Estimating marginal value of water for irrigated olive grove with the production function method

Abstract

Economic valuation of irrigation water is done through the use of production functions for the case of the olive grove. In order to do so the integration of an agronomic model (based on the production function) and an economic model linked to the profitability of the crop (the ratio of revenue and operating costs) in the area under study is proposed. The study case encompasses the Guadalbullon River Sub-basin area, belonging to the Guadalquivir River Hydrologic Demarcation (Southern Spain). Within the overall deficit of the Guadalquivir River basin, the Guadalbullon River poses a special problem as it is unregulated and there are important irrigated fields on its banks, most of them olive groves. Net marginal value of water obtained (having deducted the variable costs of production including harvesting and irrigation) is€ 0.60 m–3 for the allocation of 1,000 m3 ha–1 and € 0.53 m–3 for the water right allowance of 1,500 m3 ha–1 (average for period 2005/2008). The results obtained support the recommendation by other authors suggesting the use of deficit irrigation in olive, additionally the high value of water estimated contributes to explain the substantial increase in irrigated olive area in Andalucia.

An assessment of farmers' willingness to participate in water trading in southern Spain

“…For example, olive irrigation requires an average investment in infrastructure of over 3,000 EUR/ha for an average net margin of around 0.30 EUR/m 3 (Mesa-Jurado et al, 2010). The exact break-even point is difficult to estimate as prices of olive oil are volatile and productivity of olive groves varies.…”

Microeconomics of Deficit Irrigation and Subjective Water Response Function for Intensive Olive Groves

“…To our knowledge, there are no precedents for this approach for irrigated olive groves. One previous study in the agronomic literature has focused on low-density olive orchards (100 trees per hectare), resulting in an irrigation volume for maximum transpiration of around 2740 m 3¨h a´1, above which the marginal productivity is null [18]. The Guadalquivir Hydrological Plan establishes a water rights allocation of 1500 m 3 /ha for the traditional density of 100 trees per hectare [19]; this allocation is increased to 2500 m 3 /ha for intensive olive groves with densities of around 300 trees per hectare, such as those we have studied.…”

“…Mesa-Jurado et al [18] used this production function to estimate the value of water based on the agronomic estimated response.…”

Farmer’s subjective elicited water response function for intensive olives and compromise programming method for irrigation supply decision

“…The water production function for traditional density (100 trees per hectare) is well known and was analysed in Mesa-Jurado et al (2010) but the water production function for higher densities (300 to 800 trees per hectare) is not known yet. The technique is recent and agronomic research at the moment is lagging behind the deployment of innovative farmers plantations, based upon a trial and error approach to olive intensification.…”