ABSTRACT: Using a case study of the Yakima River Valley in Washington State, this paper shows that relatively simple tools can be used to forecast the impact of the El Niño phenomenon on water supplies to irrigated agriculture, that this information could be used to estimate the significantly shifted probability distribution of water shortages in irrigated agriculture during El Niño episodes, and that these shifted probabilities can be used to estimate the value of exchanges of water between crops to relieve some of the adverse consequences of such shortages under western water law. Further, recently devised water-trading tools, while not completely free under western water law to respond to forecasted El Niño episodes (ocean circulation patterns), are currently being employed during declared drought to reduce the devastating effects of water shortages in junior water districts on high valued perennial crops. Additional institutional flexibility is needed to take full advantage of climate forecasting, but even current tools clearly could prove useful in controlling the effects of climate variability in irrigated agriculture. Analysis shows the significant benefit of temporarily transferring or renting water rights from low-value to high-value crops, based on El Niño forecasts. (KEY TERMS: climate variability; drought; water law; water man- agement; El Niño; southern oscillation; water markets; water transfers.) Scott, Michael J., Lance W. Vail, John Jaksch, Claudio O. Stöckle, and Armen R. Kemanian, 2004. Water Exchanges: Tools to beat El Niño Climate Variability in Irrigated Agriculture. Journal of the American Water Resources Association (JAWRA) 40(1):15-31. INTRODUCTION Interannual climate variability is a long-standing issue in agriculture and water management. Howev- er, over the last few years, atmospheric scientists and weather services in many parts of the globe have been able to recognize persistent patterns in climate vari- ability and even to successfully include some of the more obvious oscillations of climate in improved sea- sonal weather forecasts. One of the better understood phenomena is the so called El Niño-Southern Oscilla- tion, or ENSO, cycle in the equatorial Pacific Ocean, a three-to-five-year cycle of oceanic temperature and sea surface air pressure that influences weather pat- terns all over the planet and explicitly affects modern society (e.g., Glantz, 1996). Taking the effects of ENSO into account has allowed some managers of cli- mate sensitive resources such as rain fed agriculture, water supplies, or even public health care systems to better manage activities under their purview (NOAA, 1999; Stern and Easterling, 1999). Although simple use of El Niño conditions to forecast droughts and floods is not always as helpful as other techniques (Kane, 1997), policy analysts also have found addi- tional opportunities to take advantage of early infor- mation on ENSO and have explicitly calculated the value of improved information in agriculture (e.g., Adams et al., 1995; Solow et al., 1998; a number of studies mentioned by Mjelde et al., 1998, focused on rain fed agriculture). The California Irrigation Man- agement Information System weather data are used to guide weather based, water budgeting irrigation decisions with daily evapotranspiration data in 22 counties (Parker et al., 2000; Cohen et al., 1998). Mjelde and Hill (1999) looked at the economics of adjusting agricultural inputs such as nitrogen and crop insurance using seasonal forecasts. Still other authors have developed estimates of benefits for adaptive river management under uncertainty using improved seasonal climate forecasting based on El Niño and other quasi-periodic atmospheric cycles such as the Pacific Decadal Oscillation (PDO) (N. Mantua 1996, University of Washington, Seattle, 1 Paper No. 02072 of the Journal of the American Water Resources Association (JAWRA) (Copyright © 2004). Discussions are open until August 1, 2004. 2 Respectively, Staff Scientists, Battelle-Pacific Northwest Division, P.O. Box 999, Mail Stop K6-05, Richland, Washington 99352; and Pro- fessor and Ph.D. Student, Biological Systems Engineering Department, L.J. Smith 213, P.O. Box 646120, Washington State University, Pull- man, Washington 99164-6120. JOURNAL OF THE AMERICAN WATER RESOURCES ASSOCIATION 15 JAWRA JOURNAL OF THE AMERICAN WATER RESOURCES ASSOCIATION FEBRUARY AMERICAN WATER RESOURCES ASSOCIATION 2004 WATER EXCHANGES: TOOLS TO BEAT EL NIN ~ O CLIMATE VARIABILITY IN IRRIGATED AGRICULTURE 1 Michael J. Scott, Lance W. Vail, John Jaksch, Claudio O. Stöckle, and Armen Kemanian 2