The Opportunity Cost of Water

(Photo: rumpleteaser)

With the continuing drought in South Texas, the issue of how to allocate scarce water resources has flared up again. Rice farmers south of Austin want water from the Colorado River for their crops; yet the two storage lakes on the river, which provide most of the Austin area’s drinking water, are less than half full.  As one rice farmer told the the Austin American-Statesman: “Water availability should be based on sound hydrology and not on political pressure.” It should be based on neither—it should be based on economics—what is the opportunity cost of the water?  In particular, one might ask why the U.S. is growing rice at all.  It is hard to believe we have a comparative advantage in rice-growing and that it shouldn’t all be imported.  That’s especially true about rice grown in dry South Texas. We grow rice because of entrenched interests that obtained water rights many years ago.  The rice farmers get heavily subsidized water precisely because of the political pressure this man deplores—and they now want to compound the effects of bad policy.