Farm-level Hydroeconomic Analysis of Alternative Water Tariff Charges Using a Hybrid Solution Method

Abstract

This paper's main objective is to develop a farm-level water programming model to realistically model extensive margin and intensive margin responses resulting from deficit irrigation to the implementation of volumetric water charges. The highly complex programming model that uses the FAO56 water budget calculations to simulate crop water use while using relative evapotranspiration to estimate crop yield is solved using a hybrid procedure. The hybrid solution procedure uses a genetic algorithm to simplify the optimization model by fixing the irrigation schedule of each crop and then solving for the optimal water allocation amongst crops subject to water constraints. The area-based charges results showed that when irrigation application efficiency is low, irrigators could apply more water per hectare to sustain high crop yields without being held accountable if water quotas are exceeded. In contrast, irrigators with higher application efficiency could use less water than the area-based estimated water use. The results also showed that volumetric water charges cause both intensive margin and extensive margin responses. The conclusion of whether a volumetric-based water charging system will be better than area-based water charges is not straightforward because of differentiated impacts on profitability and hydrology. While irrigators will use irrigation water more efficiently and adopt more efficient irrigation technologies, their changed behavior could impact the hydrology of the water system through reduced return flows.