UNIVERSITY OF CALIFORNIA COLLEGE OF AGRICULTURE AGRICULTURAL EXPERIMENT STATION BERKELEY, CALIFORNIA The Problem of Securing Closer Relationship Between Agricultural Development and Irrigation Construction DAVID WEEKS AND CHARLES H. WEST in cooperation with THE FEDERAL LAND BANK OF BERKELEY BULLETIN 435 September, 1927 UNIVERSITY OF CALIFORNIA PRINTING OFFICE BERKELEY, CALIFORNIA 1927 Digitized by the Internet Archive in 2012 with funding from University of California, Davis Libraries http://www.archive.org/details/problemofsecurin435week THE PROBLEM OF SECURING CLOSER RELATIONSHIP BETWEEN AGRICULTURAL DEVELOPMENT AND IRRIGATION CONSTRUCTION DAVID WEEKSi and CHARLES H. WEST2 In cooperation with The Federal Land Bank of Berkeley SUMMARY Irrigation Development in California. — The state of California comprises 100,000,000 acres. Of this, 29 per cent is agricultural land included in farms, 12 per cent is cultivated, 5 per cent is irrigated, and 8 per cent is under irrigation projects completed or partly constructed. Of the total area of the state 15 per cent may ultimately be irrigated. From 1909 to 1920 there was an increase of 58 per cent of the irrigated area of the state, but irrigation construction was provided for a larger area. Lag of Profitable Farming Behind Irrigation Construction. — The total area projects were equipped to irrigate in 1924 amounted to 6,700,000 acres. Of this, 1,200,000 acres, or about 18 per cent, were irrigable but not irrigated, and 5,500,000 acres, or about 82 per cent, were irrigated but not all of this was fully improved. Only 4,750,000 acres, or 71 per cent, were making good use of the water. In the projects in the state 400,000 acres of non-agricultural land, which is nominally assessed, were included. This land contributes little revenue to the projects, but is included because the larger total acreage results in a smaller average cost per acre for construction, which helps in promotion and financing. In addition, there are approximately 1,000,000 acres of irrigable land in projects for which construction has not yet been provided. If future settlement of irrigated land takes place at the same rate as during the past five years, it will take from fifteen to twenty years to develop all of the land for which construction has already been provided. This lag between the date of construction and the full utilization of the water is a costly maladjustment that may be accounted for in many ways. Possible Causes of Maladjustments. — Although it may not be pos- sible so to adjust the relationship between irrigation construction and i Associate in Agricultural Economics. 2 Assistant Agricultural Economist in Experiment Station. 4 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION agricultural development that delay is entirely eliminated, thorough knowledge of the causes underlying the lag is necessary for any improvement. Factors urging irrigation construction operate without regard to the rate of agricultural development. The cost of irrigation construction is continually increasing. Agricultural development is adversely affected by the over-supply and increasing cost of irrigation construction and land development. Many factors that have no effect on irrigation construction retard agricultural development. Among such factors are unforeseen costs and the difficulty of finding settlers with adequate capital and skill. General business conditions affect irrigation construction and land settlement in opposite ways. There is a direct relationship between the rate at which irrigation projects are organized in California and interest rates on 60- to 90-day paper in New York City the previous year. Since high prices and high interest rates tend to accompany each other, interest rates usually reaching their high point just after the peak of high prices, irrigation construction tends to be most active during periods of high prices. Land settlement, on the other hand, is more active in periods of depression and resultant unemployment, when prices of all commodities are low. Among the factors urging irrigation construction may be men- tioned political influence, booster organizations, the desire of farmers to shift from dry farming when it ceases to be profitable, increasing scarcity of water rights, and speculation in land. Numerous factors operate to retard land settlement. There is a tendency toward larger projects having greater economic problems. Construction costs increase with each succeeding project. With increased costs of irrigation works and land development, more capital and skill are required for success. Capital requirements for creating irrigated farms exceed the amount possessed by prospective settlers. It is, therefore, more difficult to find settlers. The tendency to dis- regard many of the important items of cost also delays settlement. Fear of overproduction, at times, is a retarding element. Including within projects large amounts of poor land has a very undesirable effect upon the rate of settlement. Even with adequate skill and apparently ample capital, unforeseen costs often result in failure. The items that make up the total cost of the producing farms are (1) cost of raw land, (2) cost of irrigation works, (3) taxes paid before the land can use the water, and (4) the cost to improve and equip the farm. The price of raw land in irri- gation projects varies from $50 to $300 an acre. This cost is known, BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 5 but the cost of irrigation construction is often thought of as paid in full when construction may continue for years, the cost of district taxes before the land is brought into production is often completely overlooked, and the cost to improve and equip the farm is usually underestimated. The fact that this latter cost is much higher when done by an inexperienced farmer, knowing little about farm layout and with makeshift equipment and insufficient teams and labor, than when properly planned and done by experts with good tools and equipment, is another fertile source of disappointment. Capital requirements at the present time are far beyond the means of the average settler. A 30- or 40-acre dairy farm on land valued when undeveloped at $250 an acre represents, when sufficiently equipped for economical production, an investment of more than $20,000 and necessitates a cash outlay during this development period of approximately $17,000 in excess of farm income. This includes land purchase, development costs, and family living until the farm comes to full production. A part of the capital required by such a farmer may be furnished through existing credit agencies if his equity pro- vides sufficient security, and a share may be assumed by the land company in the form of credit on the purchase price, but the farmer must have the balance, or he, or members of his family, must earn it by working outside of the farm during the period of development. Orchards require still more capital, and financial problems in their case are complicated by the length of time needed for trees to come into bearing. Effect of Price Changes on Cost of Farm Development and upon Repayment of Development Costs. — To construct irrigation projects in times of high prices such as prevailed during the war may make the idtimate cost more than 50 per cent greater than in normal times. Projects constructed in times of a gradual decrease in the general price level extending over years will require a larger margin between the estimated cost and the sale price of land than if the general price level were rising. Farmers who bought and developed their farms in any year prior to 1919 made improvements under conditions of cost which were as good or better than those which have confronted the farmer making improvements in any year since. The farmer developing prior to 1918 had the added advantage of an increased ability to make repayment during the years 1918, 1919, and 1920, due to high prices for commodities sold. Farmers purchasing farms and improving them in 1919 and 1920 were unfortunate and will be compelled to write off some of their invested capital. Although costs of development may 6 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION be greater, farmers purchasing farms and making improvements since 1922 may be able to make repayment more easily than if they had purchased and developed their farms before the war. However, the opposite may be true. Various combinations of the elements of income and expenditure give widely varying results. It cannot be said with- out investigating each particular case on its own merits that it is more advantageous, or less so, to develop land since 1922 than it was before the war. Overproduction. — California agriculture has enjoyed unusual pros- perity. Because much of the land in California is suited to fruit and truck crops, the tendency has been to convert general crop lands into intensively cultivated fruit and truck land as fast as possible. This has raised the question whether California agriculture can in the future maintain the same degree of prosperity. Since, however, the lag of agricultural development has been characteristic of irrigation construction in the past, both in periods of prosperity and of depres- sion, it may be concluded that there are other factors, and that over- production is not the primary cause, though it may at times aggravate the situation. A study of crop adaptation from an economic, as well as a physical standpoint, should help in the solution of this problem. It is still possible for some farmers to develop farms at a profit. Land Qualities Materially Affect the Bate of Development. — A large proportion of the best soils have already been provided with irrigation facilities. Future projects will include increasingly larger amounts of poor soils. These lands develop slowly because their improvement is less profitable than the improvement of fertile soils having the same development costs. Moreover, they are more expen- sive to improve than fertile lands largely because of the added cost of delayed settlement. In one-third of the irrigation districts of California, there is very little unirrigable land. In ten districts from 10 to 20 per cent of the assessed area is unirrigable. In eight from 20 to 30 per cent, and in four from 30 to 40 per cent of the assessed area is unirrigable. Policies of Irrigation and Agricultural Development. — The coordi- nation of agricultural and irrigation development is difficult. Once a project is begun, prompt settlement is necessary. The problem is one, then, of constructing only projects which are feasible when all of the elements of cost are considered, and of developing a plan of land settlement whereby prompt utilization of irrigation construction will take place. The feasibility of the project can only be determined by Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 7 careful engineering and economic analyses. A large element in the success of the projects is the accuracy with which the time required for settlement can be gauged and estimates of the cost of delay com- puted. Costs incident to the purchase of raw lands and the construc- tion of irrigation works are no more important than costs incident to holding undeveloped land after construction, and to the improving and equipping of farms. Feasibility surveys must include careful soil surveys to determine the productive capacity of the land. The project is not feasible unless the soils produce enough to make farming profit- able after project operation and maintenance and interest on the construction cost is deducted. In making estimates of costs and of income, changing prices of materials used in construction and of products sold by the farmer must be given careful attention. Projects must be studied with reference to trends of production of crops adapted to them and with reference to business conditions. In addition to determining the feasibility of irrigation projects and working out a sound land-settlement policy, consideration should be given to the timing of irrigation development more nearly in accord with the demand for land by prospective settlers. INTRODUCTION Irrigated agriculture in the last analysis, is an economic problem, and yet, in over seventy-five years of California irrigation history, very little literature has been produced dealing with the economics of irrigated agriculture. Innumerable publications cover the technical problems of agricultural production and of irrigation operation and practice, but the economic side of the problem has been neglected. Little information can be found that enables one to determine whether irrigation projects have been, or are likely to be, profitable under- takings from the standpoint of the owner-operator of the irrigated farm. Irrigation development in California has been phenomenal. Thousands of comfortable homes have been established and paid for from the proceeds of irrigated farms ; however, it is a familiar fact to many living in the west that much irrigation development has been unprofitable to those financing the construction of irrigation projects, but the extent of the loss sustained is known only to students of irrigation development. It is difficult today to interest private capital in any irrigation development. While little is known of the losses of private capital in irrigation construction, there is still less information 8 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION available to show what success has been attained by individual farmers in the building of irrigated farms. From those closely in touch with irrigation development has come the saying, "It takes two crops of settlers to make the third stick." The history of irrigation develop- ment from the standpoint of the settler has never been written. Such a history would be a valuable aid to those who must undertake the development of farms in the near future. In the development of farms from raw land in the regions where irrigation is not necessary, the work of clearing, breaking sod, and other operations in the preparation of the land for cultivation, do not require much cash outlay, and while the pioneer may barely succeed in making a living for himself and family by dint of much hard labor, he can develop a farm for his sons to operate. In irrigated agriculture, there is the additional outlay to pay the cost of storing and transporting the water to the land. When irrigation was first practiced, the individual farmers could construct their own canals, but as large projects became necessary, the aid of outside capital was enlisted. At that stage, consideration was given principally to the problem of engineering. Because of the resulting failures, it became necessary to enlist the aid of the states and the federal government. The United States Reclamation Service in 1906 estimated that completed irrigation works would cost from $5 to $12 an acre. 3 In 1925, Congress approved appropriations for the construction of works to irrigate 350,000 acres at an average cost of $120 an acre. When irrigation works could be cheaply provided, there was sufficient spread between the cost of construction and the sale price of improved land to justify some of the risks involved in developing a farm. In those days farming was more a mode of living than a business. Less capital was involved and much of the family living was produced on the farm. Since the organization of the United States Federal Reclamation Service and the successful operation of the irrigation- district law from about 1897, more attention has been given to the relation of construction costs to soil quality and crop adaptability, but it was not until the close of the war that serious attention was given to the problem of the settler and the relation of the cost of irrigation to the cost of farm development. We are just beginning to realize the difficulty of the problem confronting the settler. Many projects are rated as successes even though a large proportion of the original settlers failed, because, eventually, after writing off the losses and s Statement of the Commissioner of the U. S. Bureau of Keclamation, Dr. Elwood Mead, at the annual meeting of the American Society of Agricultural Engineers, Lake Tahoe, June, 1926. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 9 making the necessary adjustments, farming became profitable and flourishing communities were established. In considering the success of the community, the failures of the individual have been overlooked. If, however, by planning, regulation, or education, the growth of agriculture under irrigation may take place in such a manner as to be more profitable to the individual, the results will be beneficial to the state in every way. Projects that are now constructed involve a large investment extending over a long period of years. The engineering feasibility has usually been carefully determined, and detailed study made of that part of the construction costs which will be undertaken in the next ten or fifteen years, which may be only a third or a half of the ultimate required construction. The agricultural and financial problems of the individual and the economic and agricultural problems of the project as a whole are scarcely considered. Contrast with this the statistical analysis involved in projecting the expansion of one of our large public utilities. Because of the magnitude of the projects to be built in the future, the risk, both to the individual and to the project administration, is greater and demands more study and planning of all phases of the problem. This bulletin outlines the economic problems involved in the development of agriculture under irrigation. Part I has been pre- pared to give a general statement of important characteristics of irrigation development with an analysis of the degree to which irri- gation works have been constructed and utilized. Part II contains an analysis of the factors that have most effect upon the lag of agricul- tural development behind irrigation construction. One of the prin- cipal causes of delay in settlement is lack of knowledge concerning the costs of land development, and another, the amount of capital needed to undertake the development of land when favorable con- ditions exist. In presenting the discussion on this subject, the writers had two objects in view, first to show the economic factors involved and their relation to retarded development, and secondly to present the material in sufficient detail to be a guide to farmers anticipating the purchase of land in irrigation projects of this state. 10 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION Part I. The Irrigation Situation in California Since the beginning of irrigation development in 1850, more than 7,000,000 acres have been included in irrigation projects in California. Not all of this area, however, has been completely utilized. In 1924 about 5,500,000 acres were using the water provided by the projects. A portion, amounting to about 400,000 acres, is not suitable for irri- gation, and about 1,200,000 acres of land, provided with a water supply which is suitable for irrigation, have not been irrigated. Of the 5,000,000 acres irrigated, 750,000 acres are not farmed intensively enough to meet the costs incident to farm operation and the payment of irrigation taxes. TREND OF IRRIGATION DEVELOPMENT Prior to 1850, cattle raising was the principal industry in Cali- fornia. Then came an era of enormous dry-farmed grain enterprises on the virgin soils of the great interior valley. Irrigation was prac- ticed to some extent by 1856 and has increased steadily since. Figure I shows the trends in the area of improved land and in the area of irrigated land from 1850 to 1920. The period from 1909 to 1919 was one of great expansion. The irrigated area of the state increased 58 per cent. More than one and one-half million acres of new land were brought under irrigation and 29,743 new farms were created. In these ten years, more land was brought under irrigation in California than in any other three western states. The irrigable area of the state included in projects and not irrigated increased 720,152 acres, or 75.3 per cent, amounting to 1,675,426 in 1919, according to the U. S. Census. From 1919 to 1925, there has been less irrigation construction, the tendency being to develop projects begun rather than to commence new ones. It is estimated that the irrigated area of the state has in five years increased 500,000 acres. Land Irrigated in 1919. — The U. S. Census reports 4,219,040 acres irrigated in California in 1920 and the area enterprises were capable of irrigating as 5,894,466. Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 11 Professor Frank Adams of the University of California, cooperat- ing with the Division of Irrigation Investigations, United States Department of Agriculture and the State Department of Public Works, in preparing the irrigation map of California in 1919, mapped all of the land provided with irrigation ditches still in condition for use. Growth of Area in Improved Farm Land and in Irrigated Farm Lands in California jp'O 5 "*• — Impr oved Ft jrm La nd \ k 1 Irr gated , ~arm Lc mds *s ^s y s ^.a* 1 s o .^ 00 ~~ Fig. 1. — Data for area of improved farm land from: Department of Com- merce Bureau of the Census. State compendium California. 1921:63, table 2. 1924. Data for area in irrigated farm lands from: Department of Commerce Bureau of the Census. State compendium California. 1920:99, table 2. 1924. The irrigated area in 1919, according to the census, is 4,219,040 acres. The U. S. Division of Irrigation Investigations gives 5,030,986 acres as the irrigated area in California in 1919. It was found that "5,999,300 acres had been and was being served when water was available. ' H This figure has been reduced to 5,030,986 acres by subsequent planimeter readings made by the United States Division of Irrigation Investigations. 5 4 Fletcher, Austin B. California Dept. Public Works. Biennial Rept. 1922 (part 3) :53. 1922. s Hutchins, Wells A. Comparison of figures on irrigated land. U. S. Divi- sion of Irrigation Investigations and Bureau of the Census. (Typewritten rept.) 8p. 1921. 12 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION The classification used in the preparation of the map is as follows : (a) "all land irrigated during the season in which the field investigation was made; (b) "all land irrigated in recent years (generally within the past five years) and which, though not irrigated, would evidently be irrigated again in the near future ; (c) "all land ditched and checked or otherwise prepared for which a water supply was visible." The discrepancy between the figure of the census and the estimate made by the Division of Irrigation Investigations is summarized by Hutchins. 