Recent Colorado, USA water law provisions allow a portion of irrigation water to be leased between agricultural and other users. Reducing consumptive use (CU) through deficit irrigation while maintaining some crop production could allow farmers to earn revenue from leasing water rights. This observational study aimed to determine if deficit irrigation of alfalfa (Medicago sativa L.) can be used to reduce CU, provide parameters for an alfalfa crop water production function (WPF), and evaluate the potential for improved farm income by leasing water. Soil water balance, evapotranspiration (ET), and dry matter yield from eight commercial fields (1.70 to 2.14 ha zones), growing subsurface drip-irrigated alfalfa, were monitored for five seasons (2018–2022) at Kersey, Colorado. Four irrigation treatments [Standard Irrigation (SI) = irrigate when soil water deficit (D) exceeds management allowed depletion (MAD); Moderate Deficit Irrigation (MDI) = 70% of SI; Severe Deficit Irrigation (SDI) = 50% of SI; and Over Irrigation (OI) = 120% of SI] were applied, with two zones per treatment. Reductions in CU ranged from 205 to 260 mm per season. The shape of the alfalfa WPF (dry biomass yield vs. ET) was concave, indicating that water use efficiency (WUE) could be optimized through deficit irrigation. The average WUE was 0.17 Mg ha−1 cm−1 and tended to increase with greater deficits. Deficit irrigation also increased the relative feed value. If conserved CU from deficit irrigation can be leased into a transfer water market, farmers could profit when the water lease revenue exceeds the forgone profit from alfalfa production. We found incremental profit from deficit irrigation and water leasing to be positive, assuming 2020 prices for hay ($230 bale−1) and water prices above $0.50 m−3.
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