An aquifer is an underground reservoir of water contained in rock, gravel, sand, and other materials. Aquifers typically occur closer to surface level depths, with shallow depth aquifers being used most often for water harvesting [5].
Use in Farming
Aquifer are used for both agriculture water harvesting and drinking water harvesting. Around 4-60% of water used in agriculture comes from aquifers, making them an important resource in farming [1]. Aquifers are an incredibly important resource to farmers they are required to grow crops in most farms, however, the dependence on aquifers has also led to over pumping of aquifers, rapidly depleting the resource at a highly dangerous level [2].
Aquifers are drying
Some of the largest depletions in aquifers are occurring in the following regions [2] :
· Kings Bason, California
· Madera Basin, California
· Westside basin, California
· Tule basin, California
· Kaweah basin, California
· San Bernardino basin, California
· Upper Borrego valley, Utah
· Beryl enterprise subarea, California
· Parowan valley, Utah
· Little Chino valley, Arizona
· Confined Claiborne near Jackson, Mississippi
A further examination shows the most disproportionately grown crop in each of the areas
California Basins (Kings, Madera, Westside, Tule, Kaweah, San Bernardino, Upper Borrego Valley)
Corn Production: California is a significant producer of corn, particularly for silage, which is used as animal feed.
Utah (Beryl Enterprise Subarea, Parowan Valley)
Corn Production: Utah also grows corn, primarily for silage.
Nevada (Little China Valley)
Corn Production: Nevada’s agricultural output includes corn, though on a smaller scale.
Mississippi (Confined Claiborne near Jackson)
Corn Production: Mississippi is part of the broader Southeastern U.S. agricultural belt, where corn is a major crop. The region’s hot, humid climate supports corn production, but it still requires significant irrigation.
Of all these locations, corn is the most disproportionately grown grain in the geographical areas of these aquifers. This is significant because corn is one of the most water-intensive crops, requiring approximately 9,460 liters of water per bushel or 80 liters per ear of corn [3].
To better understand how water intensive grains such as corn have performed in periods of water shortages, both legislative caused and naturally, we must look at the commodities performance in periods of higher cost water.
Water shortages effect of corn prices (Drought)
The 1930 Dust Bowl was a severe drought and series of dust storms in the central United States.
During the Dust Bowl Corn prices increased by over 300%
The California Drought of 1976-1977 was one of the driest periods in the state's history.
While it didn't see a stable rise, corn saw significant volatility.
The Soviet Union Drought of 1972 was a significant agricultural disaster, causing to massive crop failures and a major grain shortage.
Corn purchasing by the Soviet union caused the price to rise by over 300%.
Water shortages effect of corn prices (Legislation)
India's groundwater regulation, governed by various state laws and the central government's, aimed to manage and conserve groundwater resources.
India large population further increased the need to import corn, increasing its price by over 50%.
California's Sustainable Groundwater Management Act (SGMA), enacted in 2014, aimed to ensure the prevention over-pumping and depletion of aquifer
The SGMA led to increased production costs and reduced yields. Corn prices increased by about 10-15% in 2015 as the effects began to materialize.
Climate Changes Effect on Aquafers
There are many ways in which climate change negatively effect the recharge rate of aquafers, further creating a need for pumping-tax.
Firstly, groundwater recharge decreases due to less frequent and more intense rainfall [7].
Source 6
Another way in which climate change affects aquifers is through increased evaporation in the aquifers. This effect is especially observable in semi-arid regions [6]. As the effects of climate change increase, the recharge rates of aquafers will decrease, further increasing regulations surrounding pumping.
Aquifer Pumping Tax
Currently, aquifer pumping tax is not common in agriculture, but it is rapidly gaining support and is now considered an inevitable implementation in areas with aquifers. One of the first large aquifer tax systems was implemented in the Pajero Valley in California in 1993. Water pumping was taxed at $30 per acre to limit the overuse of aquifers. In the following year, there was an observable decrease in water-intensive crops and lower-value crops.
From 1993 Santa Cruz County Crop Report
The following trends were displayed in the data. Water intensity is measured as per acre yield due to the water tax being per acre.