6 The two sets of figures do not purport to show the same thing. The census shows the land irrigated in 1919, while the survey of the Division of Irrigation Investigations show not only land irri- gated in 1919 but also land which had been irrigated in previous years when more water was available, and also land for which there was a visible water supply prepared for irrigation for the first time in 1920 and, in some sections of the state, in 1921. Differences in the basis of classification accounts for a large additional acreage obtained by this survey. Census enumerators in parts of the Sacramento Valley and in Southern California failed to report all of the land irrigated. The Division of Irrigation Investigations believes that their figures "are much nearer the truth than are the census figures due to the thorough field investigations .... and to the fact that information given by outside persons was not accepted without a satisfactory check of its reliability." Recent Increase in Area of Reclamation and Irrigation Districts. — Since 1913, the area in irrigation districts in California has increased more than 400 per cent. In the Sacramento Valley the area in reclamation districts increased 250 per cent since 1910, and in the Delta of the San Joaquin and Sacramento rivers, 80 per cent. The increase in both types of districts amounted to 2,770,000 acres. In the Sacramento Vallej^ and the Delta area the problem has been one first of flood protection, and second of irrigation. Reclamation, in the sense of flood protection, has been provided by the organization of reclamation, levee and drainage districts. At first reclamation in the Sacramento Valley was haphazard, for there was no general plan of flood control. In 1894, the California Debris Commission was created by the federal government to supervise placer mining and protect navigation. In 1911 the State Reclamation Board was organized, and in 1913 the Sacramento and San Joaquin Drainage Districts was e Loc. cit. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 13 Acreage Included in Reclamation, Levee, and Drainage Districts Sacramento Valley, Reclamation Projects in the Delta Area, and the Combined Acreage in Both erom 1865 to 1925 // IN io I- / ^ ■ i / i / / s* S" ,./ ,./ / / / / _/ , — " s / f* // I ij " 1 '"" ,^*"""~ y /J #-- — * I8GS 75 85 Sacramento Va/ley Def-ra Areas Combined Areas 1905 15 Fig. 2. — Sonic reclamation districts have changed their boundaries many times. It is impracticable to determine the exact area of each district each year. The area of these in 1924 was used throughout with date of original organizations in making the curves above. The delta area, comprising 423,000 acres, has 334,000 acres included in reclamation districts, and 89,000 acres in privately owned projects. It was assumed that private development in this area took place about as rapidly as the development through reclamation dis- tricts, and the curve above includes both. In the Sacramento Valley, there are 768,763 acres included in reclamation, drainage and levee districts, all of which, while differing in organization, serve practically the same purpose. Practically all the land in the Sacramento Valley including the Delta area, which is subject to flood menace, is now included in the organized districts. 14 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION formed for the purpose of carrying out the plan of reclamation adopted by the state and federal governments. In the Sacramento Valley there were about 200,000 acres of land in organized reclamation districts in 1911, and from 1911 to 1922, approximately 500,000 acres more were included in active districts. In the Delta, comprising 423,000 acres, approximately 190,000 acres of new lands were included in districts between 1910 and 1922. The curves in figure 2 show the amount of lands that were included in reclamation, levee, and drainage districts in the Sacramento Valley and in reclamation projects in the Delta area, and combined develop- ment in both areas. The curves show a rapid increase in the organi- zation of reclamation districts in the overflow area of the Sacramento River since 1910, and particularly since the beginning of the war. Practically all of the lands in the Sacramento Valley and Delta area that were subject to overflow, have now been included in reclamation, levee, or drainage districts, and although only part of the land is now irrigated, no doubt most of it will eventually be brought under irrigation. The curve in figure 3 shows the varying amounts of land included in active irrigation districts since 1887. In 1913 there were approxi- mately 640,000 acres in irrigation districts, but since that time, 2,080,000 acres of new land have been included. There were in 1924, sixty-five irrigation districts that own, or are constructing, their own irrigation system, and that have a combined area of 2,719,000 acres. Most irrigation districts have been organized to expand or increase the efficiency of existing irrigation systems. To improve this service and increase canal capacity, however, has required much new con- struction involving large expenditures. Analysis of the Character of Recent Development. — Irrigation development in this state will in the future require the construction of large projects and these, no doubt, will be built by irrigation or water-storage districts. Since 1910, pumping machinery has been used extensively by irrigation projects obtaining their water from streams and lakes, and is increasing in importance. Together with storage, it will inevitably be the chief factor in irrigation expansion. There are approximately 1,000,000 acres irrigated by wells and individual pump- ing plants, and the balance is irrigated from streams and lakes. The use of wells for irrigation purposes is comparatively a recent develop- ment. Between 1909 and 1919, 500,000 acres of new land were brought under irrigation from this source. The limit of available ground water, however, is being approached. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 15 Although the 1919 census shows only 20,351 acres of land to be entirely dependent upon storage, a much larger area is supplied by gravity supplemented by storage, and in the future, storage will neces- sarily be the chief source of supply. Table 1 is presented to show the character of development which had taken place prior to 1919 with particular reference to the source of irrigation supply. Area Included in Irrigation Districts Each Year Since 1887 z 1885 1900 t915 1930 Fig. 3. — On account of the numerous changes in the boundaries of irrigation districts, it was necessary to use the present area of the districts in making the curve shown above. These data for 1924 include all of the districts (65 in number) that own or are constructing their irrigation systems. 16 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION TABLE 1 Irrigated Area of California 1909 and 1919 from Each Source of Water Supply and the Percentage of Increase in Irrigated Area from Each Source of Supply. Also Undeveloped Irrigable Area for which Irrigation Works are Constructed Irrigated by Acres 1919 Per cent of total Acres 1909 Increase Per cent of increase* Propor- tion of total increasef Gravity: Streams Lakes Springs Storage Total gravity Gravity and pumped Pumped: Streams Lakes Total pumped Wells: Pumped Flowing Flowing and pumped Total wells Gravity and wells Miscellaneous Grand Total Acreage enterprises were capable of irrigating Irrigable area Acreage included in enterprises :,564,445 48,084 27,698 20,351 ,660,578 60,278 295,673 4,168 299,841 826,846 17,653 23,561 868,060 92,152 238,131 ,219,040 ,894,466 ,675,426 ,805,207 60.78 1.14 0.66 0.48 63 06 1.43 7.01 0.10 7.11 19.6 0.42 0.55 20 57 2 18 5 65 100 00 2,216,757 15,896 31,799 16,410 2,280,862 60,278 29,965 2,574 32,539 276,595 74,128 350,723 2,664,124 3,619,378 955,274 5,490,360 347,688 32,188 -4,081 3,941 279,736 265,708 1,594 267,302 550,251 -56,475 23,561 517,337 92,152 238,131 1,554,936 15.68 202.50 -12.84 24.02 886.73 61.93 821.48 198.94 -76.19 147.50 22.36 2.07 0.25 24 42 3 88 17.08 0.10 17.18 35.38 1 52 33 27 5 94 15 32 100 00 * Percentage is obtained by dividing increase by 1909 area and expressing as a percentage, t Proportion of total increase is obtained by dividing the increase in any class by 1,554,936, the grand total increase from 1909 to 1919. IRRIGABLE LAND IN CALIFORNIA IRRIGATION PROJECTS WHICH WAS NOT IRRIGATED IN 1924 It is estimated that in 1924 approximately 1,200,000 acres of irrigable land in irrigation projects of the state were ready to be prepared for irrigation. The following discussion shows the distri- bution of this land according to the type of projects in which it is located. Irrigation Districts. — Of the gross area of 2,719,000 acres included in sixty-five irrigation districts in 1924, 2,257,000 may ultimately be irrigated. Of this, 1,877,000 acres were provided with irrigation facilities and 1,475,000 acres were irrigated. Table 2 shows the general distribution of irrigable land included within California irrigation districts in 1924 which was not irrigated in that year. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 17 The difference between the two figures is approximately 400,000 acres, the amount of good land provided with irrigation facilities and included in the irrigation districts of the state, which is not using the water. 7 TABLE 2 General Distribution of Irrigable Land Included within California Irrigation and Eeclamation Districts in 1924 which Was Not Irrigated in that Year Reclamation districts of the Delta region Reclamation districts of the Sacramento Valley California irrigation districts Irrigable acreage unirrigated Number of districts Irrigable acreage unirrigated Number of districts Irrigable acreage unirrigated Number of districts 0-999 52 0-999 10 0-999 24 1000-1999 3 1000-1999 6 1000-1999 12 2000-2999 2 2000-2999 2000-2999 4 3000-3999 1 3000-3999 1 3000-3999 3 4000-4999 2 4000-4999 2 4000-4999 5 5000-5999 1 5000-5999 5 5000-9999 6 10000-14999 2 10000-14999 4 15000-19999 3 15000-19999 1 20000-24999 1 20000-24999 25000-29999 25000-29999 1 30000-34999 1 30000-34999 1 35000-84999 35000-39999 85000-89999 1 40000-134999 135000-139999 1 Reclamation Districts. — The reclamation districts of the state are principally in the Delta area and in the Sacramento Valley. A few are scattered throughout the state, but most of these are included in other projects and their irrigable area is accounted for in the figures for the other types of organization. In the Sacramento Valley the reclamation, levee, and drainage districts have an area of 768,763 acres, of which approximately 700,000 acres may ultimately be irrigated. In 1924, 580,000 acres were con- sidered irrigable and 300,000 acres were irrigated. The difference, 280,000 acres, is the irrigable area not irrigated but provided with 7 In estimating the area ultimately irrigable, lands entirely unsuited to irrigation, as well as townsites, roads, canals, and railroad rights of way were deducted from the gross area within the the irrigation projects. The irrigable area of 1,877,000 in 1924 included only land having an adequate water supply and ample irrigation facilities; alkali land and poorly drained land were excluded. Lands fall-irrigated prior to seeding of dry grain and lands having a large annual cost for irrigation but used temporarily for pasture were not considered irrigated. Rice lands are usually planted to rice for two years in succession and then fallowed one year, or are planted to rice every other year. In rice districts, therefore, the area actually growing rice was doubled to deter- mine the irrigated area. General crop and fruit lands that are sub-irrigated and orchards that are irrigated only in dry years were included as irrigated lands. 18 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION irrigation equipment in the reclamation districts of the Sacramento Valley. 8 Table 2 shows the general distribution of irrigable land included within reclamation districts of the Sacramento Valley in 1924 which was not irrigated in that year. About one-third of the lands in the Delta area are irrigated by siphoning and two-thirds by pumping from the river where the lift is only a few feet. Reclamation here is practically completed, and because of the relatively small cost to provide these lands with irri- gation facilities, those producing crops have been considered irrigable. Of the 423,000 acres in the Delta area, 338,400 acres, or 80 per cent, produced crops in 1924, but only 260,000 acres were irrigated. The 78,400 acres of dry-farm crops on these expensively leveed lands have been considered irrigable. Table 2 shows the general distribution of irrigable land included within reclamation districts of the Delta region in 1924 and not irrigated in that year. These 78,400 acres in the Delta area, added to the 280,000 acres in the Sacramento Valley, give a total of 350,000 acres irrigable but not irrigated in the reclamation districts. Mutual and Public-Utility Water Companies. — There are certain large mutual and public-utility water companies outside the irrigation, reclamation, and water-storage districts which can irrigate more land than they serve at present. This additional irrigable area is estimated at 75,000 acres. Water-Storage Districts. — The direct flow from the Kings, Kern, and San Joaquin rivers is all appropriated and put to beneficial use. The irrigated area on these streams can be increased by the creation of the water-storage districts that are being developed, or by the use of ground water which, however, is approaching the limit of profitable development. In these areas there is practically no irrigable land now provided with a water supply which is unimproved. Individual and Partnership Enterprises. — The above figures do not include the irrigable area in individual or partnership enterprises. The land served by wells and small gravity diversions is of this class. In 1919, the census reported 515,000 acres irrigable by these small systems, but not yet using the water. From 1919 to 1924 the 8 It will require relatively a small expenditure to provide irrigation facilities for the 120,000 additional acres that are irrigable. Certain landowners have not cared to use the water and consequently the distribution systems have not been constructed to serve them. However, since these parcels are not con- tiguous and the distribution systems extend all around them, the cost of com- pleting the systems will be small. The largest expenditure will be for the completion of reclamation. The area considered irrigable in 1924, 580,000 acres, was that for which irrigation construction had actually been provided. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 19 undeveloped irrigable area in large projects decreased 286,000 acres. At the same rate of decrease in the undeveloped irrigable land served by individual ownerships, 375,000 acres of such land was irrigable and undeveloped in 1924. Totally Undeveloped Irrigable Land. — Summarizing the area of undeveloped irrigable lands in irrigation and reclamation districts, mutual and public-utility companies and individual and partnership ownerships, we have a total of 1,200,000 acres of irrigable lands within projects which are not irrigated. A summary of these figures is given in table 3. TABLE 3 Acreage of Undeveloped Irrigable Land* Acres Irrigation districts 400,000 Reclamation districts 350,000 Mutual public utility companies 75,000 Individual and partnership ownerships not irrigated 375,000 Total irrigable area not yet improved 1,200,000 * These figures show merely the land for which irrigation construction and a water supply has been provided which is of a similar quality to lands now irrigated in the various projects. No attempt has been made to point out how much of this it is profitable to develop under present economic conditions. Conceivably, the area suitable to economic development may fluctuate from zero to the entire area as economic conditions change from extreme depression to extreme prosperity. However, the owners of this land are now paying taxes for a service that is not being used. Much of the undeveloped irrigable land is dry-farmed grain land. In California there is much irrigated land that is unimproved or only partly improved. Most of the irrigated grain is grown on good land that has not yet been leveled and checked and some of the irrigated pasture is similar land. Much leveling and checking is imperfectly done the first time and must be improved from year to year until it is satisfactory. It is impossible to determine the amount of partly leveled land in the state growing crops, but the area is large. Some soils, though properly leveled and checked, are deficient in humus and other available plant foods and therefore fail to produce good crops for several years until, through cultivation and cropping, these deficiencies are eliminated. The gradual building up of agricul- tural production on newly irrigated land by improving the leveling, checking, and ditching, and increasing the soil fertility through crop- ping is a common observation. Good irrigated land is built up ; it is not produced in one season. The area being irrigated includes, then, much land which is utilized for grain and pasture or which is devoted to the production of crops which might give good returns under intensive farming methods and fully prepared land, but which in their present condition are not producing sufficiently to pay the expense of operation. 20 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION Land Devoted to Irrigated Crops Not Yet Completely Developed. — Besides the irrigated grain land which is practically unimproved so far as irrigation is concerned, there is a large area devoted to irrigated crops not yet farmed intensively enough to pay the expenses of farm- ing. This fact was brought out through a cooperative research carried on by the Federal Land Bank of the Eleventh District and the University of California. In this investigation 933,605 acres were included. This was all within irrigation and reclamation districts. Of this area, 347,822 acres were classified in detail. Farm economic TABLE 4 Land Utilization in the Delta, in Keclamation Districts of the Sacramento Valley, and in Irrigation Districts* 1924 Crops Delta area Sacramento Valley Irrigation districts Duplicated areaf Net total Irrigated lands: Acres 16,180 212,088 30,928 1,035 Acres 63,235 55,000 5,628 22,920 76,357 223,140 301,074 244,549 545,623 Acres 272,518 970,959 136,428 51,716 35,479 1,467,100 18,320 32,027 142,499 1,059,113 1,251,959 Acres 3,190 9,118 3,822 22,515 32,177 70,822 25,638 89,818 115,456 Acres 348,743 1,228,929 169,162 53,156 79,659 260,231 78,416 84,353 162,769 1,879,649 Unirrigated lands: 18,320 32,027 496,351 Idle 1,298,197 1,844,895 Total unirrigated and irrigated area 423,000 768,763 2,719,059 186,278 3,724,544 * Along the river where the land has recently been flooded, the dry-farmed grain crops are very good. Crop data are based upon 1924 records of land irrigated from Sacramento River, reported by Water Supervisor of the Sacramento River, and upon field observation in going over the area. Crop data for the irrigation districts were obtained from the offices of the various irrigation districts. t Irrigation and reclamation districts in California overlap. The duplicated area is that part of Reclamation District No. 2047 included in irrigation districts. investigations were made to substantiate the classification. On the basis of this more intensive classification, the whole area was classified as to quality of land utilization. These districts are representative of the irrigation districts of the state as a whole, although the two oldest districts are not included. Some of the projects were recently constructed, some are from six to ten years old, and two are large, well-established projects that have been in existence many years. The irrigated agriculture was mapped to show the area producing good, fair, and poor crops. The area of dry grain and idle land was also determined. Studies were made of the financial condition of farms in the area producing good, fair, and poor crops, in order to estimate Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 21 how much of the land in the projects was self-sustaining. The small amount of land producing good crops was somewhat disappointing. Table 4 shows the land utilization in California reclamation and irrigation districts. Irrigated land used for grain and pasture was classified as producing poor crops because the returns are usually insufficient to pay district taxes and interest on the investment. The results of the detailed studies on the 347,822 acres were used in obtaining a basis of making more general estimates of the 933,605 acres. The results of the survey are given in table 5. TABLE 5 Extent of Economic Utilization of Land in Irrigation and Keclamation Districts of California Land classification according to condition of crops Combined irrigation and reclamation districts Irrigation districts Reclamation districts In irrigated area:* Acres 188,837 130,885 144,618 464,340 301,073 168,192 469,265 933,605 Per cent 40.6 28.2 31.2 100 Acres 58,337 49,335 57,170 164,842 Per cent 35.4 29.9 34.7 100 Acres 130,500 81,550 87,448 299,498 301,073 168,192 469,265 768,763 Per cent 43.6 27 2 29 2 Total 100 In unirrigated area: Total 164,842 * The classification includes an allowance of one acre of fallow land for each acre of rice, classified the same as the rice crop produced. Of the 464,000 acres of irrigated land classified in table 5, 118,000 acres were in fruit and of the remaining 346,000 acres, 144,600 acres, or 42 per cent, were poorly farmed and only partly developed. Of the 1,879,649 acres of irrigated crops accounted for in table 4, practically 350,000 acres were fruit, and 1,530,000 acres were other irrigated crops. Of the latter, 220,000 acres, or 14% per cent, were irrigated grain and pasture. Assuming all this fruit acreage is fully developed and applying the results of this survey to the irrigation and reclamation districts of the state, the poorly farmed area would be 42 per cent of the 1,530,906 acres of irrigated general crop land, or 640,000 acres. 9 9 This seems a fair estimate of the condition of the general crop land of the irrigation and reclamation districts. Sampling has been done carefully and actual observations made of these sample areas. The condition in one of these sample areas that is better than the average, illustrates a condition 22 UNIVERSITY OP CALIFORNIA EXPERIMENT STATION There are more than 3,000,000 acres of irrigated land outside of these districts, much of which is highly developed. Much of the land that is not farmed intensively enough to be self-sustaining is new land that will increase in production as it is farmed. Not all of the land planted to fruit and vines has been properly prepared and the trees may not come into bearing. Some must be releveled and replanted. It is estimated there were in 1924, 750,000 acres of irri- gated land in California that had not yet been prepared for irrigation, or that were only partly prepared and must be improved before profitable farming will result. 