Investment in Irrigation Systems under Weather Uncertainty

Irrigated agriculture will play a crucial role to meet future food demand, but a sustainablewater resource management in agriculture is crucial as well. Therefore, the European WaterFramework Directive promotes several measures, e.g., the adoption of adequate water pricingmechanisms or the promotion of water-saving irrigation techniques. Since productionconditions such as weather and climate development are uncertain, farmers might be reluctantto invest in a water-saving but capital intensive irrigation system. We apply a stochasticdynamic programming approach to analyze a farmer’s optimal investment strategy for either awater–saving drip irrigation system or sprinkler irrigation system under weather uncertaintyand assess the probability of adopting either irrigation system until the year 2040. We designtwo policy scenarios: (i) irrigation water pricing and (ii) equipment subsidies for dripirrigation, and investigate how they affect the farmer’s optimal investment strategy. Our casestudy analysis is performed for the region Marchfeld, a typical semi-arid agriculturalproduction region in Austria. We use data from the bio-physical process simulation modelEPIC (Environmental Policy Integrated Climate) which accounts for site and managementrelated characteristics as well as weather parameters from a statistical climate change model.We find that investment in drip irrigation is unlikely unless subsidies for equipment cost aregranted. Even water prices do not increase the probability to adopt a drip irrigation system,but rather decrease the probability to invest into either irrigation system.