Our study area in the People's Victory Canal Irrigation District (PVCID), which is downstream of the Yellow River in China, has been undergoing agricultural water transfer to the city for municipal uses. Water supply condition data from PVCID are used to analyze the impacts of water reallocation on agricultural water supply quality, and field survey data in PVCID are used to examine the impacts of agricultural water supply quality on the utilization degree of canal water. Several issues on the current compensation methods are also discussed. Results show that the amount of irrigation water and the number of days for irrigation are affected by water reallocation, especially when the amount of water diversion significantly decreases. Regression results show that timeliness and adequacy of canal water are important factors affecting the utilization degree of canal water. Several factors reveal significant association with the utilization degree of canal water, such as the water price of canal water, water fee charge methods, soil texture of the largest cropland, precipitation, and age of farm household head. Current compensation methods can hardly compensate for the decrease in canal water reliability. Some recommendations are put forward to compensate for the adverse effects of agricultural water transfer.