10 If we accept the estimate of the United States Division of Irri- gation Investigations as the irrigated area in 1919 and add 500,000 acres which has been estimated as the growth during the five-year period from 1919 to 1924, the total irrigated area in 1924 would have amounted to about 5,500,000. Adding to this 1,200,000 acres of irrigable land provided with construction, the total was then 6,700,000 acres, 11 per cent of which was not farmed intensively enough to pay costs of farm operation and irrigation taxes, and 18 per cent of which little realized or understood by the general public. In this district the follow- ing findings were the result of a careful survey by the writers based upon classification and economic studies of farmers' financial condition. "The area of the district in bad condition agriculturally is 25.7 per cent of the irrigable area; the area of the district in poor condition agriculturally constitutes 31.0 per cent of the irrigable area; the area of the district in fair condition agriculturally constitutes 31.6 per cent of the irrigable area; the area which is in good condition constitutes 11.7 per cent of the irrigable area. From deductions made by comparing financial statements from farmers with the above classification, it seems probable that 56 per cent of the land within the district must obtain capital from outside sources to meet even present obligations for irrigation and general taxes, and in view of inevitably increasing taxes the question of how long money can be obtained to carry these charges becomes problematical. On 44 per cent of the irri- gable area the farmers are increasing their inventories from year to year, and although a strict business analysis of many of the farming enterprises would show an inadequate return for capital and labor, the economic condi- tion is sound provided drainage conditions do not become worse either in the matter of rising water table or alkali accumulation. " !0 In connection with this statement of the irrigation situation in California, it is interesting to observe conditions in other parts of the west. The United States Keclamation Service classified the farms of all their projects according to appearance of the crops in 1925. Their figures do not show the area, but their classification in terms of the total of farms are as follows: Per cent 6,208 farms producing excellent crops 17.8 14,427 farms producing good crops 41.5 10,705 farms producing fair crops 30.8 3,459 farms producing poor crops 9.9 These farms have a total area of 1,290,890 acres. The total area of the projects in which they are located is 3,063,206 acres. The omission of idle lands from this classification must be considered in making comparison with the California classification. Also, the basis of land classification was probably different. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 23 was not irrigated at all. If census figures be used (1919) and the half -million acres of irrigated land developed in the five years follow- ing be added, then the land not farmed intensively enough to pay costs amounts to 12.5 per cent, and the irrigable land in projects not irrigated to 20 per cent of the total irrigable area. LAG BETWEEN IRRIGATION CONSTRUCTION AND PROFITABLE FARMING The large amount of irrigable land not using the facilities pro- vided, and the amount partially developed, emphasizes the delay between irrigation construction and the development of profitable farms. This lag is an expense to all of the lands developed, for the longer the delay, the larger will be the amount of irrigation taxes paid for a service that has not been used and which has not produced any revenue. To some familiar with irrigation conditions, the situation may not appear so important because the irrigable area is distributed quite uniformly throughout the projects of the state. However, the fact that as much as 29 per cent of the lands provided with irrigation facilities is not yet improved enough to use the water profitably, is of importance. Assuming no more construction, it would take from fifteen to twenty years to take up this lag if the irrigated area increases no faster than it has during the past five years. It has been estimated that the irrigated area of the state increased 500,000 acres between 1919 and 1924. At this rate it will take twelve years to bring under irrigation the 1,200,000 acres of irrigable land provided with construction but not yet utilized. Further, of the 750,000 acres of partly improved irrigated land 300,000 are grain land unleveled and unchecked. To improve these 300,000 acres would require three years more, and there are still 450,000 acres of partly improved land requir- ing further development. Fifteen years of taxes added to the farmer's costs before he begins improving his irrigated farm is an expense that should not be overlooked. If the expense caused by the delay in improving irrigable land is to be reduced, a closer relationship between land settlement and irrigation construction will be necessary. 24 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION Part II. Possible Causes of Maladjustments The lag of agricultural development behind irrigation construction is considered by some to be a normal condition and one that cannot be remedied. If it is normal, then its importance must be duly recognized, and, in estimating irrigation project costs, adequate allow- ance must be made for this delay in settlement. It is a cost to land owners much larger than the cost of construction of the project itself and an item seldom considered. If the lag of agricultural develop- ment is something that can be remedied, the causes must be known before the remedy can be suggested. There are certain fundamental economic causes at work which are favorable to irrigation construction. Another set of economic factors affects the rate at which land settlement tends to take place. Aside from these general economic tendencies, there are many forces urging irrigation construction. On the other hand, there are many factors which retard agricultural development. The degree to which all of these elements are taken into consideration by officials, engineers, and promoters in determining feasibility of projects has a great deal to do with the rate at which projects are developed once they are created. THE RELATION OF BUSINESS CONDITIONS TO CONSTRUCTION AND SETTLEMENT One of the causes of the tendency for irrigation construction to take place independently and at a different rate from agricultural development rests upon the relation of industrial conditions and employment to construction and settlement of irrigation projects. The immediate causes of construction of irrigation projects are different from those impelling farmers to move to the land. In fact, the}' may, and often do, work in the opposite direction. Over a long period the motive for the development of irrigation projects is the same as that which causes the creation of farms. This motive is the demand for agricultural commodities. Over shorter periods, which may extend over a considerable number of years, men develop farms for appar- ently different reasons from those which bring about the construction of irrigation projects. Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 25 Relation of Land Settlement to Prices of All Commodities There is an inverse relation between rate of land settlement and the changing* general price level. Although farms are frequently pur- chased and resold, fewer people actually move into the country to establish homes in prosperous times of speculation than in periods of industrial depression when wages in the city are low and there is Relation of Homestead Entries to Prices of All Commodities ^Devfo- %Oev/a- Fig. 4 much unemployment. When there is no work to be had in the city, or when wages are very low, people move to the country where the cost of living is less and where they expect to be able at least to earn a living on the land. The relation between the movement of people to the land and the general change in economic conditions is shown in figure 4, in which the variation in the number of homestead entries in the United States from 1880 to 1909 is shown in comparison with the changes in the general level of all commodity prices for the same 26 UNIVERSITY OF CALIFORNIA — EXPERIMENT STATION The Kelation of Land Settlement in the Turlock Irrigation District to Price Conditions ZOO 150 /oo so -so •/oo -150 -zoo /90Z 03 Fig. 5. — The first differences in the actual parcels of land, 1901 to 1914, inclusive, were obtained by subtracting each year from the following. To these first differences the trend line was computed, having as its equation Y = 361.3 + 44. IX. The deviations from these figures were then correlated with first differences of relative prices, or the "all commodity index." Since there BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 27 period. The two curves show an inverse relationship. When prices rose, fewer people took up homesteads than when prices were falling. A similar study was made of the relation between price conditions and the rate of settlement in the Turlock Irrigation District. The period 1901 to 1915 was taken as that was the period during which settlement in this district was most active, and because the years subsequent to 1915 were irregular due to war conditions. The general trend of the rate of settlement during these years was determined by ordinary statistical methods, and the deviations from year to year were determined from this trend. For the same period, the rate of change of prices from year to year was determined and it was found that, in general, when the rate of settlement was high, prices were declining, and when the rate of settlement was low, prices were increasing. This was practically the same result as that found in the study of the rate at which homestead entries were made as compared with the same series of prices. Figure 5 illustrates the tendency which was found in the Turlock Irrigation District. The years where digression from this general tendency is noted may be explained by conditions existing in the project such as the enlargement of a reservoir. Jerome, in a study of migration and business cycles, discovered tendencies with respect to migration and employment which are closely related to the findings presented here. He finds that "Cyclical move- ments in emigration are inversely correlated with those of immigration and employment, with large emigration in depression periods and relatively small emigration in boom periods." 11 From our studies it is evident that the same causes which send large numbers out of the United States during periods of unemployment also send others in search of employment on the land. 11 Jerome, Harry. Migration and business cycles, p. 121. National Bureau of Economic Kesearch, Inc., New York City. 1926. was not a very marked trend in the first differences of relative prices, deviations were measured from a mean. Chart No. 1 shows the increase and the decrease of the two variations measured as deviations from the normal, a trend line in the case of parcels of land (first differences for years 1909 to 1914, inclusive) and the mean in the case of the price level. The coefficient of correlation, when all years were included, was ■ — 0.278. This is exceedingly low because the influence of the off years 1909, 1911, and 1914. Excluding these, however, the resulting coefficient was —0.7169. The correlation was also computed for the first 7 years, 1901 to 1908, for which the correlation coefficient was — 0.913. The correlation suggests that with a given percentage increase in price level for one year over another there can be expected a great actual decrease in the rate of increase in the number of parcels of land occupied. 28 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION The Relation of Rate of Irrigation Construction to Financial Conditions It has been stated that in prosperous times a large amount of irri- gation construction is installed. How closely the construction of projects is related to financial conditions may be illustrated by a comparison of interest rates and rate of construction of irrigation and reclamation projects. In figure 6, the deviations of the rate of irrigation and reclamation construction from its normal trend, and deviations from their mean of the average monthly interest rates on 60- to 90-day paper in New York City are shown. The average monthly interest rates have been advanced one year. It may be seen that money conditions invariably affect the rate of irrigation and reclamation development the next year. The remarkable coincidence of high rates of irrigation and reclamation development following, without variation, a high interest rate the previous year for a twelve-year period, leaves no doubt but that irrigation and reclamation development (which in the long run is brought about by demand for agricultural products) over shorter periods follows directly the condition of the money market. When interest rates are at their peak, prices and business activities have usually just passed their peak. In general, high interest and high prices tend to accompany each other, prices taking the lead by a few months. 12 Irrigation and reclamation development, therefore, may be expected to follow, in general, the upward and downward swings of prices of all commodities. In prosperous times, many more projects are built than in times of depression. Just before and during the war, when prices were advancing, an unusually large number of irrigation and reclamation projects were constructed and since that period of prosperity very few have been undertaken. High farm prices cause increased farm profits because prices rise in advance of the items of production cost. These increasing agricul- tural profits stimulate irrigation expansion through construction of irrigation projects and increase the irrigated area by permitting more extensive farming than is possible in times of lower net returns. During the war, political and patriotic motives affected the situation, but no doubt the desire for profits was the principal cause of this expansion. 12 Crum, W. L. The interpretation of the index of general business condi- tions. The Eeview of Economic Statistics Supplement 7:217. 1925. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 29 In 1909, there were a million acres of irrigable land within projects of California which were not irrigated, and although the irrigated area in the next ten years increased one and two-thirds millions acres, The Relation of Annual Acreage Increase in California Irrigation and Eeclamation Districts to Average Monthly Interest Rates on 60- to 90-Day Paper Interest ffatefo /909 WO /4- 19/5 /6 Fig. 6. 19 /920 there were in 1919, 720,000 acres more land provided with irrigation facilities but not yet irrigated than in 1909. This piling up of irri- gation construction caused by high prices and the war need for food, 30 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION is greater than will occur from normal cyclical variations in business. Most of this construction must be paid for from farm earnings in times of lower prices. It will be seen that the tendency for irrigation con- struction to accompany high prices of all commodities is just the opposite from the tendency described above, for men to move to the land during business depressions. In times of depression, the tendency is for the lag between irrigation construction and the development of profitable farms to diminish and in prosperous times for this lag to increase again. It is obvious, therefore, that these tendencies must be taken into consideration in any plan designed to bring irrigation and agricultural development into closer accord with one another. FACTORS URGING IRRIGATION CONSTRUCTION There are many forces urging irrigation construction. These forces may be political or they may be initiated by business organi- zations. Speculation is an important cause of irrigation expansion. Important economic changes take place in different agricultural com- modities which compel owners to change their type of agriculture. Dry farming tends gradually to deplete the fertility of the soil, necessitating a change to more intensive agriculture under irrigation. Political Influences Political influences and economic tendencies are so interrelated that it is difficult to determine exactly where one stops and the other begins. Political motives have, no doubt, in many instances, been influential in starting certain developments and in checking others. Political leaders are well informed of local and economic conditions, but they are also ambitious for the development and growth of the locality they represent. Booster Organizations Rural towns are dependent upon agricultural development around them for their business. Cities are dependent upon rural towns for their industrial support. Most rural towns and cities maintain chambers of commerce, service clubs, and other organizations for the express purpose of boosting expansion. Where a small nucleus of irrigated farms exists, there is usually a tendency towards expansion, and new construction is urged in order BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 31 to induce outsiders to become interested in the community. More people, it is pointed out, will increase local improvements, provide better roads, and increase land values. To the local business man, each new settler is a prospective customer. It is more important to maintain the farming enterprises of those already established in the community than to increase business by ambitious plans of project expansion. Decreased Economy of Dry Farming The dry-grain lands of the interior valley are each year becoming less productive for that one type of agriculture. This situation is aggravated by other economic causes which have recently tended to make grain farming unprofitable over the entire country. As the limit of profitable cultivation is approached, the owners are compelled to seek an irrigation supply. Since most of the water rights that are acquired are appropriation rights which are based upon the principle of priority of use, each year water rights are more difficult to obtain. 13 The probability therefore is that the longer the owners of these grain lands postpone obtaining a water supply, the greater will be the difficulty of obtaining one and the larger the cost of water. There is a tendency to organize, therefore, into districts large enough to obtain an economical water supply. Speculation Speculation in land need not be discussed in detail for its evils are probably better understood than many of the other factors under consideration. Speculation is, no doubt, one of the very important forces urging irrigation construction. A large part of the speculator 's gain comes from the lack of knowledge on the part of the purchasing farmer as to elements of cost in the completely developed irrigated farm. Speculators themselves, however, frequently suffer because all of the elements of cost have not been considered. The inflation of land prices by traders in land has done much to cause projects to become infeasible even though the original situation of the project was favorable to its development. In fact the prospects of many districts have been ruined by speculation in land and the resulting bad effects. !3 The interior valley is irrigated by two large rivers, the Sacramento and the San Joaquin. Each right acquired on any tributary affects those of the entire stream. This makes the water rights more complicated than if numerous small streams served the same area. 32 university of california experiment station Forces Urging Construction Are More Active During Periods of Prosperity than During Depression It has been shown that a rapid increase in reclamation and irri- gation-district organization took place during and immediately after the war. The increase in construction during this period of inflation emphasizes the fact that the factors urging construction are more active in times of prosperity than in times of depression. When prices are high and profits from farming are larger, these factors are much stronger than when prices are low. High profits and easy financing are very important in their effect upon construction in times of pros- perity. High profits stimulate agricultural expansion, and since this is possible only by the use of irrigation, new construction is urged in all parts of the country. Further, it is much easier to obtain financial assistance and many projects that could not market their bonds or obtain financial aid in normal times are able to finance their construc- tion in times of prosperity. FACTORS AFFECTING RATE OF LAND SETTLEMENT Factors which retard agricultural development tend to widen the gap between construction and settlement. Total costs of developed lands exceed expectations. These costs are little known and under- stood by prospective farmers and promoters of irrigation development. Many of the most important elements of cost are not included in estimates upon the basis of which projects are created. Lack of capital for farm purchase and development retards settlement. There has been much discussion of overproduction recently and some individuals vitally interested in agriculture have gone to the extreme of opposing even the expansion of agricultural production that would result from the completion of projects already begun. Overproduction is difficult to analyze or even to define. The inclusion in a project of large amounts of land of low quality materially retards its development. Failure to recognize these elements, which so vitally affect the success and progress of agriculture under irrigation, may bring into existence projects which are not feasible because all of the elements of cost have not been considered, or because they may be ill-timed with respect to conditions favorable to their construction and utilization. Feasibility determinations, therefore, play an important role in keeping agricul- tural and irrigation development in a favorable relationship with one another. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 33 Increasing Size of Projects Teele 14 has prepared curves showing the rate at which the irrigated area increases in projects of different sizes. Small projects are rapidly brought under irrigation, but the larger ones develop slowly and it appears that many of them are never completely brought under irrigation. This is due to the fact that the larger project usually contains more poor land. Much of this land is not fit for irrigation, but is included because it is contiguous. It is known generally that future irrigation development will involve large projects, units of one large coordinated scheme for developing the water resources of the state so as best to serve the agricultural, municipal, and power interests depending upon our stream flow. These large projects will reduce the present rate of settlement. Increasing Cost of Farm Development The cost of irrigation projects is increasing. The larger the con- struction cost, the smaller will be the amount that can be profitably spent for the improving of the land if values rise no higher than at present. This should reduce the number of settlers willing to under- take land development. Increasing Difficulty of Finding Settlers In spite of urging diversification, crop specialization is character- istic of California. Such specialization is requiring continually more skill, business ability, and capital for success so that each year fewer farmers can be found with the requisites for successful land settle- ment. We have had too much amateur farming. To succeed, one must understand agriculture. The Best Soils Have Been Put under Irrigation The most fertile soils are found along our streams where overflow has built up new soils containing humus. These have already been put under irrigation. The areas to be irrigated are farther from the streams and may be as fertile after they have been cropped for a number of years, but they are older soils containing less humus and more hardpan. It is more expensive to build up these soils than to develop fertile lands. !* Teele, R. P. Land reclamation policies in the United States. U. S. Dept. Agr. Dept. Bui. 1257:32. 