Comparative Profitability of Irrigated Cropping Activities for Temporary Water Transfers under Risk Aversion

Temporary water transfers are attractive to farmers because they provide revenue, but they also reduce water available for crop production and may affect economic risk. We compare the expected profitability, risk exposure, and water savings (i.e., conserved consumptive use) of irrigated cropping activities for temporary transfers in Colorado. Crop switching, modified harvesting, rotational fallow, and limited irrigation significantly affect gross margins, risk premiums, and consumptive use. Excluding risk from the economic analysis underestimates breakeven water transfer values by 4%–36%. Compensating farmers for risks they take and forgone returns from water they transfer will increase willingness to participate in temporary transfers.