Irrigation water use, shadow values and productivity: Evidence from stochastic production frontiers in vineyards

Abstract

Increasing agricultural water use efficiency has the potential to contribute significantly to hydrological sustainability and to coping with increasing water scarcity. This paper focuses on the role of the quantity of irrigation water applied and irrigation method used in explaining output in wine grape farms. We applied propensity score matching to reduce potential selection bias from observables that might mediate in the choice of irrigation system. Stochastic Production Frontier models are then estimated for a sample of 371 Chilean wine grape growers. The results show that pressurized irrigation leads to higher production at all levels of water applied; however, at lower levels the impact on TVP is more pronounced. Shadow values calculated at observed output for pressurized and gravity systems are 0.026 USD m−3 and 0.033 USD m−3, respectively. Significant differences are found between low (0.046 USDm−3), medium (0.027 USD m−3) and high (0.018 USD m−3) levels of water applied. The average technical efficiency for the sample is 70.4% and there is no significant difference between growers using pressurized and gravity methods. Our findings suggest that irrigation water can be saved without compromising output, which has important implications for sustainability given that agriculture is the most water demanding sector in the world.