What’s the Value of Water?

The answer to the question, “what’s the value of water?” is it depends. No surprise there, but to be clear, I’m not talking about the value of the water that runs out of your tap. I speaking of the value of water that is appurtenant to your farm or ranch land. What’s it worth in an of itself?

Well, Deborah Stephenson of DMS Natural Resources LLC, writing at Hall and Hall makes clear that the answer is in no way clear and depends on a number of things, including:

1. Quantity – The quantity of water that a water right yields.

2. Marketable Region – The feasible region in which the asset can be transferred to a new user.

3. Alternative Water Supply Options – Availability of existing water supplies and future water development opportunities within the region.

4. Water Quality – The quality of a water source can influence the suitability of a water right for a potential new use.

5. Reliability – The amount of water that is regularly available to the water right holder compared to the claimed or stated volume on the water right. The amount of water available is determined based on a combination of water source yields, hydrological conditions, and the water right’s legal attributes –  mainly priority date.

6. Seasonality – The period during which the water right holder can divert or withdraw water from the source.

7. Highest and Best Use – The highest value use to which the water right can physically and legally be put to use.

Using those seven criterion, you can arrive at an appraised value of the water in question. But that only gets you so far, Stephenson says. No, you also have to look at water in the operational context, and that assessment is based on three considerations:

1. Utilizing the water in the current agricultural operation.

2. Utilizing the water on-site, but changing the use to a non-agricultural purpose.

3. Decoupling the water and transferring it off the property.

You should be able to readily see that each of those factors will influence the value the water. I’m going to leave it at that. Stephenson covers the topic quite well, so click on the link above and continue–if you’re interested.