1924. 34 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION Increasing Value of Farm Land Values of farm lands in this country have increased steadily. Many western farmers have been made wealthy by the increase in the value of their land alone, aside from any returns from farming. This increase in land value has stimulated agricultural development. Land values may not continue to advance, for they have already reached the level of similar lands in densely populated countries of Europe. Further, if the general price level gradually declines to the pre-war level, land prices must also decline. This will affect the development of new areas. Elements which Enter into the Cost of the Irrigated Farm If the total cost of the completely developed farm does not exceed the sale value of the farm when improved, the development has been economic for the one improving the land. If the cost of land and its improvement throughout an entire project is less than the market price of all of the land when improved, then the project as a whole is an economic success, even though some of the farmers may have failed to improve their land at a profit. The cost of creating a farm in itself does not determine its value. Value is based upon present and potential earning power. Costs of bringing into cultivation new lands may have some effect upon land prices just as the normal prices of commodities are affected by the increasing cost of new supplies. Price of land is determined by popular opinion as to the present worth of all of its future annual incomes. If costs of developing irrigated land were better understood, there would be a closer relation between the value of irrigated land and its cost when improved. Market prices of both raw and irrigated land would be more nearly equal to true value. In other words, popular opinion as to value would be more accurate. The ultimate total cost of any irrigated farm includes the price of the raw unimproved land; the cost of irrigation construction; taxes paid before the land is irrigated; the cost of improving the land, and interest costs on all of these items during the period of development. In California the price of the raw land is usually that of land pre- viously utilized for the production of grain or for pasture. However, in some districts much clearing of timber and brush is required. The cost of irrigation includes all the costs of construction, and sometimes also drainage, which are charged to the land either through direct Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 35 assessment or by issuing bonds which are a lien upon the property. Taxes paid before the land is irrigated are truly a cost element for they cannot be charged to costs of producing crops before crop pro- duction takes place. These taxes include irrigation and other taxes. Operation and maintenance costs during the unproductive period of development must be considered a capital cost. The cost of land improvement includes clearing, leveling, checking, construction of farm laterals, and the building of farm structures. Interest during the unproductive period, whether actually paid or not, is a cost element in the improved farm, for capital lying idle during development could otherwise be invested to advantage. Price of Raw Unimproved Land. — The price of raw land, though seldom considered in planning an irrigation project, is perhaps the most important of all the items entering into the cost of improved land. The community, in considering the construction of a project, is contemplating an investment to increase the productivity of its land. The construction of the irrigation system is usually financed by bonding, but the leveling, checking, ditching, and supplying of the farm buildings must be provided by the labor and capital available in the community and by that which can be brought in from outside sources. An individual with his own labor can properly farm about one-eighth as much irrigated land as dry-farming land. 15 If the land- owner is using all his labor profitably in dry-farming, he cannot under- take the preparation of the land for irrigation unless he can obtain capital to hire work done. The available capital is often spent in improving the land, leaving the owner unable to farm all of his land properly. He is therefore unable to utilize the investment he has made in improvements. Before entering into a construction program, it is essential to know from a canvass of the community how much capital is available there for development and how much land this will improve. The remaining land should be sold at once. It is evident, unless it is a very wealthy community, that a large part of the land to be irrigated must be sold. If this is to be done without delay, careful consideration must be given to the sale price. Most farmers refuse to consider the prospective price of their unimproved land, believing that this can be decided when the irrigation system is built and sale is actually necessary. It appears to them to be an item that will take care of itself. As a matter of fact, the high prices asked lead to a delay in 15 This applies to general farming, not to fruit growing; in the latter the proportion is much smaller. 36 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION settlement, and, consequently, to increased irrigation taxes for the landowners. This increases the risk of project failure, discourages the landowners, and keeps away prospective settlers. Few would consider constructing a project if the expenditures for improvement were to equal the value of the land. Yet land is improved under such conditions, which indicates either a serious miscalculation of the items of cost or an inadequate calculation. The latter case is probably the more common. If estimates of the cost of the improvements are available, the land price should be set at such a figure that it will be an inducement to settlers. The profit to the landowner should result from the increased earning power of the land he improves himself. The attempt to take a profit from the sale of unimproved land has, in many instances, resulted in disaster. The significance of bonded debt for irrigation or reclamation is not generally understood by farmers and is often overlooked in the con* sideration of purchase price. In the east, with the exception of a few drainage districts, very little land is included in bonded projects. There the purchaser need be concerned only with the productivity of the soil and its location. In the west, land of similar quality in adjoin- ing projects should vary greatly in price simply because of differences in the cost of the project construction. That settlers do not carefully consider the indebtedness of districts in which they purchase land is evidenced by the fact that in some localities land with a bonded debt of $100 or $200 an acre sells for the same price as land of similar quality with the same irrigation facilities and little or no debt. The prospective irrigation farmer seldom realizes that a bonded debt is an actual lien upon his land. If he has a mortgage of $10,000 upon his property, it is a matter of great concern to him, and he does his utmost to get rid of the debt. But if the land is mortgaged by the district for this amount, frequently the farmer scarcely con- siders it. If he fails to take this bonded debt into account in valuing his land, however, he may pay too much for it. In some instances there is actually an overlapping of districts which may give rise to a number of different bonded debts, each a lien upon the land included within its boundaries, as shown in a later section of the report. Variability of Farm-Land Prices. — Prices of land in newly irrigated areas vary between wide extremes. Similar lands in the same projects have sold at from $75 to $200 an acre without an apparent reason for the difference. 30 Not only are there wide differences in land prices in given projects, but there are just as great inconsistencies between prices of 16 Adams, F. Are we developing our irrigated areas too rapidly? Trans- actions of the Commonwealth Club of California 20:386-387. 1925. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 37 land in different projects having similar bonded debts. An owner of a certain small district sold his land, levelled, checked, and planted, and having a bonded debt of $50 an acre, for $550 an acre. Across the river, similar land with a bonded debt of $100 an acre sold for $250 an acre. At that time, transportation facilities were a little better for the high-priced land, but about two years later they were prac- tically the same. Large companies, however, selling unimproved land (or grain land) at prices beyond its productive value, are unable to dispose of all their holdings before the settlers realize they have been overcharged and land sales cease or are greatly retarded until prices are lowered. The price of raw land in unimproved districts should not be con- fused with that of raw land in highly developed areas where social, religious, and educational advantages give the land a high residential value quite apart from its earning power. It must be remembered that land in new districts has no residential value until farm roads, highways, railroads, schools, churches, etc., have been provided and rural communities created. These improvements and part of the pur- chase price of the farm must be paid for out of the earnings of the land. If the land is overpriced, the earnings may not be adequate to provide the local improvements needed by the community. Over- valued raw land makes profitable development of irrigated farms especially difficult for the man of limited capital who must depend upon the earning power of the land to pay for the farm. An important means of stimulating agricultural development and land settlement is to establish fair and uniform prices for lands of similar quality. The determination of a proper price must involve a consideration of the per-acre cost of irrigation construction, the cost of improving the land, and an allowance for taxes and interest paid for irrigation service before it can be used. If settlers are charged too much for the land, they are beaten before they begin. Failures are sure to result, each of which is an adverse advertisement for the project. Project settlers usually have very little capital and are unfamiliar with local agricultural problems. It is difficult for them to succeed even where the cost of the land and water are favorable. Of the elements entering into the cost of improved agricultural land under irrigation, the original price of the land is usually the largest single item and one that varies greatly. There are differences in the cost of improving the land, depending upon many factors, but the range of the difference is not usually so great as are the differences in the purchase price of the unimproved land. 38 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION The problem of the landowner in the newly formed irrigation district and the problem of the man contemplating the purchase of either improved or unimproved irrigated land in a project that is under way are similar, the only difference being that in the first case the landowner has to estimate practically all the elements of cost, while in the second case, some of the costs are actually known. The value of land in any project depends partly upon water rights, water supply, quality of the construction, bonded debt, probable future expenditures for construction, annual operation and maintenance costs, etc. These items are generally disregarded by prospective land purchasers. Farmers in a proposed irrigation project should consider all of the elements of cost involved in changing their grain land into irri- gated farms, so that from these data they can place a reasonable price upon the unimproved land they must sell. Those seeking land in a constructed project not yet completed must seek the same data, and in studying the local project all bonded debts and liens against the lands must be considered as a mortgage indebtedness to be paid from the farm earnings. Cost of Irrigation Construction. — Of the four main divisions of cost that enter into the cost of the developed farm, the cost of the irrigation works has been in the past the smallest item. In the early days when water was easily obtainable, the cost of irrigation con- struction was a small item, but the cost of irrigation works has been increasing and will continue to increase, forming a continually greater proportion of the total cost of the developed farm. In the past, many project failures were due to poor engineering. Fundamental data upon which to base estimates were then lacking. There were few hydrographic records and no standard designs or precedents to follow. Today, there are plenty of records of precipi- tation and run-off, and because of the excellent engineering designs of the past, there are plenty of guides for construction engineers to follow. Project failures due to poor engineering now rarely occur. Estimates of costs of construction have, in most instances, differed greatly from the ultimate costs, possibly because of the desire of engineers to keep estimates low by recommending cheap construction that required a change of plans after the project was begun, or because unit cost data for construction were not as plentiful as they are today. In some instances unforeseen changes in the cost of labor and building materials were responsible. Construction costs do not stop when operation begins. After the operation of the project is begun and the initial construction finished, BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 39 the project is usually considered completed, but this is seldom the case. Construction programs for gravity systems differ from those of storage projects. Combined gravity and storage projects and pumping pro- jects also have their construction costs distributed in a way peculiar to these types of irrigation systems. Different types of distribution sj^stems also materially affect the manner in which construction costs are distributed through the years of development. Where most of the water is obtained by gravity, a comparatively small proportion of the construction need be completed at the outset. The diversion dam is built and the main canal constructed to a capacity less than will ultimately be required and laterals are extended into those areas which are ready to use the water. It has generally been the practice to install temporary structures and to replace these with concrete when the district was better developed. As the irrigated area has increased, more laterals were built, the capacity of the main canal was gradually enlarged, and better structures were provided. The construction program has usually followed closely the development of agriculture within the area. If the project has a direct supply for only part of the area, and storage must be provided for the balance, there will be two periods in the project history when a large amount of construction is carried on; one, when the project is begun, and the other when the storage reser- voir is constructed. But even then the construction may be extended over thirty or forty years. Figure 7 shows how the expenditure of capital has been' distributed by four districts that have provided storage. Districts A and B were begun in 1888 and records of early expenditure were not obtained. All four had heavy expenditures for construction when the projects were begun, and again when storage was provided. The amount of irrigated land each year is shown with the percentage of the construction then installed. In unsual cases where the value of the land and water is high, the cultivation inten- sive, and the water supply entirely from storage, it may be necessary to complete the construction at once. Such projects are usually small. Recently several irrigation districts which obtain most of their water from storage have been formed in the foothill fruit area of the interior valley. This storage will be provided in units as the develop- ment of land requires. The distribution system for these projects includes concrete-lined canals and pipe-line laterals. Their problem is to avoid the construction of an elaborate distribution system for widely scattered farms. The difficulty of unit development is that frequently scattered and numerous ownerships in irrigation districts do not permit of settling one unit of the project at a time. 40 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION The amount of the distribution system constructed by irrigation districts varies. In the Glenn-Colusa Irrigation District, the district constructs only the main canal and all users must provide their own laterals, sublaterals, and farm turn-outs; in the Modesto and Turlock Percentage of Ultimate Investment Made Each Year and Percentage of Ultimate Irrigable Area Irrigated Each Year in Four California Irrigation Districts 1900-1925, Inclusive c eo ^ 40 30 ZO lO (OO J 1 80 fO \. %#> <0 I so 40 30 ZO to O r\ r Trr-i'gcn u ed At ~&a-\ J Irr /ga-tec ' Areo-^Ji ' \J )- f * V / Si 1 1 / / , j I 1 I t I I / i 1 f / ' 1 1 1 J / / / r 1 f ^~ sCaptt ?/ Trn/t >s±ed ■Capi+c / Tnvesiad ,J 1900 1910 1915 A I9Z5 I900 1905 I9IO 1915 C I9Z5 Capit 7/ Tnt/i is+sd— ,^ ,v r i i i i t 1 f / ?d At -crt-ed J ZO IO 1900 1905 1910 1915 19Z0 /9Z5 /900 1905 /9IO 1915 I9ZO 19ZS B D Fig. 7. — Ultimate investment is an estimate of the total cost of the project based upon expenditures already made, expenditures the districts are planning to make, and estimates of future construction that will probably become neces- sary. The sum of these is taken as 100 per cent in constructing these charts. The ultimate irrigable area is the total area which these districts will probably irrigate in the future. This is taken as 100 per cent and the area irrigated in any year is a percentage of this total. Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 41 districts the main laterals are built, while in the South San Joaquin, the district constructs a farm lateral to every forty-acre tract. In most cases, the district builds the entire distribution system and delivers water either to each landowner at the high point of his land, or to the high point of every 40- or 160-aere tract. Through poor construction and improper maintenance, it may be necessary to replace a large part of the system. If wooden structures have been used, these must be rebuilt about every ten years. To reduce the annual maintenance costs and to give more safety in operation, a concrete structure usually replaces the wooden ones at a large increase in first cost. TABLE 6 Percentage of Ultimate Construction Completed by Irrigation Districts in 1924 Number of districts Construction completed Per cent Less than 20 3 20 to 30 3 30 to 40 4 40 to 50 2 50 to 60 6 60 to 70 2 70 to 80 15 80 to 90 27 90 to 100 62 Nearly every irrigation system, except in fruit areas where the use of water is very small, must anticipate the costs incident to construc- tion of a drainage system. Drainage troubles can be relieved in some instances by lining the canals, but generally the excess water must be carried away, either by means of ditches or by pumping out of the ground. As the limit of the available water supply is approached, concrete lining becomes more necessary, both to improve drainage conditions and to conserve the water. Projects have been constructed which appeared to have good water rights, but when the earlier rights along the streams had perfected their filings and made use of the water, the later projects found them- selves to have rights that obtain water only when the rivers were high. This made the purchase of additional water rights or the construction of storage necessary. From the foregoing, it is evident that the initial construction may involve anywhere from 25 to 100 per cent of the total. From a study of the irrigation districts of the state to determine what proportion of their construction is now installed, the results given in table 6 were obtained. 42 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION Many of these projects are old, so that the results do not represent the amount of construction required when the project was first under- taken. It is estimated by the writers after careful study that the construction now installed by all the districts is 70 per cent of that which will ultimately be required. The original estimate of the con- struction cost of a project or the bonded debt of existing projects may represent only a small proportion of the ultimate cost of the irrigation works. Because of the flood menace in parts of California, reclamation, levee, and flood-control projects are organized in the overflow areas. It is not uncommon for irrigation and reclamation districts or flood-con- trol districts to overlap. In fact, in a few instances the land is included in three different districts and in one locality the same land forms part of four different districts, all of which are bonded and have operation and maintenance charges. It is often difficult to get exact information on the status of the district organizations because their affairs are semi-private and are in themselves complicated. When lands are irrigated, it becomes necessary to protect them from overflow. If it is necessary to build auxiliary projects to supple- ment the irrigation works, it is essential to know their estimated cost to arrive at the ultimate per-acre cost of the works. A recent development in irrigation construction is the production of electric power in connection with storage. In some instances the revenue from power alone will pay for the cost of both the storage and the electrical installation, and in all instances it will pay for the power and a part of the cost of storage. Figure 8 shows the effect of power development in connection with storage upon the debt of five large irrigation districts that are develop- ing power with their storage. Column 1 in each instance shows the debt per acre before power and storage were constructed; column 2 shows the debt with power and storage added ; column 3 shows what the debt would have been had power been omitted and only storage provided; and column 4 shows the debt that must be paid by the irrigated lands. That is, the fourth column shows the difference between the total bonded debt and the amount upon which power revenue will pay the interest and amortized principal. The difference between columns 3 and 4 is the amount of the storage cost that will be paid by the power. Where columns 1 and 4 are equal all of the power and storage cost will be paid by revenue from power. These columns show the debt per acre of agricultural land of high value, and the portion in solid black shows the debt for land of the average Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 43 assessed value. The effect of power installation upon annual irrigation taxes will be discussed with other district assessments in a later section. The first estimate of cost, though often for only a fraction of the ultimate cost of construction needed, has been the chief factor in determining the feasibility of irrigation projects. Knowledge of the ultimate cost of the project construction is more essential than that of a portion of the cost. The total per-acre cost of the irrigation Effect of Power Development in Connection with Storage on Debts in Five Irrigation Districts Deb+s as or" &26 1. Preserrf Deb-r wi-rhour Sforaye and Power. Z. Presen-r Outsl-onding Debt (Irrigation and Power.) 