Multicriteria analysis of derived water demand functions: a Spanish case study

Abstract

Irrigated agriculture has been analysed in Spain in recent years because of its high water consumption and its apparent inefficiency. Several possibilities for water policy have been debated, in particular the pricing of irrigation water. This paper aims to contribute to this discussion by simulating the impact that a policy based upon the price of water could have on agricultural production, analysing the economic, social and environmental implications of such a water policy. This research introduces a methodology for deriving water-demand functions in contexts in which farmers' behaviour is not explained by the maximisation of gross margin but by a utility function with several conflicting criteria. This methodology utilises a weighted-goal programming approach to estimate a surrogate utility function for the farmer's decision process; this in turn is used to estimate the value of water demand in irrigated crop production using utility-derived demand functions. The empirical results of this study stress that water pricing as a single instrument for controlling water use is not a satisfactory tool for significantly reducing water consumption in agriculture. The reason for this is that consumption is not reduced significantly until prices reach such a level that farm income and agricultural employment are negatively affected. The results also show that the estimated water-demand curve is different when a multicriteria utility function rather than the classical profit maximisation hypothesis is employed.