Water pricing policies, public decision making and farmers' response: implications for water policy

The problems caused by water scarcity demand important changes in the criteria and objectives of water policies. The agricultural sector in Spain consumes up to 80% of all available hydric resources and the need to increase the efficiency of current uses of water in the agricultural sector is at the core of the country's national water policy. One alternative would be to resort to water pricing policies with the aim of providing incentives to save water consumption although it would inflict a certain degree of income losses to the farmers and raise the revenue collected by the water authorities. The objective of this research is to analyze the effect caused by the application of different water pricing policies on water demand, farmers' income and the revenue collected by the government agency. To undertake this analysis a dynamic mathematical programming model has been built that simulates farmers' behavior and their response to different water pricing scenarios. Empirical application of the model has been carried out in several irrigation districts in Spain covering varied farm regions and river basins. Results show that the effects of alternative pricing policies for irrigation water are strongly dependent on regional, structural and institutional conditions and that changing policies produce distinct consequences within the same region and water district. Thus, equivalent water charges would create widespread effects on water savings, farm income and collected government revenue across regions and districts.