3. Present Debt ff Power Feotares Were Omitted. 4. Present- Agricu/tt/ro/ ("Irrigation ) Debt. I ) Debt Per Acre, High Va/ued Lands. ■ Deb-r Per Acre, Ave.-Voiued Lands. system when completed will determine whether or not the development of irrigated lands will be profitable for the owners of unimproved land. Estimates of cost, if prepared for an investment covering a long period of time, must be associated with probable future economic changes that will affect prices in general. Figure 9 shows the changes in the general price level from 1800 to 1925. In addition to short- period changes, there are the longer trends in price change, such as the downward trend from 1820 to 1835, and the one following the Civil War which lasted from 1865 to 1920. Since 1914, prices of all commodities throughout the world have undergone violent changes, largely due to the World War. Similar general price changes occurred during the Civil War and the war of 1812. The peak of high prices in 1865, during the Civil War, was followed by a rapid decline until 1870 44 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION and a gradual lowering of prices from 1870 to 1896. From 1896 until 1900 prices rose rather sharply, and more gradually from 1900 to 1914, the beginning of the World War. From the end of 1915 until the middle of 1918, they rose rapidly. From then until the armistice the advance was more moderate. After the armistice, business slowed down in anticipation of a drop. After a slight depression, however, during the early part of 1919, a great inflation of prices took place which reached a maximum in the spring of 1920, when a precipitous drop occurred in the prices of all commodities. In the preparation of Index of Wholesale Prices in the United States, 1791-1925 Fig. 9.— Sources of data: Years 1791-1922: Warren, G. F. Prices of farm products in New York. Cornell University Bui. 416:4. 1923. Years 1923- 1925: Warren, G. F. Business conditions: pre-war =100. Farm economics 41:581. 1927. engineering estimates for contemplated projects it is essential to take into consideration these long-time trends in prices and allow factors of safety large enough to cover the fluctuations that cannot be determined. A large part of the irrigation and reclamation construction is installed during prosperous times when prices are high and interest rates on borrowed capital are large, and when farmers, because of their prosperity, desire the construction of a much better project than they would build in normal times. Figure 10 shows the change in wholesale prices of building materials, of labor, and of the wholesale prices of ' ' all commodities. ' ' Since labor and building materials are the two largest items in the cost of irrigation and reclamation construction, their combined fluctuations roughly represent the fluctuations in cost of construction. Prices of BuL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 45 Index Number of Union Wages and of Prices of Building Materials Base Period 1910-1914 = 100 Z60 zeo Z40 zzo zoo teo 160 14-0 /zo /oo 80 GO 40 ZO Index -for Buildtng Ma+erials Wholesale Pr/ce Index (Warren) Av. /9/0-/4 =/00 'Index Numbers o-f Unton Wage Ra-res -for- A// Trades /n 1-he U.S. I90Z 04 0er of irrigation districts District tax 7 $0-2 10 2-4 5 4-6 9 6-8 6 8-10 8 10-12 3 14-16 2 16-20 6 20-25 3 25-30 Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 49 Figure 11 shows the proportion of the district taxes paid by the revenue received from power by the five irrigation districts of Cali- fornia that have completed their storage and power development. The solid black part of the bar shows the tax for land of average assessed value and the total length, the tax for land of highest assessed value. The difference between columns 2 and 4 shows the assessment paid by the power revenue. Effect of Power Development in Connection with Storage on the Annual District Taxes in Five Irrigation Districts 1. District- Taxes (Storage and Po\*ter Omitted ) . Z. District Taxes (Storage and Power Included ) . 3. District Taxes (Power Feature Omitted) 4. District Taxes (Less Po^/er Pewenue ) LJ Taxes Per Acre High Ua/ued Lands. H Taxes Per Acre Ave- \/alued Lands . Fig. 11 The method of spreading assessments for irrigation may greatly affect the total cost of the improved farm, as well as annual costs of farm operation. The original irrigation district law contemplated that the assessments against the land should be distributed according to its quality, the lands receiving a large benefit paying more than the poor lands which profit less from the irrigation service. Thus, if the indebtedness of the district were increased 50 per cent, the poorer lands would fare the same as the good. In some districts, land is assessed not according to quality or benefit derived, but at a flat rate per acre, which makes the burden on the poor lands much heavier. In other districts, a system is adopted which is a compromise between these two, the land being classified into two or three grades. "Where much additional construction is necessary, a flat rate of assessment 50 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION may be extremely burdensome to those owning unimproved or inferior land, and cause retarded development in the district. When the assessment is distributed according to the quality of the land, the best land often has more than double the average debt of the district and many times the debt of the poorest land. It also pays a far larger proportion of the operating expense. This is shown graphic- ally in figure 11, page 49, used in connection with the discussion of the effect of power installation on irrigation taxes. In the reclamation districts of California, much of the land must be irrigated. In these projects the cost of operation and maintenance is not always paid annually. In many, the annual expense accumu- lates until sufficient indebtedness exists to justify the cost of levying an assessment. If the farmers are not in a position to pay the assess- ment, the warrant debt is refunded by bond issue. In some projects the warrant debt equals or exceeds the bonded debt. The practice of irrigation engineering and irrigation construction is constantly improving and few project failures in these days can be traced to defect in either. The cost of the irrigation system has been a small part of the investment required to change grain land into improved irrigated land, but construction costs have increased greatly and are becoming a much larger item. Because it takes years to complete an irrigation system, the landowner fails to realize that the construction cost today may be but a small fraction of the amount he must ultimately pay. District Taxes Paid Before Land Is Irrigated. — As soon as con- struction is begun by a reclamation or irrigation district, the annual assessments levied are large enough to be a burden upon the non- irrigated land. The owner should improve the land at once or sell it, for to hold will require the payment of district taxes from which no added revenue will result. To attempt to improve more land than his capital warrants will probably only result in district taxes consuming his principal. Records show that in irrigation projects the irrigated area increases very slowly. A large part of the district taxes is paid by the non- irrigated lands. The average amount of taxes paid before the land is leveled and checked and before it derives a benefit from the irrigation, approaches the cost of the irrigation system itself. If imputed interest is added to the above, the result is often much larger than the con- struction cost. The amount paid by landowners for district assessments and for operation and maintenance costs before their land is developed is Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 51 perhaps the third largest item in the development of agricultural land. Like the price paid for raw land, it varies widely in the same project because some land is prepared for irrigation immediately, while other land may wait for years to use the water. The figures given in table 8 show the district taxes paid from the date of organization to Janu- ary 1, 1926, on unimproved grain land in four important irrigation districts of California and the total imputed interest at 6 per cent on these amounts to the same date. The figures are based upon the annual district assessments. They show that imputed interest on taxes nearly equals the amount of the taxes paid. TABLE 8 District Taxes Paid from the Date of Organization to January 1, 1926, on Unimproved Grain Land in Four Important Irrigation Districts of Cali- fornia and the Total Imputed Interest at 6 Per Cent on these Amounts to the Same Date District Taxes computed from Taxes paid per acre Interest per acre on taxes to Jan. 1, 1926 Total 1 2 3 4 1888-1926 1888-1926 1910-1925 1910-1926 $39.81 43.38 44.78 72.14 $40.79 42.49 23.99 31.78 $80.60 85.87 68.75 103.92 The variation in the amounts shown is due to differences in the construction costs, in the method of distributing the costs, and in the age of the projects. Because of the flat rate, of assessment used in district No. 4, the grain lands have a higher bonded debt per acre and the annual district taxes are larger than in the other districts. This accounts for the large amount of taxes paid by unimproved land in this district as compared with the other three in which land is assessed according to its productive capacity. In district No. 3 grain land has been assessed at a higher value than in Nos. 1 and 2 and the taxes have been higher so that grain lands in district No. 3 have, in sixteen years, paid more taxes than have similar lands in districts 1 and 2 in twenty- five years. Table 9 shows the taxes paid with imputed interest at 6 per cent and in addition the existing bonded debt per acre for the non-irrigated grain land in the same four districts, but does not include that portion of the bonded debt carried by and retired from the sale of power. In district No. 3, a smaller proportion of the land is improved than in districts Nos. 1 and 2, so there is less difference between the mean as^esoed value of land and the assessed value of grain land. 52 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION These districts have not retired any of their bonds and the pro- portion of new construction paid for from annual assessments does not equal 10 per cent of the indebtedness. The bonded debt therefore closely approximates the cost of the irrigation works. Some of these grain lands have paid in taxes much more than the cost of the irri- gation works. In district No. 1, grain lands having a bonded debt of $17.40 an acre have paid $39.81 in taxes up to January 1, 1926. The imputed interest on these tax payments at 6 per cent interest amounts to $40.79, a total of $80.60 for both taxes and interest, which is more than four times the present bonded debt. In district No. 2, grain TABLE 9 Per-Acre Costs of Taxes Paid on Unirrigated Lands, together with Imputed Interest and Effective Bonded Indebtedness in Four, California Irrigation Districts 1 2 3 4 5 6 7 Irrigation districts Present mean assessed value of land Present assessed value of grain land Average bonded debt less bonded debt paid by power revenue Average bonded debt of grain land less debt paid by power revenue District taxes and interest at 6 per cent paid by grain land Total cost to grain lands for irrigation system 1 $69.92 $45 $27.04 $17.40 $80.60 $98.00 2 70.50 44 22.67 14.15 85.87 100.02 3 55.00 50 34.51 31.30 68.75 100.05 4 102.00 100 72.75 71.33 103.92 175.25 The bonded debt of grain land shown in column 5 is obtained by multiplying the average per-acre effective bonded debt of the district (column 4) by the ratio of the assessed value of grain land (column 3) to the mean assessed value of all land (column 2). The figure in column 6, taxes and imputed interest paid by grain land, is taken from table 8. Effective bonded debt (column 4) is obtained by subtracting from the total bonded debt the capitalized earnings per acre of the power plant. lands bonded for $14.15 an acre have paid $43.38 in taxes and the imputed interest thereon at 6 per cent is $43.49, or a total of $85.87, which is practically six times the bonded debt. In district No. 3, where a debt of $31.20 exists, taxes in the amount of $44.78 have been paid and imputed interest at 6 per cent is $23.99, or a total of $68.75. In all instances the taxes have exceeded the bonded debt and the taxes and interest greatly exceed the cost of the irrigation works. The total cost to the non-irrigated grain lands in these districts for the irrigation system includes the bonded debt, the taxes paid before the land has been leveled and checked for irrigation, and the imputed interest on these taxes. For district No. 1, it is shown to be $98, practically six times what the system would have cost had the lands been improved as soon as water was available. For district No. 2, the total cost is Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 53 $100.02, more than seven times the cost had these lands been irrigated as soon as water was available. In district No. 4, the cost is $175.25, about two and one-half times the cost had the lands been leveled and the water used at once. In projects where the land is assessed on a basis of soil quality, it is difficult to determine the total taxes paid by the non-irrigated lands, for nearly every piece of land is assessed at a different rate. Where TABLE 10 Crop-Acreage Reports, 1921 to 1925 Inclusive, and Estimate of Irrigated Area in California Irrigation District Crops 1921 1922 1923 1924 1925 Irrigated area: Alfalfa 2,360 106 390 3,823 379 101 5,191 334 203 5,345 322 109 7,220 362 380 Total 2,856 3,463 1,430 1,930 2,068 8,891 4,303 2,790 920 650 3,237 7,597 5,728 1,129 545 1,765 2,624 6,063 5,776 511 260 3,296 1,957 6,024 7,962 Unirrigated area: Wheat > l,602f 1,508 706 Total 3,816 Total assessed area Estimated irrigated area* 11,747 3,000 11,800 4,500 11,791 6,000 11,801 6,500 11,778 8,000 * A large part of the district is reported idle or unaccounted for. In estimating the irrigated area, part of the unaccounted-for area was considered irrigated. The total area of the district is 11,827 acres and the assessed area, which is slightly less, has for some unknown reason varied from year to year. Although crop reports compiled by the district seem to show certain discrepancies, it is believed that estimates of irrigated acreage are approximately correct. t Wheat and barley. a flat rate of assessment has been used, the district taxes paid by the irrigated and non-irrigated lands can be readily calculated. This has been done for a certain irrigation district which was organized in 1916. Water was first delivered in the late summer of 1918. The first real use of the water occurred in 1919. In this district, the dry grain lands have been flooded before seeding. Such use of the water will not produce enough increase in yield to pay the district taxes. Reported yields of grain by the district show slight benefit from this use of water and therefore such lands have not been considered irri- gated. The district does not charge a water toll. A flat assessment is paid by all lands whether irrigated or not. Land utilization in this district from the years 1921 to 1925 inclusive, is shown in table 10. Table 11 is based upon the estimated irrigated area shown in table 10. 54 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION The total irrigation district taxes paid per acre to January 1, 1926, is shown. Taxes are due in two installments and are delinquent June first and December first, the year the assessment is levied. In this district undeveloped land has paid $61.90 an acre of taxes and if imputed interest at 6 per cent is added, this amounts to $76.90. The latter approximates the expense to undeveloped land for irrigation TABLE 11 Taxes paid per Acre by Non-Irrigated Lands in a California Irrigation District since Its Formation, Total Taxes Paid by Irrigated and Non- Irrigated Lands, and Imputed Interest at 6 Per Cent on these Amounts Year Per- acre assess- ments levied Com- pound amount on SI. 00 at 6% from pay- ment date to Jan. 1, 1926 Assess- ment plus im- puted interest at 6% Non- irri- gated area in acres Taxes paid by non- irrigated land Taxes and imputed interest at 6% paid by non- irrigated land Irri- gated area in acres Taxes paid by irrigated land Taxes and imputed interest at 6% paid by irrigated land 1916 90 1 75 1.58 11,827 $10,543.28 $18,487.68 1917 0.50 1.65 0.73 11,827 11,800.00 9,751.79 0.50 1.60 0.80 9,467.76 1918 2.88 1.56 4.49 11,827 68,029.38 52,994.21 2.87 1 51 4.34 51,450.68 1919 2.75 1.47 4.03 10,327 56,798.50 42,127.78 1,500 $8,904.80 $6,116.44 2.75 1.43 3.92 40,900.78 5,938.29 1920 3.38 1.38 4.68 9,327 62,957.25 43,914.79 2,500 17,491.65 11,765.98 3.37 1.34 4 53 42,635.70 11,423.28 1921 3.50 1.30 4.57 8,827 61,789.00 40,193.50 3,000 20,720.60 13,634.87 '3.50 1.27 4.43 39,022.82 13,237.74 1922 4 00 1 23 4.92 7,327 58,616.00 35,952.88 4,500 35,650.62 22,014.73 4.00 1.19 4.78 34,905.69 21,373.51 1923 4.50 1.16 5.22 5,827 52,443.00 30,240.82 6,000 53,330.68 31,068.54 4.50 1.13 5.06 29,360.03 30,163.64 1924 4.50 1.09 4.92 5,327 47,943.00 26,084.49 6,500 31,689.08 57,799.04 4.50 1 06 4.77 25,324.74 30,766.10 1925 4.50 4.50 1.03 4.63 4.50 3,827 24,443.00 17,601.67 8,000 71,136.03 36,771.00 35,700.00 1926 3,027 17,089.52 8,800 Total to July, 1926 61.90 76.90 $465,362.41 $607,507.33 $238,923.46 $327,773.16 district taxes that produced no revenue. The undeveloped lands have paid $465,362.41 of the $730,395.83 of taxes collected, 63.5 per cent of the total. This is the equivalent of $39.40 for every acre in the district. If interest at 6 per cent is imputed on the taxes paid by the unde- veloped land, the amount is $607,507.33, which, if divided by the district area, 11,827, is $51.35. This amount per acre for the entire district area is a conservative approximation of the irrigation district cost for the non-irrigated lands. This is one of the outstanding dis- Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 55 tricts of the state. The district is developing very rapidly. In fact, few develop so quickly. In 1926, 74 per cent of the district was irrigated, but before the lands are all developed to use water, the taxes paid by the non-irrigated lands may total $50 an acre and, with interest, exceed $75 an acre for every acre in the district. The cost of delayed development is seldom adequately considered by those planning project development. TABLE 12 Number of Ownerships in South San Joaquin Irrigation District from 1910-1925, Grouped According to Size in Acres Size 1925 1924 1923 1922 1921 1920 1919 1918 1917 1916 1915 1914 1913 1912 1911 1910 5 acres and under 1145 917 204 154 169 134 159 135 99 98 85 68 53 42 32 23 6-10 313 291 294 277 254 247 237 222 196 188 168 152 129 115 94 81 11-15 140 128 126 124 137 118 111 88 93 89 75 63 62 54 45 36 16-20 533 455 436 414 396 371 353 320 339 274 246 240 201 179 145 125 21-30 230 202 199 214 201 169 168 124 119 99 89 95 106 97 70 70 31-40 297 257 260 240 232 237 215 194 172 170 173 150 132 119 115 95 41-50 89 70 66 69 65 45 52 50 45 46 44 61 52 49 40 38 51-70 88 71 65 69 67 72 63 61 50 51 49 39 33 36 28 25 61-80 122 108 103 111 108 100 98 90 82 84 75 80 81 68 58 49 81-100 42 33 32 31 34 35 36 39 31 13 30 31 26 17 20 22 101-150 77 66 62 61 64 61 56 52 62 54 55 53 50 54 49 41 151-200 27 26 26 23 23 27 28 31 35 42 41 45 43 52 65 69 201-300 10 10 15 14 12 12 17 18 24 23 23 19 30 27 25 21 301-100 8 3 7 10 16 14 16 20 23 22 23 20 25 20 25 23 401-500 3 2 2 4 1 3 5 3 5 8 9 11 10 13 11 10 501-1000 5 4 3 3 5 3 5 5 7 5 7 9 8 12 12 15 1001-1500 2 1 1 2 2 2 Over 1500 1 1 1 1 2 2 2 2 2 3 Total farm ownership.. 3129 2643 1900 1818 1784 1650 1620 1454 1383 1267 1194 1138 1044 958 838 748 Total farm acreage... 66871 66871 66871 66275 66871 65049 67446 67241 67394 67327 68102 69870 70195 70195 70195 Average size of farm.... 30.25 35.1 35.2 34.5 37.4 40.7 40.1 46.4 48.6 53.1 56.3 59.8 66.9 73.2 83.7 93.7 History shows that in irrigated areas the trend is towards smaller and more intensively cultivated farms. The development of irrigated land is accomplished by incoming settlers and not by the resident landowners or large capitalists seeking an investment. Large investors who have constructed expensive irrigation and reclamation projects have, it is true, sometimes been forced to improve large areas in order to pay interest on the investment while selling the land. For the most part, however, the small holder has been the principal factor in land development. This being true, it is apparent that conditions should be made favorable for inducing settlers to take up land. Table 12 shows the change in size of ownership that has taken place in the 56 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION South San Joaquin Irrigation District, one of the largest and best known of the state. 17 The large ownerships that existed before the district was formed have been gradually broken up into smaller and smaller units, and the average size of a farm in 1910, 93.7 acres, has been reduced to 30.25 acres in 1925. TABLE 13 Number of Ownerships in Irrigation and Reclamation Districts in 1024* Grouped According to Size in Acres Irrigation districts Reclamation districts Drain- I o a T3 CO -*t< CO.O CO iO co <**< CO 00 age Dist. Size of o £ CO O 4, a 5° 0° P° QS 52 No. ownerships 3 g£ ZO Fig. 12. — Data from table 20. /925 70 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION is drawn a curve showing the ratio of the index numbers of farm prices to index numbers of wholesale prices of all commodities. This indicates when the farmers were benefited and when they were harmed by the changing general price level. When the ratio is high, the farmers' situation is better than when it is low. In the spring of 1920, there was an abrupt drop in all prices. In 1921 farm prices had fallen to 16 per cent above the pre-war level and all commodity prices were about 50 per cent above the pre-war level. After 1921, both increased until 1925, and since then have decreased. In 1926 the all-commodity index was 18 per cent higher than the farm-price index. The index numbers from which figure 12 was made are given in table 20. TABLE 20 Index Numbers of Farm Prices and of All Commodities, 1910-1926 Index numbers of wholesale prices of all commodities* Index numbers of farm prices* Relative purchasing power of farm products! 1910 103 95 101 102 100 103 129 180 198 210 230 150 152 156 152 162 154 103 95 99 100 102 100 117 176 200 209 205 116 124 135 134 147 136 100 1911 100 1912 98 1913 98 1914 102 1915 97 1916 91 1917 98 1918 101 1919 100 1920 89 1921 77 1922 82 1923 87 1924 88 1925 91 1926 88 * Data from: United States Department of Agriculture Bureau of Agricultural Economics. Price indexes for May, 1927. The Agricultural Situation 11 (7) :8, 9. 