Economic Impacts of Irrigation-Constrained Agriculture in the Lower Po Basin

Abstract

Climate change, increasing demand for water, higher environmental standards and inelastic water supply suggest that future drought response in Southern Europe would require more efficient management of water use. In this context, there is a pressing need for a better understanding of the economic impacts of irrigation restrictions, including their microeconomic and broad economic repercussions. This paper connects a multi-attribute Revealed Preference Model working at an agricultural district level with a regionally calibrated supply and use model that combines nonlinear programming and input-output modeling techniques to address water allocation issues. To the best of our knowledge, this is the first time these two modeling approaches are combined in this fashion. Methods are illustrated with an application to the Lower Po River Basin (LPRB) in the Emilia Romagna Region, Italy. Results show that irrigation restrictions generate rising incremental losses in the agricultural districts of the LPRB, which are amplified through negative inter-sectorial feedbacks at a regional level. Contraction of production in Emilia Romagna results in an excess demand situation that propels the production of substitute goods elsewhere in Italy, partially but not fully compensating economic losses in the region. Methods and results offer a basis for assessing tradeoffs in irrigation restrictions and related adaptations, for climate change included.