Paul M. Jakus: Figuring the best use for Utah’s water is not so simple

The facts for some counties are different from the facts in other counties.

(Trent Nelson | The Salt Lake Tribune) Alfalfa processor Keith Bailey in a barn filled with alfalfa at Bailey Farms International in Ephraim, where bales are compressed for export to Asian dairies, on Thursday, March 2, 2023.

The Salt Lake Tribune’s recent front page article, “Utah alfalfa exports: Worth their costs in water,” has quotes from University of California, Davis, economist Dan Sumner and Utah alfalfa grower Keith Bailey that demand some context.

Let’s start with Sumner, for whom I briefly worked as a graduate student in 1987 at North Carolina State University.

Sumner has had an impressive career, but his comments reflect a reliance on simplistic economic theory to arrive at his “theorem.” Economic markets do an excellent job of efficiently producing and allocating goods and services as long as no costs and benefits occur outside of market transactions, i.e., no externalities. The absence of externalities seems to have been his implicit assumption. But externalities are important because they prevent markets from reflecting the full cost of alfalfa production.

Sumner’s analysis ignores that fact that western water markets do not function well, that the price of water as used in agriculture is heavily subsidized, and that water laws often prevent it from flowing to its highest valued use. The key question is not whether we should let Utah’s alfalfa be traded on international markets, but whether alfalfa production is the best use of Utah’s increasingly limited supply of water.

Consider Bailey’s 3,700 irrigated acres in Box Elder county. One alternative use for water used to irrigate alfalfa is to let that water flow instead to the Great Salt Lake. Though water law is changing slowly, environmental uses have not historically been considered beneficial, and a farmer’s right to such water could have been lost had water been used for non-commercial purposes. Further, unless an environmental group is permitted to participate in water markets, such markets do not reflect potential non-market uses.

Natural scientists are in broad agreement regarding the potentially catastrophic environmental consequences associated with a shrinking Great Salt Lake — airborne toxics and disrupted snowpack and runoff patterns being just two of the expected problems. Though these events happen outside of traditional markets, they are costs nonetheless, and should be reflected in our choices on how to use Utah’s water.

Bailey states that he wants his production to be as “efficient as possible.” I am absolutely sure that, given the prices he encounters in input and output markets that he is, indeed, a highly efficient producer. But remember, water is underpriced and does not reflect its full opportunity cost. That means the market for alfalfa is inefficient. We produce too much alfalfa in places like Box Elder county.

He further asks, “What are you going to do with the water that’s economically beneficial?” It is easily conceivable that that the most economically beneficial use for water is not alfalfa, but to bring the Great Salt Lake back to a level that will not damage the health of Utah’s citizens or endanger its future water supply.

Finally, let’s think about Bailey’s operations in Sanpete County. Yes, we still have the problem of a skewed price for water, but the situation in Sanpete County is quite different. Though it lies mostly within the Great Basin watershed, the county’s water does not flow to the Great Salt Lake. The county also does not face pressures associated with rapidly growing municipal water demand. Thus, despite poorly functioning water markets, it could very well be that alfalfa production in Sanpete is the highest valued use for water. If so, keep growing and exporting — from Sanpete County.

One should be wary a “one-size-fits-all” economic analysis, or a universal claim to economic efficiency. The tradeoffs associated with alfalfa production in Box Elder and Sanpete counties are different, and economic analysis should reflect these differences.

Paul M. Jakus Dept. of Applied Economics Utah State University

Paul M. Jakus is professor emeritus in the Department of Applied Economics at Utah State University.