1927. t The relative purchasing power of farm commodities is obtained by dividing the index number of farm commodities by the index number of all commodities. The quotient is multiplied by 100. Base period 1909-1914. Relative prices of California farm products have varied widely. The economic situation in the irrigated area varies with the type of farming. The agricultural situation is different for every farmer. Figure 13 shows relative wholesale prices of the principal California crops which comprise approximately 70 per cent of the value of all crops grown. It can be seen from the figure that prices of different commodities vary greatly. The prices of all commodities, since 1921, have remained at about 55 per cent above the level of pre-war prices. The agricultural prices Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 71 The Dispersion of Wholesale Prices of California Agricultural Commodities 440 4ZO 400 380 360 340 3ZO 300 Z80 Z = Peaches Prunes - Ratstns — ._ Lemons — Oranges- — Wa/ncrts A/fa /-fa Barley • ■ • — •— • Whea-t Fig. 13. — Price relatives of agriculture commodities were prepared by Division of Agricultural Economics, College of Agriculture, University of Califronia, 72 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION seem to be gradually rising to this level. Those who purchased land or improved farms during the period of high prices from the summer of 1916 to the fall of 1920 purchased and improved their farms with dollars that were relatively cheap and are now repaying with dollars that are relatively dear. Effect of Price Changes upon Repayment of Farm-Development Costs. — The effect of price changes upon the amount of capital avail- able for the repayment of farm development costs is shown by examples taken from actual farm records in various parts of the state. These figures also illustrate how a farmer's whole future progress may be bound up with the circumstance of his having begun farming at a particular time. An 83 -acre dairy farm was purchased in May, 1918. Most of the development costs were incurred in that year. The utilization of land in 1925 included eighty acres of alfalfa and three acres in roads, ditches, buildings, and a small family vineyard. The 1925 receipts from the farm, amounting to $4,375, came principally from dairy products. About $750 worth of hay was sold and some revenue was obtained from the sale of poultry and calves. The family expenses and the cost of operating the farm, not including the farmer's labor nor interest on his capital, amounted to $2,053. This does not include interest, depreciation, nor value of the owner's labor because the object is to determine actual capital available during the amortization of the debt. These expenses are shown in detail in table 21. TABLE 21 Expense of Operating an 83-Acre Dairy Farm in 1925 Irrigation— district taxes (excluding interest) $381.00 Reclamation— district taxes 197.00 County taxes 280.00 Labor 225.00 Feed 30.00 Automobile expense 65.00 Clothes 100.00 Food 725.00 Doctor bills 50.00 $2,053.00 The amount available in 1925 for payment of principal and interest on indebtedness amounted to the difference between the gross receipts, $4,375, and the expenses, $2,053. This farmer, in 1925, therefore, could have paid $2,322 towards the amortization of his debt, and the pay- ment of interest on his development debt and the bonded debt of the district. This difference between gross income and expenditures in one year, however, is no indication of what they are likely to be in Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 73 others. Although the farm operations may be carried on in a uniform manner from year to year and the yields may be approximately the same, there are great variations in prices of products sold by the farmer and in costs of farm operation. His ability, therefore, to repay his indebtedness varies greatly from year to year. In order to show the effect which changing prices and costs have upon the amount available for repayment of principal and for the payment of interest on this particular farm, the operating expense each year from 1914 to 1926 was figured, using the same items of expense as in 1925 and applying the prices that prevailed during the different years. The physical output of the farm is considered constant for the purpose of this illustration. The upper curve on the left side of figure 14 shows the value of gross income as it would have been during the years 1914 to 1925 inclusive, had the program been carried out in each of these years just as it was in 1925. For 1925 it will be seen that the figures correspond with those already given ; that is, a gross income of $4,375 and expenditures amounting to $2,053. The gross income curve is made up from the changing prices of each item of income applied to the physical volume of production of 1925. The lower portion of the diagram shows the expenses, exclusive of interest and owner's labor, as they would have been during these same years had the same services and materials been utilized as in the program of 1925. The curve of expenses has been derived from the 1925 expense items adjusted to what they would have been in the other years with the prevailing prices of those years. The difference between these two curves shows what the farmer would have available for debt amortization and interest during these years, assuming the physical production of the farm did not change, and assuming that he received the same items and services in return for his expenditures. These curves show that 1917, 1918, 1919, and 1920 were prosperous years. The years 1921 through 1925 show a larger gross money income than before the war. Operating expenses and taxes w r ere higher, but in general a larger amount became available for debt amortization that would have been available under conditions of prices as they existed before the war. For the farmer purchasing his farm in 1925, this advantage would be offset to some extent by greater development costs. Since most of the farm was improved in 1918, the owner was able to benefit by two years of relatively high crop prices, 1919 and 1920. The actual cash outlay for the farm development was $13,425. It included the cost of leveling, checking, ditching, fencing, buildings, equipment, and livestock, but not the farmer's labor, nor interest on the investment. The curve on the right side of figure 14 derived from 74 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION changing prices applied to the physical improvements made in 1918, shows what the cost to develop this farm would have been for the years 1914 to 1925 inclusive, had the same material and labor as was applied in 1918 been applied in any one of these other years. This develop- ment would have cost less if made prior to the summer of 1918, and more if made at any time during the years 1919 to 1925 inclusive, but Gross Income, Expenses Exclusive of Interest, and Costs of Development of an 83-Acre Irrigated California Dairy Farm ssoo # 2= szso J 1 1 F ~~0ros. Inc ome ~1 1 / V, s 1 f / t 1 \*+ t 1 1 1 1 1 1 .Expense Exclusive o-r [Interest r Owners Labor J? s I 2ZS0 / s zooo nero ISOO izso IOOO ■750 « ZO IS 14 L *. ^ * ~~~~Cost of Land Leveling, Buildings, Farm Eqcipmen-t, t La vest ock and Pool fry 8 € % 4 / i i i i 7 1 1 ' » Z f. 1 X z z 3 i. 4 Z. Fig. 14. — This farm was developed in 1918. Accurate estimates of income and expenditures were determined in 1925. The curves of gross income and expenses indicate what the money income and expense for the years 1914 to 1924 would have been with the same physical output as that obtained in 1925. The diagram to the right, showing the cost of land leveling and other improve- ments, shows what these same improvements, which were installed in 1918, would have cost had they been installed in any of the years between 1914 to 1925, inclusive. The difference between gross income and the expenses, exclu- sive of interest, the owner's labor, and depreciation, indicates the amount available for the payment of bond principal and interest of the irrigation project. The average cost of development of the character carried out on this farm amounted to 47 per cent more in the post-war years 1923 to 1925, inclu- sive, than if installed in 1914. In the case of this farmer, however, the amount available for repayment of principal and interest was 87 per cent greater in these post-war years than in the pre-war year of 1914. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 75 since the prices of labor and materials have been falling, the cost of the development in 1925 would have been nearly as low as in 1918. The cost of development in 1918 was 44 per cent greater than it would have been had the farm been developed in 1914. At costs pre- vailing in 1920, it would have required an outlay 110 per cent greater than in 1914. If developed in 1925, the costs would have been 46 per cent greater than in 1914, and only iy 2 per cent greater than in 1918. If this farmer had not had a large amount of capital to begin with, he would have been compelled to leave the farm before he had carried out its development. The statement of the financial condition of this farmer, May, 1918, January 14, 1924, January 1, 1925, and January 1, 1926, indicates the progress he has made (table 22). TABLE 22 Financial Statement of California Farmer Showing Progress on an 83 -Acre Dairy Farm under Conditions of High Cost of Land and Water Assets: May, 1918 Jan. 14, 1924 Jan. 1, 1925 Jan. 1, 1926 ] Land $14,575 $14,575 $14,575 Leveling and ditches 3,200 3,200 3,200 House 3,500 3,500 3,500 Other buildings 2,300 2,300 2,300 Well and water supply 200 200 200 Cash $15,000 Livestock 3,675 3,175 3,200 Feed and hay 900 900 975 Equipment 450 450 1,200 Other 150 150 150 $15,000 $28,950 $28,450 $29,300 Liabilities: Debt on land $10,000 $10,000 $10,000 Land-company loan 2,000 2,000 2,000 $12,000 $12,000 $12,000 Net Worth $15,000 $16,950 $16,450 $17,300 * Inventory values represent the 1918 costs and are not corrected for depreciation and deflation. Deflation in the case of this farm, however, amounts to practically nothing since development costs in 1918, for this type of development, were approximately the same as in the years 1923, 1924, and 1925. Figure 15 shows the effect of changing prices upon the amount available for payment of principal and interest in amortizing the development debt on a 30-acre farm. In 1925, this farm had 19.5 acres in alfalfa, 5 acres in barley, 1.5 acres in alfalfa hog pasture, 1 acre devoted to buildings, 1 acre in family orchard, garden and vineyard, 1.5 acres in melons and truck, and 0.5 acre occupied by irrigation ditches. Five acres of blackeye beans were raised as a second crop after the barley. Receipts in 1925 amounted to $3,096.95, while cash expenses amounted to $2,102.06. Receipts and expenses for this farm are itemized in table 23. 76 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION TABLE 23 Keceipts and Expenditures on a 30-Acre General Farm in California for the Year 1925 RECEIPTS 1925 Crops sold $315.77 Cows 138.00 Hogs 622.00 Dairy products 1,085.00 Poultry and eggs 611.18 Turkeys 325.00 $3,096.95 EXPENSES 1925 Irrigation-district taxes* $212.89 County taxes 90.35 Interest on personal loan* 111.94 Labor 214.85 Life-insurance premium* 166.44 Food, clothing, and general household expenses 523.31 Doctor bills 176.73 Books and lodge dues 58.42 Grain feed 547.13 Total $2,102.06 Deduct interest and part of life insurance* 351.06 $1,751.00 * In order to determine actual capital available for repayment of development costs and interest, that part of the irrigation tax paid for interest and also interest on the personal loan should be deducted. Since life insurance represents in part an expense and in part a capital investment, only that part which may be considered an expense should be included in the expense items to be deducted from gross income to determine the amount available for amortization and interest payments. Value of the farmer's labor and depreciation are omitted because the object is to determine the amount of capital available and not the net farm income. Depreciation is a charge which will eventually have to be paid but will not become important during the period of debt amortization. What the income and expenditures exclusive of interest and the value of the farmer's own labor, would have been for the years 1914 to 1925 inclusive are shown on the left side of figure 15. The amount available for interest and principal payments is the difference between these two curves. This farmer has been very successful. He purchased his land in 1913, but did not improve it until 1919 when he moved to the farm. The cash outlay for development, including buildings, farm equipment, and livestock, amounted to $5,940. This does not include the owner's labor or interest on the capital. These improvements in 1914 would have cost $3,517; in 1920, $6,891; and in 1925, $5,112, which is 45.4 per cent larger than 1914. In May, 1919, this farmer had a net worth of $5,787. His financial progress is shown in table 24, which gives his net worth at different times since 1919. Figures 16, 17, 18, and 19 are other cases which have been studied in the same way, and are shown here to illustrate the variation in the ability of different farmers working under different conditions to meet interest and principal payments on development costs. The Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 77 Gross Income, Expenses, and Costs of Development of a 30-Acre Irrigated California Dairy, Hog, and Poultry Farm / \ G» ss 1 "CO' no 3500 I t \ \ f \ 1 \ \ / / 1 \ / 1 x /_ \ / / t 1 I j oi r z>i >nd v ^ * f i cV mat S £< bor- \ 1500 IZ50 ^M ' H ■ H H 6750 / l_ / \ 6250 6000 / X / \ / A / 1 s / \ ^5000 \ i^4750 5 / \ / N / [ / 4X50 / s / V "Cot Bu,/ t o ■ Lt ind Lev zlin^ f s, f'orrrr E<7t/£>m4>n-f- 3500 3Z50 n / LJ^^ ?s-ta ck ond Pou, l+ry ^ / ~ ~— _ - HZ Z3 24- Z5 rr ie is zo zi zz zs ** zs Fig. 15. — This chart shows the gross income, expenses, and costs of develop- ment of a 30-acre irrigated California dairy, hog, and poultry farm as they would have been with prices prevailing in the years 1914-1925 inclusive, had the 1925 program been carried out in each of these years. The farmer who developed in 1919 was unfortunate as costs of development were very high. This is an example. The amount of money available in 1925 for interest and repayment of principal expended for development was 25 per cent greater on this farm than it would have been with the same physical output in 1914, while principal and interest amount to about double what would have been the case had the farm been developed in 1914. It would have cost, on the average, in the years 1923 to 1925, inclusive, 47 per cent more to install this type of development than it would have cost in 1914. TABLE 24 Net Worth of a Farmer in the San Joaquin Valley, Showing a Gain of More than $6,000 in Seven Years* Date Net worth May, 1919 $5,787 Jan. 1, 1922 7,822 Jan., 1923 7,515 Aug. 1, 1923 7,954 Jan. 1, 1925 9,393 Jan., 1926 11,746 April 1, 1926 12,308 Original net worth, 1919 5,787 Increase in net worth, 1919-1926 $6,521 * This farmer's net worth should be decreased $1,000 to correct for decrease in values used in appraisal of farm property during the years 1922 to 1926 inclusive. With this correction, the figures show that good progress has been made. 80 UNIVEESITY OF CALIFORNIA EXPERIMENT STATION were applied to the same farm operations, that is, to the same items of income and expense, these farms having different combinations of enterprises showed different earning power. The amount available for principal payment from some combinations of enterprises increased, Gross Income, Expenses Exclusive of Interest, and Costs of Development of a 30-Acre Irrigated California General Farm 4Z50 / \ \ 3750 3500 J ■' \ \ 6ros s Inc ome / \ \ / f \ \ 1 1 \ | 4 N / Z750 1 I / ■*, r 1 1 l , Expense Exclusive of {interest * Owners Labor J> 5 ^ 1750 1500 — s IZ50 IOOO T-JcH :.vl - Bi o a 14 5 * 6 1 T / 3 1 9 Z z 1 z z g 3 Z. * Zi 7750 7500 7Z50 7O00 y. / / \ \ \ \ \ \ 6ZS0 6000 \ \ \ ^*> / \ Cl 5500 5ZSO — Cost of Land Leveling Buildings , Farm Equipment; 450O 4-ZSO 4-000 / Lh estc ck c nd Jouit n - ■ 1 1 1 1 1 ' 1 1 Fig. 19. — On this farm either the father or son worked out while the other took care of the farm. This is a common procedure. The gross income includes this outside labor. The diagram to the left shows what this gross income would have been in any of the years from 1914 to 1925, inclusive, had the same amount of time been devoted to outside work and had the same physical output of the farm been obtained as in 1922. Under the type of management of this farm, as it was in 1925, the amount available for principal and interest was 90 per cent greater on the average for the years 1923, 1924, and 1925, than it would have been in 1914 had the same program been followed then. The average costs of improving such a farm in 1923, 1924, and 1925, were 35 per cent greater than they would have been for the same type of farm in 1914. This farm was improved in 1918 under cost conditions very similar to those prevailing in these three post-war years. This farmer, therefore, is working under conditions of repayment similar to what might be expected of a farmer beginning in these later years. while for others it decreased. Different items of expenditure having different relative costs result in combinations which vary greatly. The size of enterprise also affected the earning power. The change in conditions from pre-war years to the years 1923-1925 was less favorable to the owner of the 83-acre dairy farm than to the owner of the 20-acre dairy farm, as shown in sections 1 and 5, respectively, Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 81 of figure 20. This is because the 83-acre farm has an entirely different schedule of expenditures. The contrast is greater, however, between the 12-acre general farm shown in figure 16 and section 3 of figure 20, and the 30-acre general farm shown in figure 19 and section 6 of figure 20. Size of farm is not the only factor which makes the relative advantage for repayment of development cost vary with different enterprises. Soil characteristics may alter the amount of labor required in culti- vation and irrigation. The ability and standard of living of the farmer and his family not only affect the income and expenditure for a given TABLE 25 Cost of Equipment, Livestock, and Development, Exclusive of Price of Land, Also Amount Available for Repayment of Principal and Interest on Six Typical California Farms,* 1914, 1920, 1925t Farm Size in acres Year devel- oped Equip- ment and develop- ment cost Equiva- lent M Pre-war equiva- lent Amount available for repayment of principal and interest Percentage of increase 1925 over 1914 No. 1914 1920 1925 Amount available for re- payment Develop- ment cost 1 83 1918 $13,300 $13,800 $9,200 $1,200 $3,000 $2,250 87 50 2 30 1919 6,000 5,200 3,400 850 1,750 1,250 47 53 3 12 1918 3,250 3,400 2,300 50 250 50 48 4 59 Pre-war 2,600 3,750 2,600 44 5 20 1918 6,700 6,850 4,800 500 1,250 1,100 120 43 6 30 1918 6,150 6,250 4,500 760 2,150 1,600 110 39 * These six farms were operated under the following types of agriculture: 1— Dairy. 2 — Dairy, hog and poultry. 3 — Alfalfa, hogs, prunes. 4— Dairy and peaches, irrigated, 16 acres; grain, dry-farmed, 43 acres. 5 — Dairy. 6 — Alfalfa, some dairy, and outside labor as janitor in school. The labor is included in income. t In computing equivalent costs in 1914, 1920 and 1925, the actual costs for the year in which the farm was developed were adjusted by taking into account changes in prices and wages and making estimates based upon the same character of development and equipment as was actually installed. Amount available for principal and interest was computed in the same way. period of time when compared with other farms, but also the relative ability to repay development costs, one year with another, is affected by such factors. This is because each particular farm has a com- bination of a large number of fluctuating items of income and expendi- ture. It cannot be said, therefore, without investigating each case on its own merits, that it is more advantageous, or less so, to develop land since 1922 than it was before the war. A further complication arises in connection with all of the illus- trations used in this analysis. Although many farms are developed for the express purpose of producing a fixed combination of products, 80 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION were applied to the same farm operations, that is, to the same items of income and expense, these farms having different combinations of enterprises showed different earning power. The amount available for principal payment from some combinations of enterprises increased, Gross Income, Expenses Exclusive of Interest, and Costs of Development of a 30-Acre Irrigated California General Farm / 1 \ 3750 3BOO i / \ \ 6ros s Irn Oma -i \ \ i f \ \ t \ \ i Si / t \ / ■s t 1 f 1 1 , Expense Exclusive of [interest *- Owners Labor \ 2000 Q 1150 150O 1 f 1X50 IOOO 750 SOO ZSO 3000 7750 7500 7ZSO 7O00 yl / / \ \ \ \ 6500 \ \ \ \ 0000 \ ^ / \ 3 5Z50 ~~Cost erf Land Leveling Buildings , Form Equipment, A50O U\ vstc ck t ind Ooutt a 400O ~ = ^. —y 1914- 15 *6 Z3 X4. Z5 Fig. 19. — On this farm either the father or son worked out while the other took care of the farm. This is a common procedure. The gross income includes this outside labor. The diagram to the left shows what this gross income would have been in any of the years from 1914 to 1925, inclusive, had the same amount of time been devoted to outside work and had the same physical output of the farm been obtained as in 1922. Under the type of management of this farm, as it was in 1925, the amount available for principal and interest was 90 per cent greater on the average for the years 1923, 1924, and 1925, than it would have been in 1914 had the same program been followed then. The average costs of improving such a farm in 1923, 1924, and 1925, were 35 per cent greater than they would have been for the same type of farm in 1914. This farm was improved in 1918 under cost conditions very similar to those prevailing in these three post-war years. This farmer, therefore, is working under conditions of repayment similar to what might be expected of a farmer beginning in these later years. while for others it decreased. Different items of expenditure having different relative costs result in combinations which vary greatly. The size of enterprise also affected the earning power. The change in conditions from pre-war years to the years 1923-1925 was less favorable to the owner of the 83-acre dairy farm than to the owner of the 20-acre dairy farm, as shown in sections 1 and 5, respectively, Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 81 of figure 20. This is because the 83-acre farm has an entirely different schedule of expenditures. The contrast is greater, however, between the 12-acre general farm shown in figure 16 and section 3 of figure 20, and the 30-acre general farm shown in figure 19 and section 6 of figure 20. Size of farm is not the only factor which makes the relative advantage for repayment of development cost vary with different enterprises. Soil characteristics may alter the amount of labor required in culti- vation and irrigation. The ability and standard of living of the farmer and his family not only affect the income and expenditure for a given TABLE 25 Cost of Equipment, Livestock, and Development, Exclusive of Price of Land, Also Amount Available for Eepayment of Principal and Interest on Six Typical California Farms,* 1914, 1920, 1925 + Farm Size in acres Year devel- oped Equip- ment and develop- ment cost Equiva- lent Pre-war equiva- lent Amount available for repayment of principal and interest Percentage of increase 1925 over 1914 No. 1914 1920 1925 Amount available for re- payment Develop- ment cost 1 83 1918 $13,300 $13,800 $9,200 $1,200 $3,000 $2,250 87 50 2 30 1919 6,000 5,200 3,400 850 1,750 1,250 47 53 3 12 1918 3,250 3,400 2,300 50 250 50 48 4 59 Pre-war 2,600 3,750 2,600 44 5 20 1918 6,700 6,850 4,800 500 1,250 1,100 120 43 6 30 1918 6,150 6,250 4,500 760 2,150 1,600 110 39 * These six farms were operated under the following types of agriculture: 1— Dairy. 