Toward the adaptation to new regulation on water pricing in the agricultural sector: a case study from northern Italy

As the Water Framework Directive (WFD) expects, Italian Regions established new criteria for pricing rules the design, according to which Reclamation and Irrigation Boards (RIBs) allocate supply costs among users. A novelty is the attainment of full-cost recovery, introducing mixed tariffs, covering both fixed and variable costs. This paper evaluates the feasibility and the effectiveness of new water pricing criteria, in northern Italy case-study. Specifically, the impact of current pricing criteria are compared to a new hypothetical pricing scenario, based on irrigation consumption, land allocation, and irrigation technology adoption. The methodology followed a two-step approach. First, crops water requirements, and irrigation reduction effects on crop yields were simulated for different irrigation systems. Then, the derived water-crop production functions were input into an economic model, following a positive mathematical programming approach (PMP). Main assumptions were that farmers seek to maximize profits, that observed cropdesigns and water-uses are optimal, and that the authority acts on behalf of its users, aiming to both supply cost recovery and minimize impact on farm profits. Results highlight that there are no substantial variations between current and new hypothetical pricing scenarios, for three reasons. First, the variable charge is low, and it does not significantly affect water consumption. Second, incentive water pricing is feasible only in a limited area, served by pressured pipes. Third, irrigation water demand is inelastic, and it depends on the distribution system adopted. Moreover, the adoption rate of more precise irrigation systems would rise by increasing variable charges, when the ratio between fixed and variable components is flexible, hence also directly affecting irrigation demand. In fact, since fixed costs are usually greater than variable costs, mixed tariff adoption in this area could both recover water supply costs, and co-finance subsidies on irrigation technology investments, as was otherwise prevented by latest CAP-reform.