Estimation of farmers’ willingness to pay for water in the agricultural sector

Abstract

Increasing the reliability of irrigation water raises the cost of water storage and the price that farmers must pay for water. Evaluating farmers’ willingness to pay (WTP) for water is key to determining the reliability of irrigation water achievable. This paper presents a probabilistic optimization method for estimating the WTP to avoid water shortage. A nonlinear programming model was formulated to model water use and estimate a single farmer’s WTP when water shortage occurs. The model was subsequently expanded to include the WTP of a group of farmers relying on Monte Carlo simulation. Results show that low water prices do not have any effect on water use when there is no shortage of water. Facing water shortage, farmers employ irrigation systems with high efficiency to reduce the use and cost of irrigation water. They also change the cropping pattern to cultivate crops with low water requirements. The farmers’ WTP for irrigation water during shortage is assessed probabilistically and is found to be highly variable.