10 Jan 2013 by Jim Fickett.
Water used for farm irrigation peaked in 1980 and has been roughly constant (declining slightly) since 1985. At the same time, farm output has grown steadily. The increase in output was due in part to more efficient irrigation. Probably companies selling upgrades to irrigation systems will continue to enjoy some tailwind from the need to do more with less.
Since the US population continues to grow, while the water available peaked in about 1980, it seems likely that water conservation is one possible area for investment that will have a tailwind for a long time to come. And since irrigation is the largest single consumer of water in the US, more efficient irrigation seems like it ought to be a growth area. Let's look at some data.
A 2012 USDA report entitled Water Conservation in Irrigated Agriculture summarizes USGS data on water withdrawals (removal of water from streams, rivers, lakes, reservoirs, and groundwater aquifers for a specific use):
Although the largest category of withdrawals is for power stations, most of that water is returned to the lakes and streams from which it comes. The largest consumer of water is farming.
Note that water taken for irrigation peaked in 1980 and was roughly constant from 1985 on. At first this might seem to suggest no progress in using water more efficiently. However farm output has grown steadily over that period. A book chapter entitled A brief history of US agriculture shows the inflation-adjusted value added by farms (from the national income and product accounts) more than doubling from 1985 to 2005. And a USDA study on agricultural productivity shows total farm output growing steadily over the period 1985 to 2009:
Of course it is conceivable that farm output could continue to grow with no change in irrigation efficiency – many other factors help determine crop yields. At least for western states, however, where irrigation plays a central role, there is more direct evidence of improving efficiency. From the first USDA study mentioned above:
In 1984, for example, 71 percent of all crop agricultural water in the West was applied using gravity irrigation systems. By 2008, operators used gravity systems to apply just 48 percent of water for crop production, while pressure irrigation systems accounted for 51.5 percent, or an increase of 23 percentage points from 1984. By 2008, much of the acreage in more efficient pressure irrigation systems included drip, low-pressure sprinkler, or low-energy precision application systems. Improved pressure systems contributed to reduced agricultural water use, as fewer acre-feet were required to irrigate a greater number of acres using these systems. From 1984 to 2008, total irrigated acres across the West increased by 2.1 million acres, while total agricultural water applied declined by nearly 100,000 acre-feet.
It is very difficult to predict precise trends. For example,
For investors, the bottom line is this: One can count on continuing pressure to produce more with less water, and this will indeed provide a tailwind for companies selling upgrades to irrigation systems. But it is very hard to know just when and how that pressure will manifest, and very hard to call particular technology/equipment trends. Perhaps the best way to play it, then, is to look for a company that farmers trust, and that has a reputation for staying at the forefront and supplying what is in demand at any given time.