Irrigation Restriction and Biomass Market Interactions: The Case of the Alluvial Aquifer Michael Popp, Lanier Nalley, and Gina Vickery The U.S. Geological Survey has determined that irrigation in Arkansas’ Delta is unsustain- able. This study examines how irrigation restrictions would affect county net returns to crop production. It also considers the effect of planting less water-intensive bioenergy crops—switchgrass and forage sorghum—in the event biofuel markets become a reality. Results suggest that sustainable irrigation restrictions without bioenergy crops would de- crease producer returns by 28% in the region. Introducing these alternative crops would both reduce groundwater use and may restore state producer returns, albeit with significant spatial income redistribution to crop production throughout the state. Key Words: biomass crops, ground water irrigation, spatial income redistribution, sustainability JEL Classifications: Q24, Q25, Q32, Q42, O13 In 2004, the Arkansas Natural Resources Commission (ANRC) estimated groundwater withdrawals in Arkansas at 6.5 billion gallons per day, a 70% increase from the amount used in 1985 and over twelve times that of 1945 (ANRC, 2007). Today’s irrigation level is un- sustainable in the sense that water use exceeds recharge. To reach sustainable pumping levels, the United States Geological Survey’s (USGS) 2006 estimates indicated that certain counties in the Arkansas Delta will need to reduce irri- gation pumping rates by as much as 67% from their 2004 usage (USGS, 2008). This is sig- nificant since approximately 63% of the state’s total water supply is sourced from groundwater, and further, 95% of that comes from the Alluvial aquifer in the Delta region of Arkansas (USGS, 2008). With water supplies declining in parts of the Alluvial aquifer, water-intensive agricultural production and associated processing industries are at risk in the near future. Other potential adverse effects are land subsidence, saline water encroachment, increased cost to well users and reduced base flow to streams and wetlands. Exacerbating this issue is the drilling of over 10,000 new wells in the Alluvial aquifer since 1997 (ANRC, 2007), which is likely a result of yield enhancement and yield risk reductions associated with irrigation. This study examines how Arkansas’ farm crop allocation in the Arkansas Delta might change if i) irrigation in the Alluvial aquifer was constrained to more sustainable levels; and ii) a hypothetical market existed for less water- intensive bioenergy crops. Though not yet a reality, commercial-scale biofuel production has potential in Arkansas. In contrast to the heavily irrigated crops currently produced in the Delta region of Arkansas, biofuel production Michael P. Popp, Lanier L. Nalley, and Gina B. Vickery are professor, assistant professor, and research associate, respectively, at the Department of Agricul- tural Economics and Agribusiness, University of Arkansas, Fayetteville, AR. The authors are grateful for funding from the Division of Agriculture for this research. Journal of Agricultural and Applied Economics, 42,1(February 2010):69–86 Ó 2010 Southern Agricultural Economics Association