Reallocation of water in agriculture under drought conditions as economic efficiency maximizer

Abstract

Objective: To analyze the water market scheme for water rights transfer, which could enable the increase of the economic efficiency of water use in the Irrigation District 011 - Alto Río Lerma. Design/Methodology/Approach: Using linear programming, a first model was developed to determine shadow prices in three water scarcity scenarios (15, 30, and 50% water resources reduction) and to compare them with the irrigation fees currently paid in Irrigation District 011. The second model established a water market scheme, using the same water scarcity scenarios (15, 30, and 50%). This model was developed to compare the net profit of the producers within and outside the water right transfer market. Results: The average shadow price of water is MN$ 3.9 m-3; this amount is higher than the irrigation fee currently paid (MN$ 0.15 m-3). The water transfer percentages are 25.8, 29.1, and 36.1%, obtaining 7.6, 7.4 and 11.7% net profit, respectively, for each water scarcity scenario (15, 30, and 50%). Study Limitations/Implications: The research was carried out based on the data from two out of the 11 irrigation modules included in Irrigation District 011. These modules are the most representative, both in extension and crop variety. Findings/Conclusions: The existence of a water market confirms the advantages of an increase in the net profit of the producers under drought conditions, included within the area of Irrigation District 011.