Another aspect of irrigated agriculture that generates much controversy is the question of acreage limitations on publicly-funded irrigation projects.  The original acreage limitations were part of the 1902 Reclamation Act and were intended to ensure that the greatest good went to the greatest number of people. 

The essay below was written for a Master's level agricultural business class around 1975 while I was at Utah State University.  There was a huge battle being fought in California concerning the large farmers in the Westlands Water District (WWD).  WWD was in an ironic position.   WWD member-farmers had fought hard for the construction of the California State Water Project (CWP).  They had also successfully argued against any inclusion of acreage limitations, noting that they were supposedly reimbursing the project at full costs for irrigation benefits.  Unfortunately, California ran out of money and had to turn to the Federal Government to complete large parts of the CWP, including San Luis Reservoir and the distribution system through Westlands Water District.  Thus, the Federal Government felt that WWD was to be under Federal Reclamation law and the growers would have to divest themselves of excess lands.

Needless to say the arguments, and manuevering, by all concerned continues today.

(NOTE: I have lost the original list of references.  Superscripted numbers denote where these references occur.)

I welcome your comments...PWCanessa@aol.com    

The purpose of this paper is threefold:

   1) Examine the history and objectives of the Bureau of Reclamation's irrigated acreage limitation policy,

   2) Discuss some of the controversy surrounding it,

   3) Make recommendations as to whether or not a policy of this type should be continued on the state as well as federal level.

An aspect that will receive particular attention is the public subsidy of irrigation.

The acreage limitation policy was introduced in the original Reclamation Act of 1902. This Act authorized federal financing of irrigation development in the Western U.S. The original limitation on land under single ownership eligible to receive federally developed water was 160 acres. Development was put under the auspices of the Secretary of the Interior who subsequently created the Bureau of Reclamation to oversee engineering, construction, and operation. The intent of the 160-acre limit, indeed the main policy of the Bureau, has been to create the maximum number of opportunities for farm families to earn a satisfactory living.

This policy has been upheld as lawful in many court cases. The majority opinion of the US Supreme Court in Ivanhoe Irrigation District v. McCraken (357 US @ 297) wrote, "...[the acreage limitation of the National Reclamation Act is] to insure that the benefits may be distributed in accordance with the greatest good to the greatest number of individuals and that the enormous expenditures for reclamation will not go in disproportionate share to a few individuals with large land holdings."

Subsequent revisions and additions to reclamation law have strengthened this policy. In 1912, statutes were passed requiring the owners of excess land (area greater than 160 acres) to dispose of it before the excess was eligible to receive federal water. A later Act prevented speculative activities concerning reclaimed land.

From examples of the administration of Bureau projects it can be seen that the 160-acre figure has been modified from time to time. The Colorado-Big Thompson project was exempted in 1935 from excess lands provisions when the land in question had a primary source of irrigation water other than the federal project. Two Nevada projects began in 1940 were exempted because 160 acres was too small for economical operation due to land types and climate. The same reasons were used in the Eden Water Conservation Project in Wyoming in 1951. Here the limits were raised to 180-220 acres depending on land class, due to high altitudes, temperature extremes, and short growing seasons. Congress set the maximum farm size at 480 acres in the San Luis Valley, Colorado.²

Beyond Congressional exemptions, administrative policy has modified the limit. U.S. law (43 USC 418) which obliges the Secretary of the Interior to receive agreements from landowners to dispose of excess lands before any contracts are let for construction. However, administrative policy allows owners of excess lands to irrigate with project water for up to ten years before disposal. The Columbia Basin Project act (16 USCA 835a) defines any one landowner (with regards to the family unit) as both the husband and wife together with children under 18 years. Administrative determination has been that a husband and wife when in joint ownership consists of two owners and thus, can irrigate 320 acres.³

In any case, the Bureau realizes the inflexibility of the 160-acre limit on all types of land and on all types of projects. Preliminary project investigations have sought to determine the optimum size of farm units. This optimum size is to be the one which "maximizes the welfare of all the people in the agricultural area through:

   1) Efficient use of production resources

   2) Desirable distribution of total income with adequacy of individual income

   3) Desirable community and inter-group relations."⁵

Efficient use of production resources means the use of all resources to their fullest capability in the appropriate manner. The individual can only measure adequacy of income, but inferences can be made depending on how the individual utilizes the income. Desirable social relations test the stability and character of the community and the interrelationships of its different groups.

Difficulties in describing and setting limits for the optimum size arise with the question of the appropriate unit of measure. Units of farm measurement include:

   1) Area - this is easily measured and is constant but different types of land have different production capabilities.

