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Investment in Irrigation Systems under Precipitation Uncertainty

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  • Christine Heumesser
  • Sabine Fuss
  • Jana Szolgayová
  • Franziska Strauss
  • Erwin Schmid

Abstract

Efficient agricultural water management is indispensable in meeting future food demands. The European Water Framework Directive promotes several measures such as the adoption of adequate water pricing mechanisms or the promotion of water-saving irrigation technologies. We apply a stochastic dynamic programming model (SDPM) to analyze a farmer’s optimal investment strategy to adopt a water-efficient drip irrigation system or a sprinkler irrigation system under uncertainty about future production conditions, i.e. about future precipitation patterns. We assess the optimal timing to invest into either irrigation system in the planning period 2010 to 2040. We then investigate how alternative policies, (a) irrigation water pricing, and (b) equipment subsidies for drip irrigation, affect the investment strategy. We perform the analysis for the semi-arid agricultural production region Marchfeld in Austria, and use data from the bio-physical process simulation model EPIC (Environmental Policy Integrated Climate) which takes into account 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. Also water prices do not increase the probability to adopt a drip irrigation system, but rather delay the timing to invest into either irrigation system. Copyright Springer Science+Business Media B.V. 2012

Suggested Citation

  • Christine Heumesser & Sabine Fuss & Jana Szolgayová & Franziska Strauss & Erwin Schmid, 2012. "Investment in Irrigation Systems under Precipitation Uncertainty," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(11), pages 3113-3137, September.
    • Handle: RePEc:spr:waterr:v:26:y:2012:i:11:p:3113-3137
    DOI: 10.1007/s11269-012-0053-x
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    6. Jing, Bing & Shah, Farooq & Xiao, Enshi & Coulter, Jeffrey A. & Wu, Wei, 2020. "Sprinkler irrigation increases grain yield of sunflower without enhancing the risk of root lodging in a dry semi-humid region," Agricultural Water Management, Elsevier, vol. 239(C).
    7. Mirra, Laura & D'Urso, Guido & Giannoccaro, Giacomo & Cicia, Gianni & Del Giudice, Teresa, 2021. "Water Pricing in Agriculture following the Water Framework Directive: A Systematic Review of the Literature," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 12(04), December.
    8. Alcon, Francisco & Tapsuwan, Sorada & Martínez-Paz, José M. & Brouwer, Roy & de Miguel, María D., 2014. "Forecasting deficit irrigation adoption using a mixed stakeholder assessment methodology," Technological Forecasting and Social Change, Elsevier, vol. 83(C), pages 183-193.
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    10. MB Dastagiri & Anjani Sneha Vajrala, 2018. "Financing Climate Change on Global Agriculture-An Overview," International Journal of Environmental Sciences & Natural Resources, Juniper Publishers Inc., vol. 12(5), pages 148-153, July.
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    17. Jianli Luo & Chen Ji & Chunxiao Qiu & Fu Jia, 2018. "Agri-Food Supply Chain Management: Bibliometric and Content Analyses," Sustainability, MDPI, vol. 10(5), pages 1-22, May.
    18. Karner, Katrin & Schmid, Erwin & Schneider, Uwe A. & Mitter, Hermine, 2021. "Computing stochastic Pareto frontiers between economic and environmental goals for a semi-arid agricultural production region in Austria," Ecological Economics, Elsevier, vol. 185(C).
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    20. Shumin Han & Qiuli Hu & Yonghui Yang & Jiusheng Wang & Ping Wang & Quan Wang, 2015. "Characteristics and Driving Factors of Drainage Water in Irrigation Districts in Arid Areas," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 29(14), pages 5323-5337, November.
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    22. Mitter, Hermine & Heumesser, Christine & Schmid, Erwin, 2014. "Modelling robust crop production portfolios to assess agricultural vulnerability to climate change," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182702, European Association of Agricultural Economists.
    23. Luca Di Corato & Tsegaye Ginbo, 2020. "Climate change and coffee farm relocation in Ethiopia: a real-options approach," Working Papers 2020:02, Department of Economics, University of Venice "Ca' Foscari".

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