2 — Dairy, hog and poultry. 3— Alfalfa, hogs, prunes. 4 — Dairy and peaches, irrigated, 16 acres; grain, dry-farmed, 43 acres. 5 — Dairy. 6 — Alfalfa, some dairy, and outside labor as janitor in school. The labor is included in income. t In computing equivalent costs in 1914, 1920 and 1925, the actual costs for the year in which the farm was developed were adjusted by taking into account changes in prices and wages and making estimates based upon the same character of development and equipment as was actually installed. Amount available for principal and interest was computed in the same way. period of time when compared with other farms, but also the relative ability to repay development costs, one year with another, is affected by such factors. This is because each particular farm has a com- bination of a large number of fluctuating items of income and expendi- ture. It cannot be said, therefore, without investigating each case on its own merits, that it is more advantageous, or less so, to develop land since 1922 than it was before the war. A further complication arises in connection with all of the illus- trations used in this analysis. Although many farms are developed for the express purpose of producing a fixed combination of products, 82 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION many change their schedules of production and expenditure from year to year. In hard times, expenses are curtailed and work is either done more efficiently or credit is used to carry the farm through the difficult time. Buildings and equipment are allowed to depreciate Amounts which Would Have Been Available for Eepayment of Principal and Interest on Six California Farms from 1914 to 1925, Inclusive, Had the Prevailing Prices in those Years Been Paid and Eeceived for Products Bought and Sold 3000 J tsoo ZZ50 \. Qizso MOO 750 19 600 i o -Z50 (4 IS /6 rr IB 19 ZO Zl ZZ Z3 Z4 z 5 s ■^ i V / N / ± 1914 15 16 17 Iff 19 ZO Zl £Z Z3 Z4 Z 5 5 IBOO -5 ^1000 Z0O 3000 Z 1750 ^ IOOO 750 500 Zl ZZ Z3 Z4 ZS IO ZO Zl ZZ *Z3 Z4 Z5 Fig. 20. — Chart 1 in figure 20 is the same farm illustrated in figure 14; chart 2 corresponds to figure 15; chart 3 to figure 16; chart 4 to figure 17; chart 5 to figure 18, and chart 6 to figure 19. without repair or replacement. Crops may be changed to those which are expected to produce larger incomes. This general tendency toward readjustment from year to year does not detract from the results of this analysis which shows that for a given combination of enterprises BuL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 83 and for a fixed proportion of the factors of production, land, labor, and capital, there is a change from year to year in the amount avail- able for the repayment of development costs and interest on capital invested as a result of the price change. This change is relatively different for different combinations, even though the crops produced may be the same. The right half of each of figures 14 to 19, inclusive, relating to the costs of farm development, shows that the farmer who bought and developed his farm in any year prior to 1919 made improvements Belative Cost of Development, Acres Included in New Land Contracts, Amount of Improvement, Loans and Belative Prices of Butterfat in Durham State Land Settlement During the Period of Development AcrwsHues / + / \ m C« / ^Cos-t a * Oave/a omen-f / / \ t * // \\ Acres Land C includea "ontracf-i in A/svj Each Y* tr^" \ // \\ / / // \\ V '. \\ « \„ \ / i \\ l \ \ \ r r Al <-l An- •f-o Sett/er- • Loans r for k — i -*~ -^^ * m \ m 1 / * V f I.- Im oroveme n+ s \ \ ^ e C\. mo 5 / A \ \ /» \ \ \ \ ■$ /Rela+ HtH-fo-Y- ' / 1 .♦•'"' ' ' \ \ *r* v- + $mo ?* y l.^ /..-' S / / \ \ j>"^ ■— — - V / / r s \ .^ Fig. 21. — Development costs in the Durham Land Settlement were high at the time a large portion of farms were improved. Declining prices of butterfat resulted in small incomes for the repayment of these costs. under conditions of cost which were as good or better than those which confronted the farmer making improvements in 1923, 1924, and 1925. The farmer developing prior to 1918 had the added advantage of an increased ability to make repayment of costs during the years 1918, 1919, and 1920, due to high prices for commodities sold. Farmers purchasing farms and improving them in 1919 and 1920 are unfortunate and will be compelled to write off some part of their invested capital from their assets. These figures show the effect of changing prices upon the cost of farm development. In considering the relative income available to 84 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION repay these costs from farming during the period of 1914 to 1925 the relative purchasing power of the farmer 's dollar should be considered. The relation of price change to the development in the Durham Land Settlement colony comprising many farms is shown in figure 21. Land sales which began in 1918 were larger that year than in any year since. Most of these farms were improved between 1918 and 1921 when prices were high, as evidenced by the loans that were made to farmers. The relative cost of developing land and the relative price of butterfat are shown for the period 1913 to 1925, inclusive. Expenditures for most of the farm improvements were made while costs were high and repayment on loans made for these improvements is being made under much less favorable prices for butterfat than prevailed during the early development period. Notwithstanding this handicap, the relatively larger costs of production and the fact that the lands probably were not producing to capacity until farm prices had dropped, the average net worth of the settler increased nearly $3,000 from 1919 to 1924. Overproduction. — There is a tendency in business towards alternate periods of over and underproduction. This results in what is known as the business cycle. These alternate periods of prosperity and depression do not occur at regular intervals and vary widely in magnitude, but they cause the alternate rise and fall of prices. These changes are important enough to be observed by the business man and consequently should be by the farmer contemplating the development of land or by groups considering project construction. There is also a tendency towards periods of over and underproduction of different agricultural crops, and although the importance of agriculture in causing the general business cycle is not thoroughly understood, for authorities differ on this subject, still the effect upon local business is great. Farm profits are reduced, causing smaller purchasing power of the growers. Overproduction of annual crops usually results in adjustment of production the following year. For fruit crops, periods of overproduction are much more serious because it requires many years in which to alter the production. Overproduction is related to the analysis of retarded agricultural development inasmuch as lower prices resulting from overproduction may directly affect farm values and the earning power of the farm purchaser. The increase in population and growth of agricultural production in California has been much more rapid relatively than that of the United States as a whole. The increase in agricultural production has BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 85 in both cases closely paralleled the increase in population. California 's principal agricultural income is derived from certain high-priced crops marketed principally in the United States, though some are exported in large quantities. Per capita consumption of some of these specialties has been increased through good marketing and advertis- ing. Although there has been an actual per capita increase in the United States production of crops important in California agriculture, this is not in itself proof of overproduction. This tendency, however, cannot be continued indefinitely without reducing the present rate of profit in certain of these agricultural industries. Overproduction is a relative term applied to an industry when the rate of profit is so low that many are producing at a loss. It is difficult to determine just where overproduction begins. A change in price may greatly alter the margin of profitable farming for a particular commodity. When, however, the price remains for a long time so low that a large proportion of the producers are farming at a loss, over- production is usually given as the cause. It has been shown that under post-war conditions some farmers are developing farms at a profit and are receiving good remuneration for their work. Because of the changing volume of production, crop prices vary from year to year. These changes shift the margin of profitable farming up or down with changing prices. There is always room for capable farmers. In all lines of business many must fail. When the percentage of failures becomes large, they are usually attributed to overproduction. It may throw some light upon this question to observe the trend of production in the United States and in California during the past few decades. Although prices have fluctuated greatly, the volume of agricultural production in the United States has shown a uniform trend. The Harvard Committee of Economic Research has constructed an index of agricultural production for the United States from 1879 to 1924. Its first series, from 1879 to 1920, used a few crops which differed from those of the second series, which covered the period from 1899 to 1924, but there is little variation between the two series. Both show a change in trend about 1910. Figure 22 shows this index of pro- duction from 1897 to 1924. Although many of the crops produced in other parts of the United States are important in California production, in many instances, California crops are not important in the production of other states. For this reason California crop production has certain peculiar characteristics of its own. 86 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION Index of United States Production of Crops which Constitute a Major Part of the Value of Agricultural Products of the United States, 1897-1924 130 no X \ ^ 90 S ^ 70 SO /89T /900 /905 I9SO 1915 f9ZO I9Z4 Fig. 22. — Day's unadjusted index of agricultural production (Day, Edmund E. An index of the physical volume of production. The Eeview of Economic Statistics and Supplements preliminary series 2:246. 1920), being on the base 1879, was divided through by 201.7, the index for 1909, to put it on 1909 as a base. A trend was then fitted to the series, by the method of least squares, the equation being Y = 95.2 -f 1.7X with the origin at 1909. The series of Ada Mathews (Mathews, Ada M. The physical volume of pro- duction in the United States for 1924. The Eeview of Economic Statistics 7:208. 1925) covering the period 1899-1924, having 1899 as a base, was divided through by 118, the index for 1909, thus placing this series on 1909 as a base. The trend for this series is Y= 111.5 -f- 1.12Z". This trend was then applied to the series. The chart was obtained by using the first series for the period 1897-1910, and the second for the period 1910-1924. The trends were placed with their respective series and joined at 1910. Of the California grain crop, 1,161,000 acres in 1924 were wheat, oats, and barley, and of the hay crop, 905,000 acres were grain hay, practically all of which was dry-farmed. If the acreage devoted to these two crops, 2,066,000 acres, which were principally dry-farm crops, be deducted from the total crop acreage of the state, there were 3,505,600 acres remaining, very nearly all of which were irrigated. Of the fruit acreage, only 79 per cent, or 1,181,984 acres was in bearing. Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 87 Table 26 shows the extent to which the character of California production differs from that of the United States. The fruit crop is 46.7 per cent of the total crop value, the vegetables 10.8 per cent, and the field crop 42.5 per cent. These percentages are very different from those which apply to the total crop production of the United States. In 1924 fruits constituted 4.7 per cent of the total value of all crops, vegetables 2.9 per cent, and the field crops 92.4 per cent. TABLE 26 The Characteristics of Agricultural Production in California as Compared with that of the united states, 1924 California acreage California crop value United States crop value Crops Value* Percentage of total California value Value* Percentage of total United States value 5,571,600 3,981,200 l,369,600t 220,800 $437,755,000 185,822,000 204,869,000 47,064,000 100.0 42.5 46.7 10.8 $9,182,501,000 8,480,301,000 433,515,000 286,685,000 100 Field crops Fruits and vines 92.4 4.7 2.9 * United States Department of Agriculture. Agriculture yearbook 1925:1356-57. 1926. t Bearing acreage. t Kaufman, E. D. California crop report for 1925. California Dept. Agr. Spec. Pub. 63:32. 1926. Production in the United States of crops constituting a major part of California's crop value has increased much more rapidly for many years than has the production of crops constituting the major part of the crop value for the whole United States. In other words, the United States' production of California's major crops has increased much more rapidly than United States' production of those crops most important to the United States as a whole. The rate at which this rapid production of California crops has taken place is very striking. Figure 23 shows the trend of United States' production of farm commodities which constitute 68 per cent of the total California crop value. The comparison can be seen in figure 24, which is a composite of the trends shown in figures 22 and 23, and, in addition, trends of increase in population for California and for the United States are shown. In 1925 the agricultural production of the United States was 16 per cent greater than in 1910, while the population was 25 per cent greater. The increase in United States' population paralleled agri- cultural production to 1910, and since then has increased faster than the United States' agricultural production, but United States' pro- duction of the principal crops of California has increased much faster 88 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION than the population of the United States. Since these products are sold principally to the people of the entire United States, there is a possibility that the trend is towards overproduction of the crops in which California producers are most interested. Index of United States Production of Farm Commodities which Constitute 68 Per Cent of the Total California Crop Value /ZO J905 1910 /9/5 I9ZO I9ZS Fig. 23. — United States production of each crop was expressed as a ratio of the 1919 and 1920 production. These relatives were then averaged by taking a weighted geometric mean of these ratios, the weights being the average value of these crops in California for 1919 to 1923, inclusive. The equation of the line of trend is: T = 53.9 + 2.5X. The crops used, which constituted 68 per cent of the total value of California crops, are given in table 27. The discussion has not taken into account export trade, hold-over of certain products from year to year, nor prices, all of which are very important in relation to the problem of overproduction. The establish- ment of new and better markets for many of these crops is also a matter of great importance and undoubtedly accounts for much of Bul. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 89 the increase of per-capita production The index numbers of the United States' production of the principal crops of California include wheat, barley, oats, corn, tame hay, rice, white potatoes, cotton, apples, Trend of United States Production of Agricultural Products of Importance in the United States as a Whole and of Products of Importance to California Showing Relation to Population Growth 1910 » 100 ISO I \/oo I 1 50 Tr&ncf of C'.S. Trend of Cbfifot"77ta SbpufaHctr 7P * y- y /90S I9fO /9/5 19ZO 19Z5 Fig. 24. — In order to facilitate comparison, these trends were all converted to the same basis, 1910. peaches, prunes, raisins, oranges, lemons, and walnuts. The United States is exporting large quantities of grain. California has produced and is still producing a large amount of dry-farmed grain, but the 90 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION acreage is decreasing as new land is brought under irrigation. Corn and hay are fed here, and practically no livestock or dairy products are shipped out of the state. The rice is marketed on the Pacific Coast and in the Orient. TABLE 27 Weights Used in the Index of United States Production of Crops which Are of Major Importance in California Farm value Dec. 1 Crop average of 5-year Percentage period, 1919-23, incl.* of total Wheat $19,271,400 6.20 Barley 25,559,800 8.23 Corn 5,235,800 1.69 Oats 3,251,800 1.05 Rice 11,561,600 3. 72 Tame hay 77,800,800 25.06 Cotton (fibre) 14,303,000 4.61 Cotton seed 1,793,600 . 58 White potatoes 12,018,800 3.87 Sweet potatoes 1,283,200 0.41 Apples 8,733,600 2.81 Peaches 18,750,000 6.04 Prunes 16,288,600 5.24 Raisins 30,263,000 9. 74 Oranges 43,014,000 13.85 Lemons 11,156,000 3.59 Walnuts 10,275,000 3.31 Total $310,560,000 100.00 * Kaufman, E. E., R. E. Blair, and N. I. Nielsen. California crop report for 1924. California Dept. Agr. Spec. Pub. 55:10-11, 16-17. 1925. In those localities where potatoes and cotton are grown, there is a wide diversification of crop production so that other things can be substituted, should it become unprofitable to grow these crops. 25 The situation is different for the fruit crops. It requires several years for an orchard to come into bearing and the trees then producing represent a large investment of capital. The fruit acreage in 1924 was 40 per cent of the irrigated area of the state and the value of the fruit crop was 45.3 per cent of the total value of all crops. Seventy -nine per cent of the acreage was bearing. Some crops come into bearing slowly so thai if no more plantings arc made the state production will increase for some time to come. The United States is exporting apples, prunes, peaches, oranges, and raisins, and is importing lemons, figs, and nuts. By advertising and better marketing, the domestic per-capita con- sumption of certain fruit crops has been greatly increased. Efficient advertising and market development may increase foreign consump- tion. Because of the time and the capital required to produce bearing 25 Kaufman, E. E., E. E. Blair, and N. I. Nielsen. California crop report 1923. California Dept. Agr. Spec. Pub. 43:1-31. 1924. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 91 orchards, the determination of trends of production is highly essential to safeguard the fruit industry. But to analyze the situation, the trend of production of these crops must be studied with reference to trends in domestic consumption and in export trade. The trend of production as a whole may be very different from that of specific crops. The preceding discussion has shown that in California there is a large supply of good land with ample water supply and irrigation equipment installed which is awaiting development. Also there is a large amount of irrigated land that requires further improvement before it can become profitable. The development of this available land in the most economic way will require a study of individual crops as to their trend of production, price, and markets. The fruit acreage, now approximately 40 per cent of the irrigated area, has been increas- ing steadily. There appears to be some possibility that it will be difficult to maintain this increasing trend with profit, especially in regard to some fruits. The need for more data regarding the future of specific agricultural industries is apparent. Although it is difficult to determine what the future of these industries may be, it is very hazardous to embark in any industry without carefully surveying the field and reaching some definite conclusions regarding the future out- look. Those who are interested in the development of any new irrigation enterprise should devote much attention to an agricultural program based upon a study of crops which are not only capable of being grown, but for which the economic outlook is favorable during the years the project is becoming established. Most economists agree that there is no possibility of general overproduction. That there may be overproduction in one or a group of industries is admitted, and this may be one of the causes which is keeping capital and settlers from the improvement of more than a million acres of California irrigated lands. It should be recognized, however, if overproduction may be classed as one of the fundamental causes of retarded development, that it is only one of the causes and probably not the primary cause ; for the lag in agricultural development behind irrigation development is char- acteristic of the past history of irrigation through periods of pros- perity and periods of depression. Overproduction may aggravate the situation at certain times. A study of crop adaptation from an economic as well as a physical standpoint should help in the solution of this problem. It is still possible for some farmers to develop farms and obtain attractive remuneration for their work. 92 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION Land Qualities Materially Affect the Rate of Development Most of the preceding' discussion has been devoted to the economic causes of maladjustments in irrigation and agricultural development. The complete discussion of the physical elements related to this same problem would lead to treatises on the subjects of soils, rainfall, quantity and quality of irrigation supply, temperature, topography, and effect of drainage on plant growth. Quality of land depends upon all of these factors. It is the relation of these physical considerations to the economic which makes necessary a brief discussion of them here. These qualities affecting productivity of land together with economic factors, such as location, available markets, and transportation facili- ties, vary in degree and are combined in such different proportions as to make every farm different from any other farm. Farms range in TABLE 28 Percentage of Unirrigable Lands Included within California Irrigation Districts Per cent of of districts unirrigable land 35 0.0- 9.99 10 10.0-19.99 8 20.0-29.99 4 30.0-39.99 productivity from meager returns to very abundant yields, while the costs of obtaining those yields vary between wide extremes. There has been included in California irrigation districts, approximately 400,000 acres of land of low productivity, the cost of utilizing which would be prohibitive. In addition there are large areas which have been classified as irrigable which require especially large amounts of labor and capital for their improvement. It is difficult to draw the line definitely between irrigable and non-irrigable lands. It requires a study of all of the elements of productivity and cost of utilization. An approximation to the situation in California irrigation districts has been made. Table 28 shows the percentage of non-irrigable land included in California irrigation districts. Non-irrigable lands within irrigation districts are a liability, and too often shift the responsibility of bond amortization to the better lands. Large amounts of such lands within a project will render it infeasible. There is a definite relation between the quality of lands within a project and the rate of its development. The larger the percentage of good lands in a project, the more rapidly it will develop. "Good land" in this sense would not only be determined by soil quality but by all of the physical and economic qualities which affect net returns. