A revised approach to assess adjusted dairy production costs considering water availability

This paper introduces an alternative approach to quantify and value natural resources involved in production process. To develop this methodology, we present the case of freshwater consumption in dairy production in Uruguay and an international comparison among selected countries. Based on already existing techniques, we suggest the development of a cost function that incorporates operating costs of production, water footprint, a valorization of freshwater through residual imputation method and a factor of adjustment through Water Stress Index (WSI). The inclusion of WSI allows to build an opportunity or reserve cost according to availability or scarcity of the resource in a certain watershed or region; resulting not only from natural provision of it but also from the consumption or pressure that different users make on the resource. This study is a first approximation to the matter of the inclusion of the services provided by certain natural resources in the calculation of production costs given their regional availability, other alternative uses and their variability or replacement rate. Based on reviewed bibliography we suggest further applications and development that could be of great significance in the framework of sustainable development. Acknowledgement : To Francisco Manazza