   2) Value of output - the problem here is that price level changes between different periods making comparisons inaccurate.

   3) Labor requirement - difficult to relate when different crops are grown as both might require the same total amount of man-hours but with different distribution or different education/capabilities

   4) Capital investment - here again, different types of farming require different investments

   5) Net income - in many cases this is highly dependent on individual ability

   6) Weighted combination - this is the most accurate if the scales are correct.⁵

In the past, the Bureau has conducted economic investigations from the three viewpoints mentioned. For the original Central Valley Project of California it was determined that dairy, special fruit, and general fruit farms should be greater than 40 acres in size. Further, summer field cropped farms should be greater than 80 acres and winter-summer cropped farms approximately 160 acres. The conclusion was that although some information on economics of scale suggested that some types of farms might be larger, studies of income and social conditions upheld the smaller units as being in the best interests of the general welfare.⁵ For the Columbia Basin Project, 50-110 acres was considered the optimum average depending on the type of land.⁶

As demonstrated, the policy of the Bureau and thus the Federal Government has been to provide the greatest good for the greatest number. Large landowners if queried directly and individually would probably agree with this, up until the point where they would have to dispose of their excess lands or forego a firm supply of irrigation water. (They are allowed to keep any land but only legally apply water to the 160 designated acres.) Thus, there have been many attempts to repeal the acreage limitation or in some way circumvent it.

Attempts were made to get the Army Corps of Engineers (which was not constrained under Reclamation Acts) to construct projects. However, in 1944, Congress extended the coverage of Reclamation Statutes to the Corps (PL 534 sec. 8, 58 Stat 891).³ All attempts at repeal have failed, although in scattered instances, exemptions (justified or not) were allowed.

A frequent argument heard in support of general repeal is that the smaller farms are inefficient. This is entirely true and the Bureau has recognized this. But it also recognizes that efficiencies and net returns/acre do not indefinitely increase with size but reach a plateau at various levels depending on the type of farm. This argument is somewhat weakened by the proven ability of small farmers to band together in cooperatives to achieve economies of scale in many aspects of farming such as buying of fertilizer, seeds, machinery, petroleum products and selling of produce.

In any case, the objective of the acreage limitation is not whether 160 acres (or the determined optimum size) is the most efficient size, but that the redistribution of income derived from publicly financed and developed irrigation systems is equitable. The overriding conclusion is that large farms create social conditions where the few are wealthy and many are poor, where large populations are dependent on factory farms for work and few are self-employed. In the Bureau's words, "...[a situation] creating rural communities devoid of solidarity and lacking many of the institution that normally enrich life..."⁵

Other groups besides government economists have argued the merits of acreage limitation. Environmentalists (especially in California) say that the limitation policy coupled with federal purchases of excess lands can provide an effective instrument for rational land use planning and conservation of remaining open spaces. Educators have a stake in the dispute also. Between 1803 and 1966, some 228 million acres of federal land has been deeded to the separate states, 77.5 million of which was designated for common schools and 16.8 million for other schools. In 1966 alone, $69.7 million was given to the states as a result of federal disposition of excess lands. It is obvious that they too argue for limitation and government purchase of excess.³ Soil scientists worry about abuses under large corporate farming. They fear over-emphasis on soil-depleting cash crops and failure to diversity cropping patterns and cultivation operations so as to maintain soil productivity.^5,6 (This argument may or may not have credence. A "corporate farm" may not be too worried about maintaining peak productivity on marginal land. However, good land is a valuable resource which cannot, and most probably would not, be wasted.)

The greatest argument for continuation of acreage limitation (under present Bureau policies) is the presence of public subsidies to irrigation. The subsidy is large and is derived from several sources. As originally conceived, project users would repay the Government investment in ten years without interest. It was soon evident that this was not a feasible period and gradually the time has been extended to 40 years or more.¹ With an investment return factor of 6%, the subsidy amounts to nearly 70% of total costs over a fifty-year period. Also, in some cases, repayment has been based on ability to pay and not the actual costs of delivered water. In addition, benefits from non-reimbursable items such as flood control, navigation, and recreation are sometimes over-estimated. This results in a lowering of the total reimbursable costs of the project.¹

The Bureau is empowered to sell developed hydroelectric power at market value and use these funds against the total cost of the project. By official estimates the cost of the Central Valley Project is 63% chargeable to irrigation, 33% top power, and 3% to municipal and industrial users. In contrast, irrigators pay 17%, municipal and industrial users pay 10%, and power pays 72% of the bills.³ In the Upper Colorado River Project, only 12% of irrigation water costs are scheduled for repayment.