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 93 POLICIES OF IRRIGATION AND AGRICULTURAL DEVELOPMENT There are wide differences of opinion as to the irrigation and agri- cultural policy best suited to the development of the west. In the early history of California, there were a number of financial failures of private capital undertaking the construction of irrigation works, but for the past twenty-five years, irrigation development has been success- fully financed through the organization of irrigation and reclamation districts in which the lands are bonded to raise capital to construct the projects. Through experience the laws have been perfected, and able supervision has been given to most of the projects undertaken. Because of the success of these projects, the feeling, generally, is that the California lands to be irrigated can pay for their own construc- tion. The large projects of the future are for the most part in the Pacific Coast states where the streams are larger than those of the intermountain territory, and the larger the projects, the more the states will have to participate in the development, for it is apparent that ultimately the cost of projects will be so large that they can only be constructed by the state or federal governments, which derive indirect benefits from the capital invested. To plan and carry out the construction of one of the large irri- gation projects now being considered is a huge undertaking, but difficult as is such a problem, it is simpler than to attempt to estimate construction costs and rates of settlement for it ; for the development extends over many years, and no control is exercised over land settle- ment. In the latter case not only must the various costs be estimated correctly, but the trend must be forecast and proper allowance made for variations that are uncontrollable, such as the rate of settlement, the psychology of the community, and the development of agricultural industries suited to the locality. Successful development of our large projects will depend upon the degree to which the problems of development are studied and accurate estimates made of the elements of cost involved. The agricultural problems and economic considerations are just as vital to the success of the project as those of the engineering and financing of the project construction, which have hitherto received most of the consideration. The difficulty of arriving at an adequate solution of agricultural development problems is made greater by the conflicting interests 94 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION involved. The problem of coordinating agricultural and irrigation development is a complex one. The ideal, of course, would be to have irrigation projects constructed only when needed with prompt settle- ment of the lands included. The practical carrying out of this ideal can only be approached. It is not proposed here to outline a complete irrigation policy, but to suggest possible means by which the situation revealed by this investigation can be improved. It has been pointed out that if the lag of agricultural development can be remedied, the causes must be known and the remedy directed at these causes. In outlining a policy, therefore, that will tend to synchronize agricultural and irrigation development, the causes of the lag of agricultural development must form the basis. It seems reasonable that such a policy should be directed first to the building of irrigation projects only at such times as economic facts indicate that they are needed. Supplementing this, a constructive and conservative land-settlement policy should tend to the economical and rapid development of lands once they are provided with irrigation facilities. Any policy directed at improvement will involve the cooperation of our educational institutions, our govern- mental bodies, and a large group of individuals and corporations interested in the welfare of the state. Policies Should Promote the Creation of Projects When in Greatest Demand Placing in the hands of land development companies, state irri- gation officials, and financial institutions, facts concerning the ten- dency of settlers to move to the land and economic forces which tend to promote irrigation construction, should promote construction at times when the completion of the project is likely to coincide with demand for irrigated land. State and government officials, legislative and congressional bodies, engineers and holders of large tracts of land should be supplied with more information concerning the relationships between financial conditions and their effect upon irrigation expansion and land settlement. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 95 Education Will Curb Unwise Political and Booster Propaganda Members of Congress and the State Legislature are in need of scientifically analyzed information which will help them in formulating their policies. Political pressure will be curbed by the dissemination of such facts as are required for a true concept of the economic prob- lems of irrigation and agricultural development. Booster organizations are beginning to realize that propaganda based upon other than facts leads only to disappointment, and that a practical program of develop- ment can only come out of a careful study of the true situation and a knowledge of its causes. Speculators can harm only themselves if the prospective clients are adequately supplied with the facts concerning any piece of land being exploited. Feasibility Determinations An effective means of synchronizing agricultural and irrigation development would be the compilation and dissemination of economic data and, what is more important, the derivation of basic principles by the use of which feasibility can be determined. In determining feasibility, all of the costs which enter into the completely developed farm must be taken into account, including the price of the raw, unimproved land, the cost of irrigation construction, the cost of delayed agricultural development, and the cost of farm land improve- ment. Land qualities, including all of the physical and economic factors that effect net returns should be given the most careful atten- tion. It is through the exclusion of lands of inferior quality that irrigation expansion can be kept within economic limits. In the past, many errors have been made in providing expensive construction for lands which, when improved, would not justify the expense of development. Soils often vary a great deal in the same projects. The total potential value of all of the soils should be the basis for deciding whether the project should or should not be built. The feasibility should not be based merely upon the profit anticipated from the best soil. If the project is justifiable there is still the problem of distributing the costs of construction over the poorer soils. Many disappointments have been caused by the methods of distribution of costs that were not expected when the landowners voted to undertake the construction of the project. This phase of irrigation should be turned over to trained agriculturists. 94 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION involved. The problem of coordinating agricultural and irrigation development is a complex one. The ideal, of course, would be to have irrigation projects constructed only when needed with prompt settle- ment of the lands included. The practical carrying out of this ideal can only be approached. It is not proposed here to outline a complete irrigation policy, but to suggest possible means by which the situation revealed by this investigation can be improved. It has been pointed out that if the lag of agricultural development can be remedied, the causes must be known and the remedy directed at these causes. In outlining a policy, therefore, that will tend to synchronize agricultural and irrigation development, the causes of the lag of agricultural development must form the basis. It seems reasonable that such a policy should be directed first to the building of irrigation projects only at such times as economic facts indicate that they are needed. Supplementing this, a constructive and conservative land-settlement policy should tend to the economical and rapid development of lands once they are provided with irrigation facilities. Any policy directed at improvement will involve the cooperation of our educational institutions, our govern- mental bodies, and a large group of individuals and corporations interested in the welfare of the state. Policies Should Promote the Creation of Projects When in Greatest Demand Placing in the hands of land development companies, state irri- gation officials, and financial institutions, facts concerning the ten- dency of settlers to move to the land and economic forces which tend to promote irrigation construction, should promote construction at times when the completion of the project is likely to coincide with demand for irrigated land. State and government officials, legislative and congressional bodies, engineers and holders of large tracts of land should be supplied with more information concerning the relationships between financial conditions and their effect upon irrigation expansion and land settlement. BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 95 Education Will Curb Unwise Political and Booster Propaganda Members of Congress and the State Legislature are in need of scientifically analyzed information which will help them in formulating their policies. Political pressure will be curbed by the dissemination of such facts as are required for a true concept of the economic prob- lems of irrigation and agricultural development. Booster organizations are beginning to realize that propaganda based upon other than facts leads only to disappointment, and that a practical program of develop- ment can only come out of a careful study of the true situation and a knowledge of its causes. Speculators can harm only themselves if the prospective clients are adequately supplied with the facts concerning any piece of land being exploited. Feasibility Determinations An effective means of synchronizing agricultural and irrigation development would be the compilation and dissemination of economic data and, what is more important, the derivation of basic principles by the use of which feasibility can be determined. In determining feasibility, all of the costs which enter into the completely developed farm must be taken into account, including the price of the raw, unimproved land, the cost of irrigation construction, the cost of delayed agricultural development, and the cost of farm land improve- ment. Land qualities, including all of the physical and economic factors that effect net returns should be given the most careful atten- tion. It is through the exclusion of lands of inferior quality that irrigation expansion can be kept within economic limits. In the past, many errors have been made in providing expensive construction for lands which, when improved, would not justify the expense of development. Soils often vary a great deal in the same projects. The total potential value of all of the soils should be the basis for deciding whether the project should or should not be built. The feasibility should not be based merely upon the profit anticipated from the best soil. If the project is justifiable there is still the problem of distributing the costs of construction over the poorer soils. Many disappointments have been caused by the methods of distribution of costs that were not expected when the landowners voted to undertake the construction of the project. This phase of irrigation should be turned over to trained agriculturists. 96 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION The location of the project, the climate, markets, transportation facilities, type of agriculture suited to the locality, and other location factors, make special regional studies necessary. Isolated projects containing good land develop slowly. Few people pass through the area, consequently the public does not know of the existence of the project. Those located on the main highways of the state are known to nearly everybody. Paid advertising can never accomplish what can be done by showing the people who pass through the project what is being accomplished. Most of the new projects are not on the high- ways. They have poor roads, and if far from transportation, the expense involved in getting the crops to market may be large. Rail- road facilities are a big help to agricultural development. Transpor- tation and markets should be carefully investigated. The climatic conditions in the area to be irrigated cannot be too carefully considered. A short growing season means limited crop adaptability and, therefore, usually means land that will not, when fully developed, have a high market value. Some localities are greatly retarded by the occurrence of periodic frosts. To produce an irrigated crop involves a large per-acre cost. A few crop failures may cause financial failure to many settlers, especially among those who are just beginning. Certain sections of the state produce poor crops of certain high-priced products and attempt to compete commercially with more favored localities that produce better and larger crops. California agriculture has enjoyed unusual prosperity. Because much of the land is suited to high-priced crops, the tendency has been to convert general crop lands into high-priced fruit and truck lands as fast as possible. Settlers no doubt have expected, when developing their land, ultimately to produce such crops. This probably has stimulated settlement. So rapid has been the increase in fruit acreage that today 40 per cent of the irrigated area is planted to trees and vines, which raises the question whether California agriculture can in the future maintain the same degree of prosperity. The con- sideration of the possibility of overproduction is highly essential in the planning of irrigation works. Not only should crop adaptability be studied, but the future outlook for the principal crops should be determined. One of the most effective means of reducing the lag of agricultural development behind irrigation construction is to check the promotion of poorly conceived projects. This can be done by more careful con- sideration of the elements of feasibility. The projects that do not show a good margin of profit on paper are apt to be financially unsuccessful BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 97 and should be discouraged. Good projects, well-constructed and properly designed, develop rapidly. It is the poorly conceived ones that lag along and decline in prosperity. The State Bond Certification Commission is now concerned primarily in the probable repayment of principal and interest of bonds. The limits of their authority should be extended to safeguard the interests of the settlers, as well as those of the investors in the bonds. A project may be an economic failure without a single delinquency in the repayment of bond principal and interest. Reports on the feasibility of projects should include a plan of repayment by the farmers and should set forth the conditions under which all of the costs incident to farm purchase and development can be paid. All estimates of cost must be made with due consideration of price trends. Not only must the short-time swings in prices be anticipated, but where a great number of years may be consumed in carrying out the development, the long-time swings in the general price levels of materials and of commodities to be sold by prospective farmers must be taken into account. Since uncertainties exist because of difficulty in making forecasts of prices, factors of safety must be employed. An economic analysis is just as difficult as the design of irrigation structures and just as important. Engineering reports should be supplemented by economic reports. The importance of economic studies in connection with feasibility studies is now generally recognized but we are still greatly handicapped by the want of basic economic data. Years of research in the engineering field places at the command of the engineer a large amount of information which forms the basis of more or less exact determinations. Economic estimates are of necessity too general. The difficulty in the past has been that although the importance of the factors of feasibility enumerated has been realized, the relative importance of the various items has not been measured. The develop- ment of a basis for applying a means of measurement of these factors to feasibility investigations will mark a new era in scientific analysis of project feasibility. Land-Settlement Policy It is not within the scope of this bulletin to discuss the problems involved in formulating and carrying out a policy of planned develop- ment. By planned agricultural development is meant the working out of details of rural communities on the same basis as that on which engineering projects are designed, that is, the best available scientific and practical knowledge. Estimates are made and financial programs 98 UNIVERSITY OF CALIFORNIA EXPERIMENT STATION worked out so that capital available will be equal to capital require- ments. One of the most important features of planned development, then, is the matter of credit for farm improvement. The principal features of the California Land Settlement plan which has been under rigid test during the past few years are (1) a small first payment of purchase price is made by the settler, (2) low interest is charged, (3) a long time is allowed for repayment, (4) loans are advanced for farm improvement and purchase of livestock, (5) settlers are selected according to their fitness to farm, and (6) advice and direction are given for carrying out the farm program and careful inspection of operations is practiced. More knowledge is needed concerning the actual practical working out of this plan in the two settlements at Durham and Delhi. Scientifically analyzed facts, unbiased by personal prejudices, should be compiled. There is a wide difference of opinion regarding the agricultural credit problem especially in relation to credit for agricultural develop- ment. In the past thirteen years, many improvements have been made in the banking facilities of the country. Through the Federal Reserve Act, adopted December 23, 1913, the Federal Reserve System was put into operation. July 17, 1916, the Federal Farm Loan Act was passed organizing the Federal Land Bank System and through amendment to this act in 1923, the Intermediate Credit Banks were organized. So much has been done to improve our banking situation that people are of the opinion that no more banking facilities are needed. The Federal Farm Loan Act has not helped the tenant farmer or project settler appreciably. The act does help established farmers to obtain credit at lower rates of interest and on the long-time repayment plan if they have a large equity in their farms, but since the bank loans but 50 per cent of the appraised value of the land, settlers improving raw land are not eligible for loans. The Intermediate Credit Bank makes loans to cooperative associations secured by warehouse receipts on commodities, or it discounts agricultural paper of National and State Credit Corporations. This paper may be upon livestock or agricultural products, and in this connection serves to finance current operations of the farmer. Credit for agricultural production can be obtained from the local commercial banks, but commercial banks are not suited to agricultural loans that may not be repaid at harvest. A great amount of detailed study is needed to determine the essentials of a safe credit policy for agricultural development. The problem is different from that of ordinary agricultural credit. More information is needed concerning the safety of loans for farm improve- BUL. 435] AGRICULTURAL DEVELOPMENT AND IRRIGATION 99 ment where close supervision, selection of settlers, and the other features of such a plan take the place of a certain amount of the security usually required in the making of commercial loans which rarely exceed 50 per cent of an appraised value. More information is also needed concerning the advancing of credit even more liberally than was granted under the California Land Settlement Act. It is contended by some that these advancements of credit were too liberal. There is a great amount of evidence that the act was in the right direction. We have not sufficient proof, however, as to whether exten- sion of credit was too liberal or not liberal enough. Capital require- ments so frequently exceed the amount possessed by the settler, that even the generous terms of this act may not have provided funds sufficient for economic development. Those engaged in the study of farm management and production economics as applied to agriculture, and many workers in land settle- ment, are coming to realize the importance of the farm organized on the basis of best combinations of enterprises and the most economical combinations of capital, land area, and labor. Usually the combination which is most efficient is one which requires large amounts of capital to finance the purchase of land, equipment, and livestock. Enterprises based solely on the size of the purchaser's pocketbook are likely to be inefficiently organized and will have difficulty in competing with farms which are more efficiently planned and financed. There is some ques- tion as to the relative safety of mortgage loans, made on the basis of 50 per cent of the conservative appraisal regardless of capital requirements, as compared with larger loans made on the basis of capital requirements for maximum efficiency, safeguarded by a con- tract outlining the general program to be followed. Whatever may be the safe credit policy, more study should be given its desirability apart from its safety. Some attention should be given to the extent to which advice and direction can be given and to what are the most economical programs of farm development and operation, and to the cost of maintenance of such programs. A careful study should be made of the improvements which can be made in the existing organ- ization for land settlement which was really created for experimental and demonstrational purposes, and if this organization is found inadequate for a permanent program of rural development, then a study should be made to determine the proper institution through which land settlement can be administered and financed. Until these and other studies have been completed, it will be very difficult to formulate any policy directed at the improvement of present practices of rural development.