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Investment in Irrigation Systems under Weather Uncertainty

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  • Heumesser, Christine
  • Fuss, Sabine
  • Szolgayova, Jana
  • Strauss, Franziska
  • Schmid, Erwin
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    Abstract

    Irrigated agriculture will play a crucial role to meet future food demand, but a sustainable water resource management in agriculture is crucial as well. Therefore, the European Water Framework Directive promotes several measures, e.g., the adoption of adequate water pricing mechanisms or the promotion of water-saving irrigation techniques. Since production conditions such as weather and climate development are uncertain, farmers might be reluctant to invest in a water-saving but capital intensive irrigation system. We apply a stochastic dynamic programming approach to analyze a farmer’s optimal investment strategy for either a water–saving drip irrigation system or sprinkler irrigation system under weather uncertainty and assess the probability of adopting either irrigation system until the year 2040. We design two policy scenarios: (i) irrigation water pricing and (ii) equipment subsidies for drip irrigation, and investigate how they affect the farmer’s optimal investment strategy. Our case study analysis is performed for the region Marchfeld, a typical semi-arid agricultural production region in Austria. We use data from the bio-physical process simulation model EPIC (Environmental Policy Integrated Climate) which accounts for site and management related characteristics as well as weather parameters from a statistical climate change model. We find that investment in drip irrigation is unlikely unless subsidies for equipment cost are granted. Even water prices do not increase the probability to adopt a drip irrigation system, but rather decrease the probability to invest into either irrigation system.

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    Bibliographic Info

    Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114536.

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    Date of creation: 2011
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    Handle: RePEc:ags:eaae11:114536

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    Keywords: Irrigation investment; stochastic dynamic programming approach; water policies; weather uncertainty; EPIC; Farm Management; Risk and Uncertainty;

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    1. Yohannes, Fekadu & Tadesse, Teshome, 1998. "Effect of drip and furrow irrigation and plant spacing on yield of tomato at Dire Dawa, Ethiopia," Agricultural Water Management, Elsevier, vol. 35(3), pages 201-207, January.
    2. Cetin, O. & Bilgel, L., 2002. "Effects of different irrigation methods on shedding and yield of cotton," Agricultural Water Management, Elsevier, vol. 54(1), pages 1-15, March.
    3. Kiniry, James R. & Major, D. J. & Izarralde, R. C. & Williams, J. R. & Gassman, Philip W. & Morrison, M. & Bergentine, R. & Zentner, R. P., 1995. "Epic Model Parameters for Cereal, Oilseed, and Forage Crops in the Northern Great Plains Region," Staff General Research Papers 894, Iowa State University, Department of Economics.
    4. Franziska Strauss & Herbert Formayer & Veronika Asamer & Erwin Schmid, 2010. "Climate change data for Austria and the period 2008-2040 with one day and km2 resolution," Working Papers 482010, Institute for Sustainable Economic Development, Department of Economics and Social Sciences, University of Natural Resources and Life Sciences, Vienna.
    5. Tozer, Peter R., 2009. "Uncertainty and investment in precision agriculture - Is it worth the money?," Agricultural Systems, Elsevier, vol. 100(1-3), pages 80-87, April.
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