There are three necessary ingredients for a successful farming operation: land, power, and water. While the effect of the first of these is intuitive, land’s access to water, coupled with its access to power, can make all the difference between “a development that costs $3000/acre and one that costs upwards of $10,000/acre,” according to Lindsay Corporation’s John Atkinson. Because of this, water efficiency and management is critical to farm investment decisions.
A native to Australia, a country where water scarcity has brought about strict regulation surrounding water use for agriculture, Atkinson has spent thirty years designing, constructing and selling ag irrigation systems around the world. At Global AgInvesting’s flagship event in April, he discussed the role of irrigation in mitigating water risk in farmland assets as global water constraints persist.
The impact of irrigation on farmland potential is apparent when looking at average corn yields in Nebraska. In 2014, a non-drought year, yields on irrigated fields were 36% higher than those cultivated on dryland. During drought years, this impact increased nearly by a factor of ten: in 2002 and 2012, yields on irrigated land were 270% and 320% higher, respectively. Seen in this light, irrigation not only allows the farmland investment to be more profitable on a year-on-year basis but also offers serious protection against weather risk.
On-farm water efficiency is dictated not only by whether a field is irrigated or non-irrigated, but by the type of irrigation the field employs. Lindsay Corporation estimates that of the 324 million hectares of irrigated farmland across the globe, 85% of these fields are gravity fed – a method that uses 60% more water than mechanized irrigation.
As water becomes increasingly scarce, more efficient irrigation methods must be adopted and despite the United States’ relatively relaxed water use legislation, this is already underway. From 1998 to 2013, the share of U.S. gravity flow irrigation decreased from 50% to 36%. This has been replaced by a 13% increase in share in pivot/lateral irrigation, up from 35% to 48%, and a doubling in the adoption of drip/micro irrigation, up from 4% to 8%. Pivots are generally used for row crops while drip irrigation has a higher adoption in the permanent/specialty crop market. Atkinson estimates that even with some adoption of drip irrigation in the row crop sector, its total market share is capped at around 20% due to upfront cost barriers and complexities inherent in its use.
Farming smart is becoming increasingly important for the U.S. farmer. Overall strain on the U.S. water supply will lead water prices to more than double in the next decade, Atkinson predicts. With rising pressure being felt across the nation, from California to the Ogallala aquifer, regulations are likely to tighten in the near future. Efficient water management choices will not only be critical for reducing risk and maximizing returns but will also be required.
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Eric Francucci