profitable under any proposed rate increase; (3) the actual impacts of higher irrigation rates depend on farmers' individual circumstances; (4) farmers who lease land would eventually have their higher irrigation rates offset by lower rental expenses while landowners' equity and borrowing capacity would be reduced; (5) higher irrigation rates would not severely affect California's overall farm economy, since interest rates, the export market, and the value of the U.S. dollar have a greater impact on the farm economy than water rates; (6) if irrigation rates are increased beyond mandated requirements, the outstanding CVP debt would be retired more quickly and federal revenues would increase; (7) higher irrigation rates would induce farmers to change their farm management practices and reduce water use through adopting improved and more efficient technologies and changing the types of crops they grow; and (8) if interest is charged on already renewed contracts, irrigators could claim that the United States breached its contracts and seek damages.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has not acted on this recommendation.

    Matter: If Congress decides to pursue this issue of increasing irrigation rates, Congress may wish to consider in its deliberations such factors as: (1) the extent to which farmers can absorb increased irrigation costs; (2) the potential adverse impacts on farmers and local economies; (3) the increased revenues to the U.S. Treasury that could be generated; (4) the ability of farmers to mitigate the effects of the price increases; (5) the environmental and water supply benefits resulting from higher irrigation rates; (6) the impacts of future water supply reductions; and (7) whether the increases should apply to already renewed contracts. Other options, such as using water markets in which rights to use water are bought and sold, may achieve similar benefits but would impact farmers differently.

 

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