Understanding the Economics of Arizona Alfalfa
George Frisvold, Professor and Extension Specialist
Dari Duval, Economic Impact Analyst
Department of Agricultural & Resource Economics, University of Arizona
The share of western water used for alfalfa production has been the subject of recent controversy. This controversy has grown as Arizona and other states face ongoing cutbacks in Colorado River water and as the share of alfalfa that is exported has grown. This piece examines the economic rationales for why alfalfa is grown in Arizona, including its role in the state’s dairy complex, which provides half a billion dollars in wages annually in the state. A short answer is that Arizona alfalfa production is highly efficient compared to other parts of the country, alfalfa prices have been quite high recently, generating record value, and alfalfa’s water use per dollar generated is lower than for many other crops.
Highest Yields in the Country
Arizona’s warm climate enables more alfalfa cuttings per year than in other parts of the country. This contributes to high yields. Of all U.S. counties reporting alfalfa yields in the most recent USDA Census of Agriculture, the top 5 counties are all from Arizona. Arizona has 7 of the 9 highest-yield counties, nationally (Figure 1). In 2022, Arizona alfalfa yields averaged 8.2 tons per acre, the highest in the country, and more than 2.5 times the national average of 3.2 tons per acre.
Acreage and Production Trends
Throughout the 1980s to mid-1990s, Arizona alfalfa acreage hovered around 150,000 acres. With increased planting flexibility provisions in the 1996 Farm Bill, alfalfa acreage began to rise (while cotton acreage fell). Alfalfa acreage reached a record 300,000 acres in 2015, but has since fallen from that high, and was at 260,000 acres in 2022. Likewise, Arizona farms produced a record 2.5 million tons of alfalfa in 2015, with production most recently at 2.1 million tons in 2022.
High Prices / High Values
Arizona also produces high-quality alfalfa, which fetches higher prices. The price of Arizona alfalfa was $320 per ton in 2022, 23% higher than the national average price of $260 per ton. High yields and high quality translate into high values of production. Not all alfalfa produced in Arizona is sold. Some livestock operations grow alfalfa as feed for their own animals. In those cases, the product is not marketed (or reported as cash receipts). That production, though not sold, still has value. For most of the past decade, the total value of Arizona alfalfa production fluctuated between $400 and $500 million. With sharp increases in alfalfa prices, values rose to more than $682 million in 2022. Prices rose from $214 per ton in 2021 to $320 per ton in 2022, a 50% increase. So far, in 2023 prices have been even higher, ranging from $345-$355 per ton. In 2021, Arizona ranked 9th among all states in alfalfa value of production. In 2022, Arizona ranked 4th.
Arizona Dairy Complex
Alfalfa is a critical input to Arizona’s dairy industry – part of the state’s broader dairy complex. Alfalfa production, dairy cattle and milk production, dairy product manufacturing, and dairy product wholesaling generate more than half a billion dollars in wages in Arizona annually. Dairy product manufacturing is the number one manufacturing sector in Pinal County in terms of jobs and wages, with 844 jobs and $66 million in wages (Table 1). Cement and concrete manufacturing rank second, with $36 million in wages. Dairy products manufacturing wages are also relatively high, behind only medical equipment and supplies and aerospace products and parts. Average wages in manufacturing tend to be higher than in many service sector jobs. Notably, 4 of the top 10 manufacturing sectors in Pinal County (in terms of total wages) are food and fiber related.
Alfalfa (and Other Hay and Forage Products) Exports
Arizona’s exports of hay and other forage products (including alfalfa) have risen from near zero before 2013 to more than 350,000 metric tons in 2022. Exports had been declining from a peak in 2018, but strong demand in 2022 spurred higher sales.
Export sales have increased even more than exports by weight because of the combination of increased shipments and higher prices (Figure 3). While exports by weight grew by 67% in 2022, the dollar value of exports doubled.
Hay and forage product exports as a share of total Arizona production were minimal before 2015 (Figure 4). It has risen above 15% of production since 2016, reaching 22% in 2022.
The increase in Arizona hay exports mirrors similar increases in U.S. western states in response to growing foreign demand. The vast majority of Arizona’s forage exports are destined for Saudi Arabia, China, and the United Arab Emirates (Figure 5). Exports to Saudi Arabia and China have experienced rapid growth in the past decade.
Alfalfa’s Water Footprint
In the popular press, different crops are often compared and evaluated in terms of water applied per acre of land. Alfalfa production in the Southwest has been criticized because more acre-feet of water are applied per acre than other crops. But, from an economic standpoint, acre-feet applied per acre is not an especially useful metric. A more pertinent question is, what is the economic value of production one gets per acre-foot of water applied? Table 2 considers this question in two ways, based on USDA data on irrigation applications and crop sales for 2018 (the most recent year with irrigation data). The first row compares Arizona crop revenues generated per acre-foot of water applied. The second row considers acre-feet of water (AF) applied per thousand dollars of sales generated. Arizona vegetable crops generate very large revenues per acre-foot (more than $3,000 per AF). Next, come fruit and nut crops at $366 per acre-foot. Alfalfa revenues per acre-foot applied were $299 per AF, higher than the average of all remaining Arizona field crops. These remaining other crops use nearly half of Arizona’s irrigation water. Likewise, the amount of water applied to alfalfa to generate $1,000 in sales (alfalfa’s water footprint) is higher than for vegetables, melons, fruits, and nuts, but lower than for all remaining crops. The last column of Table 2 shows how a crop’s economic water productivity depends on crop prices. If recent, high, 2022 prices are used (keeping water use constant), then alfalfa would generate $452 / AF, while it would take only 2.2 AF to generate $1,000 in sales.
Alfalfa is grown in Arizona because the combination of top-ranking yields and high quality generates larger revenues than in other parts of the country. With recent high prices, alfalfa’s water footprint (water used per dollars generated) is actually lower than many other crops. Alfalfa production predominantly goes to Arizona dairy production. Because dairy products are bulky and expensive to ship, most are consumed locally, primarily in the Phoenix and Tucson metro areas. Meeting these local, urban demands is an important driver in the Pinal County economy.
Because of recent demand growth, alfalfa exports have grown. This has raised questions about Arizona water being “exported” in the form of alfalfa. Yet, we “import” water in the form of rice Arizonans consume or in the form of dairy feed concentrates produced out of state. Trade goes both ways. Attempts to control water use by restricting agricultural trade are not likely to succeed. If Arizona producers were prohibited from exporting alfalfa, California (or Oregon or Washington) producers would just export more instead of selling to local dairies, while Arizona growers would just sell more to California dairies. Managing water resources directly in a way that reflects the true scarcity value of water is likely to be more effective than trade restrictions in conserving water.
Editor's Note: Watch for our ongoing analysis of the role that Arizona's alfalfa crop contributes to our state.