The impact of short-term and long-term risk reduction measures on irrigator strategies and profitability

Farmers face significant challenges in managing crop planting and water allocation decisions due to fluctuating precipitation and volatile crop market prices. Subsidized federal crop insurance programs stabilize short-term risks, reshaping farmers’ strategies. However, irrigation restrictions, critical for curbing groundwater depletion and promoting long-term sustainability, can limit farmers’ adaptability to short-term variability. In western Kansas, where irrigation relies heavily on the High Plains Aquifer, self-organized pumping restrictions aim to balance agricultural productivity with aquifer sustainability. This study develops the FARM-OPT (Farming Allocation and Resource Model with OPTimization) model to assess how short-term risk mitigation measures (e.g., crop insurance) and long-term strategies (e.g., groundwater pumping restrictions) shape optimal cropping decisions under variable precipitation and market conditions. FARM-OPT uniquely integrates financial and regulatory risk management instruments within a unified, farm-level decision-making framework, enabling policy-relevant analysis of trade-offs between profitability and groundwater use. Findings indicate that crop insurance helps farmers sustain profitability and cultivate high-value, water-intensive crops like corn, even amidst market and precipitation fluctuations. Under the most restrictive groundwater pumping limits, crop insurance mitigates losses by increasing median profitability by approximately 50 % compared to scenarios without insurance, while requiring around 70 % less water. While insurance reduces financial risks and may align with groundwater conservation goals, outcomes depend on how payouts are administered, as real-world practices introduce uncertainty and unproductive water use. This research underscores the importance of integrated risk mitigation strategies, revealing how crop insurance and irrigation policies can complement one another to enhance agricultural resilience while safeguarding groundwater resources. These insights inform the design of policies that balance short-term economic needs with long-term sustainability. • FARM-OPT shows how crop insurance and groundwater policies shape optimal farming. • Crop insurance sustains profits, enabling high-value, water-intensive crops. • Insurance halves losses (-9.0 % vs. −19.1 % without) under stricter water rights. • Integrating insurance with conservation balances resilience and sustainability.