Other arguments for and against limitation notwithstanding, the question of subsidy assumed major importance in the policy-making stage of the giant California Water Plan (CWP), also known as the Feather River Project or the California Aqueduct. The controversy in California whether or not to incorporate acreage limitation is particularly interesting for a number of reasons. First, the CWP is one of the largest construction projects of its type in the world. It is financed and developed by a state and not the Federal Government. It was and is bitterly condemned by engineers, economists, environmentalists, farmers, and urbanites (two bond issues needed to finance the project were approved by very narrow margins). It may be the first reclamation project to demand (on paper at least) full repayment for reimbursable benefits by those receiving the benefits.

The main feature of the CWP is that it diverts large amounts of water from rivers in Northern California through an aqueduct system to Southern California. Although generally perceived as an agricultural project, in fact the largest contractor for water is the Metropolitan Water District of Southern California, which serves the Los Angeles and San Diego areas. But the agricultural benefits are large, especially for cooperation farms. In the southern and western parts of the San Joaquin Valley where the major development of new crop land has taken place, early estimates showed that 34 owners controlled 750,000 acres of irrigable land.³

Although there are many arguments against subsidies, the major economic one is that unrealistically low water prices which do not reflect true market value encourage the inefficient use of a resource "...in a manner unrelated to the relative yields that might result from its use a factor in other forms of production."⁷ It has allowed farmer to waste water by making it unprofitable to exert complete control over its application. It has allowed the use of water on marginal types of land, which, under state water laws, is difficult to stop. And in the long run (testimony by James Forbes of the Stanford Research Institute), "...subsidy of irrigation is not likely to benefit farmers as farmers. The principal effect would be to increase land values." Further, "...as farmland is bought and sold, the farmers who own or rent the soil will not be the people who derive the benefits. They paid the price of the land which includes the capitalized value of th4e water subsidy and they will then be depending on a continuing subsidy to receive a profit."⁷

It is not surprising that the report of the California Assembly stated, "Both the consensus of testimony before the Committee and the conclusion of the Committee have been that there should be no subsidy to irrigation users or other purchases of vendible service." It was surprising (at least to some people) that the report went on to say, "...it has been generally conceded that eliminating [the] subsidy removes the need for acreage limitation."⁷

Although removal of subsidies was the most powerful argument against inclusion of limitation in the project, all of the familiar reasons were also given in testimony. Included are efficiency of large farms, undesirable government intervention, and increased cost of distribution systems with small farms. One very persuasive argument was that the large landowners would not agree to dispose of their excess land and thus the CWP, which was dependent on agricultural revenues to show feasibility (at least by government studies), could not be built.⁷

The most persuasive arguments on the side of continuing limitations centered on three areas, all of which could stand with or without the added force of a public subsidy. The first was that even without the direct subsidy to agriculture, subsidies from other sources were enough to warrant continuing the policy of "the greatest good to the greatest number". Chief among these sources was again, power revenues. Since all revenues were to be used in a general fund to repay the bond issues, the revenues from power (much greater than costs since power was to be sold at market value) would repay project costs in greater proportion that its chargeable costs. Thus, the burden on irrigation would be lowered.⁷ (Notwithstanding the arguments on whether or not the CWP could generate enough power to cover its own needs for pumping lifts, this subsidy could be stopped by requiring all power revenues above costs to be allocated to the State's general fund.)

The next contention was that even without water subsidy, land enhancement would be such to create huge windfall profits for the large landowners. Even the Assembly report allowed that land enhancement could occur to some limited (?) degree, even without a subsidy. But it went on to say that increased valuation of agricultural land can also be due to other improvements such as land-leveling, leaching of harmful chemicals from the soil, additions of fertilizers, roads, building, drainage systems, and fences. It also pointed out that land enhancement may be due to the profitableness of the water utilization (ability of farmer) and not from ownership alone. (It must be pointed out that before any of the above mentioned investments become profitable to make, there must be a firm water supply available.) Their conclusion was "The belief that there is land enhancement which is sufficient to require a limitation when there is no subsidy may be a transfer of attitude from federally-subsidized to state projects."⁷

The third argument was the undesirable distribution of income to be expected if no limitation applied. This point can be differentiated from a purely land value increase view by the vastly increased output made possible on a yearly basis by irrigation. Thus, the disparity of income between large and small landowners is continually increased (i.e., the rich get richer,...). Perpetuating such a situation is clearly not the purpose of a tax-supported investment, reimbursed or not.

Whether the Federal Government or the State of California funds a reclamation project, the arguments for and against acreage limitations are the same. In the Federal realm, limitation is the continuing policy. For California, limiting or abolishing subsidies was seemingly enough to persuade the Legislature that limitations were not needed or desirable. Are both policies right, given the inclusion or deletion of subsidies? Or is there one answer?

