Farmers in the West are facing increased water-related risks as the demand for water increases and the supply is variable or decreasing, according to water expert Darren Fillmore.
Fillmore is the agricultural water resource director at WestWater Research, a Boise-based economic consulting firm specializing in water market research, pricing and trading.
Competition for reliable water supplies is intensifying, pushing up prices, said Fillmore, while prices for less reliable supplies are dropping.
Farmers often need to know the value of a water right, whether they are buying or selling land or temporarily transferring water. One factor that influences water's value is its risk level. At a session during the Land Investment Expo in Des Moines this week, Fillmore shared tips with farmers on how to evaluate water risk.
"There are ways to identify (risk categories) and mitigate them ahead of time. In doing so, you may find some opportunities," he said. "For instance, if you're able to find a risk that others haven't found, you may steer clear of (buying) a property that's a dangerous proposition. Or you may choose to move on a property that others are scared of because you've fully evaluated the risk and found solutions that are feasible that other folks may not have wanted to pursue or not known about."
Fillmore encouraged farmers to consider five risk categories when evaluating water: climate trends, infrastructure, water quality, competing uses and legal or regulatory issues.
"Water can be a difficult asset to manage because of its dependence on climate and weather," said Fillmore.
He said farmers should think about the climate risks for each type of water: groundwater, surface water and precipitation. Although climate factors are outside farmers' control, knowing the risks is critical.
The second factor to consider is infrastructure.
First, farmers should be aware of any risks to regional-level infrastructure, such as canal systems or dams. At the property level, he said, farmers can minimize risk by frequently inspecting and maintaining infrastructure such as pipes and building backup systems. Relying on one well, or one pipeline, for instance, is risky.
Water quality issues present another risk.
Fillmore encouraged farmers to think about potential future pollutants to the water supply. In some cases, Fillmore said, water quality risks can be mitigated through agronomic solutions or by acquiring an alternative water supply. Other times, the risk is unavoidable.
When trying to determine a water right's risk level, Fillmore said farmers should also consider competing uses. Competing uses for the water could include municipal and industrial, environmental, power generation and higher-value agriculture. Knowing how much other users are willing to pay can also help farmers figure out the water's value.
The final factor farmers should consider, said Fillmore, is legal or regulatory risk. The regulations binding a water right can influence its risk level and value.
For example, in California, the 2014 Sustainable Groundwater Management Act, or SGMA, added new regulations to how groundwater is managed. Fillmore showed data demonstrating that after SGMA went into effect, properties with only groundwater rights lost value.
Although new regulations are not always predictable, Fillmore encouraged farmers to keep an eye on legislation and agencies when evaluating water risk.