FUEL, CROP, AND WATER SUBSTITUTION IN IRRIGATED AGRICULTURE

This paper examines how changes in electricity costs can alter input u se in farming and the resulting composition of output. The agricultura l sectors of two states, Arizona and Colorado, are modeled using nonli near optimization methods to estimate responses to changing relative f uel costs. Simulation results suggest that farmers respond systematica lly to increases in electricity costs, and do so in ways that involve three areas of change: (1) the substitution between water and other in puts; (2) the crop allocation on irrigated land; and (3) changes in th e total irrigated area. For both states, higher electricity prices lea d to reductions in water use, with most of these reductions accounted for by reductions in electrically pumped groundwater use, with own-pri ce own-price elasticities on the order of -0.64 and -0.68 for Arizona and Colorado, respectively, a result comparable to estimates obtained econometrically elsewhere. The results also confirm complementarity be tween energy and irrigated land and substitutability between energy an d dryland acreage.