Farm Credit West and Northwest Farm Credit Services
Water risk for agriculture measures how changing water availability, cost, policies, regulations, climate, and market conditions affect farming and lending outcomes.
Water risk can vary substantially even within small areas. For example, a district with senior surface water rights may share a border with an area fully dependent on limited groundwater. Groundwater management rules may vary between neighboring irrigators pumping from the same aquifer. Risks can also change gradually or suddenly. For example, an adjudication may last decades, but a federal rule change can create immediate impact.
Risk is important for farming and agricultural lending decisions. For example, starting in 2017, Farm Credit West (FCW), and subsequently Northwest Farm Credit Services (NWFCS), initiated an assessment of risks related to water in their service areas. ERA Economics developed economic analyses of factors affecting water risk at scales ranging from field- and district-level to regional and statewide. We describe drivers of risk in narrative format, as well as a series of geospatial economic risk indices. The indices provide a quick overview of water risk at the state, regional, and even field level.
The studies were prepared to assist the associations and their customers in understanding not only risks related to water, but also risks related to crop production and markets associated with different commodities and locations within its client service area. Under this project, ERA developed, and continues to update, regional water and market risk assessment reports.
Regional risk assessments quantify the impact of water supply costs and availability on agricultural returns, profit margins, and risk in different regions (e.g., water districts, counties, groundwater basins). A series of economic models are used to quantify the value of water and measure supply and demand risks in the region. Our risk analyses are designed to support Farm Credit West’s customers and staff for management purposes.
ERA Economics has also developed commodity-specific water and market risk assessments for Farm Credit West. These assessments analyze and discuss the links between agricultural market conditions, water supply availability, water value, and net farm income. The assessments help Farm Credit West understand the effect of risk factors on its loan portfolio and gives it a way to provide its customers with current market conditions and outlooks. ERA has presented findings at Farm Credit West’s annual board meetings, customer meetings, and larger agricultural groups as requested.