further limit the effect of public water-pricing policy on investment in conserving technologies. Water-pricing policies may be more effective when implemented in conjunction with other determinants of technology choice and crop production. Water Transfers. Market provisions for the sale of water rights or temporary lease of water would encourage the conservation of agricultural water by providing farmers compensation for unused water entitlements. However, legal and institutional barriers at the Federal, State and local levels have restricted widespread development of operational markets for water. For most Federal water projects, changes in water deliveries are subject to administrative review, and water is generally not transferred beyond the project service area. Further, laws governing water use and transfer are vested with the individual State. In most States, irrigators do not retain rights to water conserved through improved irrigation efficiency. Thus, water "saved" is not available for transfer and is most often used on the farm for higher yields or irrigation expansion. Meanwhile, political concerns have focused on downstream impacts and secondary effects of reduced agricultural activity on local communities. In recent years, barriers to water marketing have been reduced in some locations. Statutory changes at the State level have increasingly recognized both the need to transfer water to meet new demands, and rights to water "salvaged" through conservation. Recent reform of water transfer policies under the CVPIA may suggest a relaxing of constraints on transfers involving Federal water supplies. Water Conservation Programs. The Federal Government requires development of irrigation conservation plans-specifying improved irrigation management systems and practices-under certain conditions. USDA conservation plans must be in place for farms with highly erodible soils to qualify for program funding. An approved plan is also required for farmers receiving cost-share and incentive payments under EQIP. In addition, access to publicly financed water supplies is increasingly tied to improved water management. Water districts receiving Federal water through the Bureau of Reclamation are required to develop water conservation plans, including explicit contractual language on goals, implementation measures, and timetables in some cases. States are assuming an increasing role in irrigation water conservation, although legal authorities and program activities vary widely. Many States, mostly in the West, have established water conservation programs. States may require local water conservation plans, and several have established local management areas in critical water resource areas. State-level activities include conservation planning, water-use permitting with conservation provisions, program monitoring and evaluation, financial support for conservation practices, and technical assistance. Water policy reform-involving water pricing, transfer provisions, and conservation programs provides increased incentives for improved management of water supplies at the farm level. Meanwhile, opportunities for improved water management have expanded with advances in irrigation equipment and practices, lower cost of many technologies, and expanded information resources. As regional water-supply pressures intensify, agriculture will rely increasingly on improved water management to sustain productivity and increase the economic value of irrigation water. Authors: Marcel Aillery, (202) 219-0427 [maillery@econ.ag.gov]; and Noel Gollehon, (202) 219-0413. References Allen, Richard G., Charles Burt, A.J. Clemmens, and L.S. Willardson (1996). "Water Conservation Definitions From a Hydologic Viewpoint," North American Water and Environment Congress, 1996 American Society of Civil Engineers. Bernardo, Daniel J., and Norman K. Whittlesey (1989). Factor Demand in Irrigated Agriculture Under Conditions of Restricted Water Supplies, U.S. Dept. Agr., Econ. Res. Serv., TB-1765, July. Caswell, Margriet F., and David Zilberman (1985). "The Choices of Irrigation Technologies in California," American Journal of Agricultural Economics, Vol. 67, No. 2, pp. 224-234, May. Howe, C.W. (1985). "Economic, Legal, and Hydrologic Dimensions of Potential Interstate Water Markets," American Journal of Agricultural Economics, Vol. 67, No. 5, pp. 1226-1230. Kim, C.S., Ronald Fleming, Richard M. Adams, Marshall English, and Carmen Sandretto (1994). "An Economic Analysis of Agricultural Practices Related to Water Quality: The Ontario (Oregon) Demonstration Project." U.S. Dept. Agr., Econ. Res. Serv., AGES94-18, June. Magleby, R., R. Selley, and P. Zara (1995). "Effectiveness and Economic Efficiency of Efforts to Reduce Nitrate Loadings to Groundwater: A Mid-Nebraska Example." TECHNOLOGY 5.1 Agricultural Technology Development Research and technology development have been the esearch and technology development have been the foundation for productivity gains in the agricultural sector, averaging 1.8 percent per year during 1948-93 (see box, “Agricultural Productivity," p. 224, and fig. 5.1.1). Growing concerns for the environment have expanded the priorities for U.S. agriculture. Many technologies being developed have the potential not only to increase farm productivity but also to reduce the environmental and resource costs sometimes associated with agricultural production. These include technologies that conserve land and water by increasing yields with the same or fewer inputs and technologies that protect environmental quality, such as pest- and Two forces guide technological development. The first is "demand-pull," where the needs of the marketplace create the demand for a product. Both public and private-sector scientists, inventors, and entrepreneurs often seek to meet this demand. The second force is "supply-push." Here the impetus for development comes from scientists and inventors who 150 Input 100 Output Source: USDA, ERS, based on Current Research Information System; and Klotz, Fuglie, and Pray, 1995. useful technologies, and the government can use both to encourage innovations that foster environmental quality and resource conservation. Policies such as environmental regulation can boost the demand-pull forces for environmentally benign technologies. Other government policies can foster supply-push forces for the desirable technologies. These policies include funding research and development, technology transfer activities, and efforts to understand and facilitate technology adoption. The two major players in the agricultural research and technology development system are the public sector and private industry. After World War II, the public sector was the primary supporter and conductor of agricultural research. In recent years, the private sector has become a major contributor to the development of new agricultural technologies. Private-sector spending for food and agricultural research now exceeds agricultural research expenditures by the public sector (Fuglie and others, 1996; Huffman and Evenson, 1993; Klotz and others, 1995; and Pray, 1993). Private-sector agricultural research expenditures are estimated to have increased from $2.5 billion in 1979 to $3.4 billion in 1992 (fig. 5.1.2) (Klotz and others, 1995). Public-sector expenditures were $2.9 billion in 1992 (Fuglie and others, 1996). Public-sector and private-industry research differ in their focus. Public scientists conduct more basic or fundamental research, which seeks a fuller understanding of phenomena without specific applications to products or processes. Basic research is the foundation for all other research efforts and outcomes. Approximately 47 percent of public research funds are allocated to basic research efforts (fig. 5.1.3), which has higher rates of return than applied research. While the payoff to society of investing in basic research is high, the results of such research generally cannot be appropriated. The gains benefit society as whole, therefore the private sector has little market incentive to conduct basic or pre-technology research. Only 15 percent of Figure 5.1.4--Allocation of public funds for agricultural research, 1979 and 1994 Numbers in parentheses indicate each item's percentage of public funds for agricultural research that year. food safety (for the distribution of public-sector research, see fig. 5.1.4). Private research focuses on bringing products to market, and generally must contribute to the overall profitability of the firm. More than 40 percent of private agricultural R&D expenditures are for product development research. In contrast, less than 10 percent of public agricultural R&D expenditures are applied to product development research. Therefore, a combination of public-sector and private-sector research is important in developing new agricultural technologies. Public Sector Research and Development Public agricultural research involves a unique partnership between the Federal Government (chiefly USDA) and the States. USDA and the State Agricultural Experiment Stations (SAES) together conduct almost $3 billion of research (Fuglie and others, 1996). USDA conducts about $950 million worth of research in-house through its research agencies, primarily the Agricultural Research Service, the Forest Service, and the Economic Research Service. The SAES and cooperating institutions conduct about $1.9 billion worth of research, making them the largest performer of research in the public sector. USDA pays for about $1.5 billion of total public research, the States less than $1 billion, with additional funds supplied by the private sector (fig. 5.1.5). USDA uses several funding instruments to |