Capitalization of groundwater restrictions and woody encroachment in agricultural land values across Kansas

Abstract

Kansas spans a diverse range of agricultural landscapes. In the west, semi-arid cropland relies on irrigation from the declining High Plains Aquifer. In contrast, the eastern Flint Hills are dominated by native grasslands, where increasing woody plant cover is reducing grassland productivity and posing a risk to the livestock industry that supports the region’s agricultural economy. This thesis examines both regions in two different essays and evaluates how water curtailment policies and woody encroachment are capitalized into agricultural land values across the state. The first essay evaluates how groundwater curtailment policies affect irrigated cropland values in Kansas. This study assesses how the irrigated land market capitalizes the value of groundwater restriction policies, and how alternative policy designs and objectives differ in land value effects. We find that transactions within the state-imposed Walnut Creek Intensive Groundwater Unit Control Area (IGUCA), which was put in place in response to conflicts between agricultural irrigators and wildlife habitat, are discounted by as much as 18-19% whereas the locally driven Sheridan 6 Locally Enhanced Management Area (LEMA) shows no significant effect. Our results demonstrate that the capitalization effect can vary significantly based on the policy’s purpose and governance. The second essay examines the capitalization of woody cover into grassland transaction prices across major Kansas ecoregions using a hedonic pricing framework, with complementary survey evidence on stakeholder perspectives of woody encroachment. Together, the survey and hedonic price model results provide evidence for the complex nature of woody encroachment valuation in the Kansas grassland market. Survey results suggest a disconnect between the level of concern regarding woody encroachment and the observed economic impact. While most respondents view woody encroachment as a moderate to serious issue, they generally have not seen it affect pasture values or rental rates. Instead, the main obstacles to managing encroachment are the cost of control and limited availability of labor. We find that woody cover is capitalized positively into Kansas grassland transactions at currently observed levels of woody cover, with a one-percent increase in woody cover on a parcel associated with a 0.7% increase in transaction price per acre averages. These findings suggest that private market incentives alone are unlikely to motivate sufficient encroachment control, providing justification for public conservation programs such as the Kansas Great Plains Grassland Initiative (KGPGI).