Artichokes:
Water Intensity: Medium (Tons/Acre: 4.9 in 1993, 6.7 in 1992)
Price: Medium-High ($/Ton: 634 in 1993, 844 in 1992)
Trend: Decrease in acreage (433 to 529), production (2098 to 3550 tons), and total revenue ($1,330,000 to $2,996,000).
Broccoli:
Water Intensity: High (Tons/Acre: 8 in 1993)
Price: Low ($/Ton: 438 in 1993)
Trend: Data only available for 1993. Low acreage (164), production (1312 tons), and revenue ($578,000).
Brussels Sprouts:
Water Intensity: High (Tons/Acre: 9 in both years)
Price: Medium ($/Ton: 441 in 1993, 460 in 1992)
Trend: Increase in acreage (1890 to 1845), production (17,793 to 15,841 tons), and total revenue ($7,853,000 to $7,294,000).
Cauliflower:
Water Intensity: Medium-High (Tons/Acre: 7.5 in 1993, 8.8 in 1992)
Price: Medium ($/Ton: 557 in 1993, 466 in 1992)
Trend: Decrease in acreage (680 to 1005), production (5104 to 8833 tons), and total revenue ($2,843,000 to $4,116,000).
Celery:
Water Intensity: High (Tons/Acre: 31 in 1993, 24 in 1992)
Price: Low ($/Ton: 225 in 1993, 265 in 1992)
Trend: Decrease in acreage (267 to 436), production (8147 to 10,283 tons), and total revenue ($1,832,000 to $2,720,000).
Lettuce, Iceberg:
Water Intensity: Medium-High (Tons/Acre: 22 in both years)
Price: Low ($/Ton: 234 in 1993, 227 in 1992)
Trend: Decrease in acreage (4598 to 4985), production (100,020 to 109,177 tons), and total revenue ($23,368,000 to $24,836,000).
Lettuce, Leaf & Cos:
Water Intensity: Medium (Tons/Acre: 12.5 in 1993, 12.95 in 1992)
Price: Medium-High ($/Ton: 312 in 1993, 350 in 1992)
Trend: Increase in acreage (997 to 730), production (12,463 to 9452 tons), and total revenue ($3,892,000 to $3,306,000).
Mushrooms:
Water Intensity: NA
Price: High ($/LB: .93 in 1993, .87 in 1992)
Trend: Data for acreage and production not available. Revenue slightly decreased ($8,100,000 to $8,259,000).
Observations:
Decrease in High Water-Intensive and Cheaper Crops:
Artichokes, Cauliflower, Celery, Iceberg Lettuce all showed a decrease in acreage, production, and total revenue.
Increase in Higher Water-Intensive but More Expensive Crops:
Brussels Sprouts showed an increase in acreage, production, and revenue despite high water intensity.
Increase or Stability in Less Water-Intensive and Higher Price Crops:
Leaf Lettuce showed an increase in acreage, production, and revenue.
Mushrooms, despite the lack of acreage and production data, maintained a high price with stable revenue.
Among the data, there’s a simple yet clear observation: Higher price crops were grown more, while higher cost crops were grown less. Considering this along with crop yields in areas with near-depleted aquifers, the characteristics of crop yield, and the high likelihood of aquifer taxes, a simple and intuitive observation can easily be drawn:
Aquifers are drying out
Aquifer taxes are becoming viewed as a simple solution
Aquifer taxes decrease the growth of water intensive cheap grains is favour of expensive grains that require less water
Corn is cheap and water intensive
The locations that are most likely the implement Aquifer taxes contribute a large amount of corn supply globally
It is evident that the supply of cheap and water-intensive grains, especially corn, will slow as aquifers dry and taxes are implemented until the price increases of the grain can justify its growth.
While the research to get to this point was somewhat complex and niche, the synopsis is basic microeconomics. Going forward, there are multiple ways to take advantage of this:
Agg Tech stocks
Companies developing water-efficient irrigation technologies or alternative farming methods
Corn futures/options
Options on corn futures can provide leveraged exposure to rising corn prices while limiting your downside risk
Exchange Traded Notes (ETNs)
ETNs like the iPath Series B Bloomberg Corn Subindex Total Return ETN can offer direct exposure to corn prices.
Commodities ETF’s
Diversified portfolio of agricultural commodities, including corn, but with significant or full exposure to corn prices
Sources
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