Assessment of OSU Economic Reports
January 3, 2003
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The Los Angeles Times today ran an article that ties findings from a recent controversial Oregon State University (OSU) report to another assessment prepared by The Wilderness Society, one of the most vocal anti-farming interests involved with Klamath Basin issues. The following has been prepared to provide additional, factual information on the OSU report.

OSU in December released a massive report intended to examine the impacts of Klamath Project irrigation curtailment during 2001. The report, entitled "Water Allocation in the Klamath Reclamation Project, 2001,’’ attempts to integrate impacts on the people, economy and environment of the Upper Klamath Basin. KWUA submitted detailed comments on the draft of this report nearly one year ago, and never received a response to the concerns we raised then. We are currently reviewing the final report.

While the 400-page report provides conclusions that are generally broad and non-controversial in nature, individual chapters of the report that focus on economic impacts and are very controversial. Local irrigators were stunned at the report’s economic findings that, when state and federal aid of between $35 million and $37 million are considered, the overall change in net farm revenues in 2001 was somewhere between a loss of $11 million and a gain of $10 million.

Malin farmer Dave Cacka recently told the Associated Press that he questions the computer models used to arrive at conclusions in the report, noting that the report does not address long-term impacts on uncertain land values, land sales, water delivery, marketing contracts, borrowing ability, and year-to-year buyer/seller relationships. Cacka saw his gross crop sales fall from about $500,000 a year to $4,800 in 2001 when water was cut back for the 380 acres he planted with potatoes, grain and alfalfa. Federal aid only applied to the 80 acres he owned, and not to the land he rented. Like other resourceful producers in the Basin, he has been able to survive by delaying payments for equipment, insurance and rental payments. Nevertheless, he faces a higher debt load. Even though water flowed this year, uncertainty generated by the 2001 cutoff has made loan institutions hesitant, thereby significantly reducing his potential to plant crops.

Further, according to the report, benefits generated by the response of the farm community were 50% higher than the direct assistance provided by federal and state programs. For example, Project growers drilled many new irrigation wells in 2001, and a potato packing operation brought potatoes from outside the region in order to fulfill its contracts. Nevertheless, the total federal and state payments did not cover the losses suffered. In particular, potato growers lost millions in revenue by not being able to produce in a strong market year, something that occurs only every four or five years.

While initial media coverage of the OSU report has focused on the impacts predicted by economic models, other important facts that lie buried in the 400-page document identify the limitations of applying models to economic crises like the 2001 water cutoff:

• Models of aggregate impacts obscure the story of individuals, many of whom have been affected in ways far different than suggested by total and average effects.

• Economic models do not accurately tell the individual economic losses or hardship of either the farm community or the social and physiological consequences.

• The OSU report does not attempt to estimate effects on local businesses, especially those businesses that depend on agriculture producers. In fact, the Klamath County Economic Development Association and the Klamath County Chamber of Commerce were not even contacted by the authors of the study, despite the fact that the Chamber had completed its own survey on the 2001 water cutoff. That survey showed that more than 60% of the businesses polled were impacted by the water cutoff, and that 48 % of those polled found that the water cutoff was the issue that most affected business in 2001, followed by the recession and aftermath effects of 9/11.

• The economic analysis centered on particular groups, or the economy as a whole, and overlooked effects felt by individuals and groups. Input suppliers, rural schools, agricultural associated businesses, communities, farm labor, and workers in related industries may have been the most adversely affected, but received little attention in the report.

• Assessing general impacts over a large three county (Klamath, Modoc, Siskiyou) region masks the disproportionate share of the impact felt in those communities in - and adjacent to - the Klamath Project, such as Klamath Falls, Malin, Merrill and Tulelake.

• The report does not estimate impacts such as dissolution of trained crews, displacement of farm laborers, and weed control.

Other points of interest that are pulled directly out of the OSU report:

• The report points out that land values in the Project for Class II and III soils are comparable to farmland prices in Iowa, one of the most productive agricultural areas in the country. It finds that land prices in the Project are much higher than the average farmland value for Oregon. The report further points out that most of the higher value lands are within the Project, whereas the relatively low value lands are primarily outside the Project.

• The report indicates that in the absence of either favorable power rates or US commodity programs, the highly productive lands in the Project would continue to be profitable to irrigate.

Importantly, the report’s "snapshot" assessment of 2001 admittedly fails to assess long-term impacts to local and regional economies. For example, the curtailment eroded confidence in future water availability, which has contributed to lingering economic uncertainty.

• The ESA was not applied impartially in 2001. Irrigators bore a disproportionate share of the cost of the water curtailment.

• A lasting solution requires that all parties be involved.

• Adjudication of water is fundamental to the solution process.

As predicted, The Wilderness Society and other environmental advocates are already using selective portions of the OSU report to downplay the disastrous effects of the 2001 water cutoff in the Klamath Basin. KWUA will shortly issue an additional memorandum that provides an initial assessment of the recent report prepared by The Wilderness Society.

Klamath Water Users Association
2455 Patterson Street, Suite 3
Klamath Falls, Oregon 97603
Phone (541) 883-6100
FAX   (541) 883-8893  
kwua@cvcwireless.net