IGPA scholars publish study that indicates crop risk management affects water usage

April 19, 2017

IGPA scholars publish study that indicates crop risk management affects water usage

Research shows crop insurance increases water use
 

New research has determined that the national crop insurance program to manage crop risk has increased irrigation, further depleting groundwater resources that likely will become more important as our climate becomes more variable.

The study, published by the journal Advances in Water Resources, establishes a causal relationship between increased insured acreage and water use in the United States. To do so, it exploits a 1994 federal law that required farmers to purchase crop insurance in order to be eligible for federal crop disaster payments. Counties that already had high levels of crop insurance coverage were less affected by this law, creating a “natural experiment.”

Using law-driven changes in insured acres, the study found that a 1 percent increase in insured acres leads to a 0.223 percent rise in water withdrawn for irrigation, demonstrating that increased reliance on crop insurance is one cause of increased water use. One reason for the water withdrawals increases is farmers growing more groundwater-fed cotton in response to greater insurance coverage.

“Our research highlights the fact that risk management strategies, while undoubtedly helpful to those who use them, can place further strain on natural resources,” said Tatyana Deryugina, an assistant professor of finance at the University of Illinois at Urbana-Champaign and a visiting scholar at the University’s Institute of Government and Public Affairs.

Deryugina and co-author Megan Konar, also an IGPA visiting scholar and assistant professor in the Department of Civil and Environmental Engineering at the University of Illinois at Urbana-Champaign, note that previous studies have shown that crop insurance increases the number of acres in production. These studies also indicate that, with insurance backing them, farmers may choose to plant different crops than they might have otherwise.

Using data from the U.S. Department of Agriculture and the U.S. Geological Survey, Konar and Deryugina measured the relationship between insured acres, crop choices and irrigation. They determined that harvested acres of cotton and wheat increase with greater insurance coverage, while harvested acres of corn and soybeans decline. Cotton requires more water to grow so it is likely that increases in cotton acreage are contributing to increased water use for irrigation.

"One unintended consequence of the current risk management system has been to contribute to the overexploitation of groundwater reserves, which are currently undervalued but likely to become increasingly important for food security under an uncertain climate future," the authors said.

Deryugina and Konar said the results of the nationwide study could also be helpful to state and local governments as they develop policies to deal with changing climates.

“In Illinois, most agriculture is rain-fed, which means that it does not use irrigation,” Konar said. “That is likely to change as our climate becomes more variable. With climate change, our rainfall patterns are likely to become more variable, so we will likely see more crop insurance and irrigation systems in Illinois.

“This research highlights that there is an interaction between the two. With more crop insurance, we can expect more water withdrawals for irrigation,” she said.

The study will be published in a forthcoming edition of Advances in Water Resources. It is available online at http://dx.doi.org/10.1016/j.advwatres.2017.03.013.


Research Area: Economic Policy

Policy Initiative: Climate Policy

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