The impact of new regulations on water pricing in the agricultural sector: a case study from Northern Italy

The present study intends to investigate the expected impact of changes in pricing policies applied to the use of water resources recently experienced in an agricultural area located in Northern Italy. The study begins introducing the pricing criterion adopted by a water authority in different region supplied by its irrigation network. This pricing criterion is, then, analysed in light of the new regional mandatory requirement on water pricing and modified accordingly. A methodology is developed to evaluate the expected impact of the new pricing policy on the amount of water applied, land allocation and irrigation technology adoption. The methodology follows a two-step approach. In a first step we estimate the yield response to decreased water uses for the main crops cultivated in the area and for different irrigation techniques. In a second step, the estimated production function is integrated into an economic optimisation model to calculate relevant impacts. The results highlight that the change in pricing criteria would not cause substantial variations in water uses. This is mainly due to inelastic demand for water in agriculture. However, the new pricing criteria incentivize the adoption of water saving technologies. The study concludes by addressing that attention should be paid to synergies of water pricing with co-financing subsidies on investments for further promoting the adoption of water saving technologies.