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IMPROVING NEW MEXICO’S WATER MANAGEMENT - page 21 / 47

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during the middle of the season when the expenses associated with crop production have already

occurred. On a long-term basis, the value of water depends on long term profits net of all

operating and capital expenses. The level of profits (or return on assets) in agriculture is very low

and sometime even negative. This does not imply that a farmer should be willing to trade his

water rights for low value. He or she may have other values associated with farming.

There are four different agricultural water values depending on timeframe: (1) intra-

seasonal, (2) seasonal, (3) long run annual value, and (4) long run water right value. The intra-

seasonal value for water is the appropriate perspective once the major planting expenses have

occurred. Farming incurs a majority of costs upfront in the season. Once these expenses have

occurred, the value of water is approximately the gross value of the crop minus harvest costs.

This value would be the appropriate framework if the farmer were to lease his water after the

season had started – say for the month of July and August. These values are at their highest

levels because so much has already been invested in growing the crops.

The seasonal value of water nets out all operating costs except costs that still remain

(fixed costs) such as capital costs, labor, and management. If a farmer were to lease his seasonal

allotment of water and subsequently not use water, the seasonal value is the appropriate estimate

of water. These water values would represent the agricultural value of water in a seasonal water

bank.

Long-term annual value of the water is net profits after all costs that may be attributable

to water. This is the cost of not farming. In ceasing operations, the farmer would sell all

agricultural assets such as tractors and equipment and seek other employment (or retire). The

long term annual value is the net loss of income once all costs are accounted for. These values

are often low in agriculture.

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