First, it is important to realize that the Federal limitation policy does not force a landowner to sell off his lands. He is only constrained to applying water up to the legal limit. (It might be added that he might receive increased benefits anyway from replenishment of groundwater supplies that he could be pumping onto his excess lands.) If he decides to later sell his excess lands, anti-speculation laws prevent him from receiving some of the windfall profits from land enhancement. Thus, where irrigation revenues were necessary for a project to show economic feasibility and large landowners showed unwillingness to sell off excess lands, the project would not or should not be built until enough land (either public or private excess agreed to be sold) was eligible for the developed water. The point is that if there was so much land being controlled by a few people, then it need not qualify for a tax-supported irrigation development.

Second, the principal of "the greatest good for the greatest number" is a logical fallacy if taken to its conclusion. Then, everyone would get nothing. Thus, an acreage limitation must be set at a reasonable figure if it is an aspect of development. This figure should be above that determined necessary for purely an adequate income. Otherwise, there would not be that much incentive to increase one's management skills and efficiency. Also, important economics of scale for resource utilization (extremely important to the individual and the nation in these days of shortages, real or not) would not be possible.

Third, it should be a policy of taxpayer-funded investments that they provide a means of beneficial income redistribution. The fact that a $3 billion taxpayer capitalized project is repaid fully after fifty years does not make it desirable if it results in a situation where the rich get richer and the poor stay the same. That $4 billion could have been used in another program, which enabled a great number of formally subsistence level families to enter the mainstream of society in a self-sustaining capacity.

It might be argued that limitations increase the number of farmers on a given amount of land and thus lower the income for all, which negates the actions of other federal programs to raise farm income. However, it is felt that reclamation projects do not aggravate low farm income situations so much from increase numbers of farmers as from increased food supplies, which lower prices to all farmers. The key is to pace land development to the demand for food.

It may be that if land is developed ahead of schedule large farms will aggravate the situation. Their increased efficiency enables produces higher yields, probably at lower costs, resulting in lower commodity prices. Further, they produce large quantities of relatively few crops, which maximizes their impact on a given market. In contrast, the smaller farms would possibly grow a greater variety, thus diffusing their impact. This situation is projected for the markets of specialized crops such as grapes, almonds, and fruit in California as a result of rapid land development made possibly by the CWP.

It is believed that the case for some initial acreage limitation for application of publicly financed and developed water supplies is sound. Market resources (especially one as important to agriculture as water) that are publicly developed must be made accessible to the greatest, reasonable number of people.

The limitation could be set at either a high or low level. It could be argued that a limitation on acreage enforces a limitation on income, which is contrary to the American ideal of a "free market". In this case the initial limitation should be low to allow the most people possible (at an initially determined adequate income and restricted to genuine farmers to prevent undue speculation) and then lifted to allow open competition to operate and require efficient management. The limit would be flexible to consider the land's ability to produce so that insofar as possible, all would be equal at the start.

If it is argued that there should be limit on income that is made possible in large part by public investment, then the final limitation should be set at a level necessary for all important economies of scale (determined in California to be approximately 1000 acres⁷). The initial limitation could still be set lower to provide the greatest number of opportunities.

Needless to say, in no case should there be subsidies. Water should be treated as a common resource and priced at its true cost. Then the market can act to truly determine price of supply and resultant demand.

The only question left is what to do with already completed projects. It seems clear that acreage limitations should be increased. However, as stated, the existing subsidy has been capitalized into the value of the land. The subsidy must be continued to protect the farmer who paid the price for it in his land. But since an important input to production is being subsidized, the new limitation should be lower than the non-subsidized projects and in no case should it be lifted entirely. The increased limits should allow equalized competition with the new projects while forcing inefficient managers out of the market.

One last comment might be in order. The idea of an acreage limitation was conceived as an equalizing agent in income distribution. There may be some question as to the true desire of the public for such a distribution. Hirshleifer, et al. writes, "While the dominating opinion is one of equality..., we do not have a "redistribution budget" which clearly and purposely transfers wealth from rich to poor. The absence of such an institution generates some doubt about the sentiment of equality.... and requires that redistribution be achieved largely through inefficiency (authors note: subsidized irrigation, price supports, soil banks, etc.) economic allocations. We can conclude from its mere existence, which in part can be regarded as a social choice, that the existing distribution of wealth can claim considerable sanction."¹

Income does not necessarily have to be equal, but the opportunity to earn should be.

Peter Canessa - 1975