Agricultural Water Management 97 (2010) 1795–1805

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Agricultural Water Management

journal homepage: www.elsevier.com/locate/agwat

Pricing of irrigation water under alternative charging methods: Possible

shortcomings of a volumetric approach
Gabriele Dono, Luca Giraldo ∗ , Simone Severini
Universita’ della Tuscia of Viterbo, Via S.Camillo de Lellis, 01100 Viterbo, Italy

a r t i c l e i n f o a b s t r a c t

Article history: The European water framework directive aims to protect the environmental quality of water and encour-
Received 10 July 2009 age its efficient use. EU member states are required to implement efficient water management systems
Accepted 22 June 2010 and appropriate water-pricing methods. This paper examines the economic effects that may arise given
Available online 21 July 2010
the introduction of two different methods for pricing irrigation in the Mediterranean area. The considered
pricing methods charge farmers for the costs incurred by water user associations (WUAs) in managing
Keywords:
water distribution networks. The first method, based on the metered use of water by farms, is known as
Water-pricing
the volumetric pricing method. The second is an area-based pricing method, whereby fees are charged
Water framework directive
Regional model
per hectare according to the estimated average water use for each crop. The economic effects and the
Linear programming impacts on the water usage of these two schemes are analyzed using a mathematical model that repre-
Volumetric pricing sents the farm sector in a Mediterranean area that relies on a dam for irrigation. The possible effects are
Groundwater analyzed under two scenarios: first, the methods are applied to the observed water-pricing conditions,
second, an additional charge is introduced to recover unaccounted costs of the water supply system (e.g.,
long-term costs related to infrastructure, and the operational and maintenance costs of dams) in line with
the water framework directive principle of cost recovery. The results show that the introduction of an
additional charge via the volumetric pricing method could stimulate the substitution of water provided
via collective networks with groundwater. This could adversely affect the financial situation of the WUA
and have negative environmental consequences. This negative outcome does not arise in the case that
an additional charge is applied via the area-based pricing method.
© 2010 Elsevier B.V. All rights reserved.

1. Introduction not accompanied by other relevant water policy measures and a

The main objectives of the European water framework directive
(WFD) (EU, 2000a) are protection of the environmental quality of
surface water and groundwater, and the promotion of sustainable
water policies. These objectives are expected to be met by planning
water use at the level of a river basin, including the introduction of
an appropriate water-pricing policy. Article 9 of the WFD states:
“[. . .] water-pricing policies provide adequate incentives for users
to use water resources efficiently, and thereby contribute to the
environmental objectives of this directive.” Previous authors argue
that water-pricing, whether dictated by government mandate or
driven by market forces, is an effective way to improve water alloca-
tion and encourage conservation (Tsur and Dinar, 1997). However,
other authors, such as Cornish et al. (2004), question whether
water-pricing in irrigation could be a successful instrument in con-
serving water or allocating it appropriately if such an approach is
wider program of interventions.
The WFD also requires all costs associated with water services to
be recovered and paid for by water users according to the volume of
water consumed. This requirement is expected to have two major
impacts on the farming sector. First, the public administrations
involved in water management (such as regional administrations
in Italy) are likely to apply additional charges to water use in
order to recover a greater share of the unaccounted cost (e.g., the
long-term costs of infrastructure, the operational and maintenance
costs of dams and environmental costs) (WATECO, 2003). Such
charges are expected to result in future increases in water prices
because water user associations (WUAs) (Consorzi d’Irrigazione),
which provide most of the irrigation water in Italy, currently charge
associated farmers only for the operational costs of water distri-
bution networks.1 Second, while many WUAs charge water users
according to area-based pricing methods (ABMs), there is grow-
ing pressure to move toward volumetric pricing methods (VPMs),

∗ Corresponding author.
1
E-mail addresses: dono@unitus.it (G. Dono), giraldo@unitus.it (L. Giraldo), WUAs supply water to 40.4% of Italian farms, and to 52.6% of the total irrigated
severini@unitus.it (S. Severini). land area (INEA, 2007).

0378-3774/$ – see front matter © 2010 Elsevier B.V. All rights reserved.
doi:10.1016/j.agwat.2010.06.013
1796 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805
which are believed to be more effective in encouraging water con-
servation because payments are directly linked to actual delivered
water. Yet the adoption of VPMs is potentially complicated. Perry
(2007) reported that many studies have found that the adoption of
pricing methods, believed to be stimulators of water conservation,
can lead to the opposite results. In fact, a reduction in the amount
of water delivered to farmers can result in an increase in the pro-
portion of water consumed on delivered (i.e. the consumptive use
coefficient of water) (Jensen, 1993; Perry, 2007) as a consequence
of improved irrigation technologies. However, because this out-
come could lead to an increase in the area of irrigated land and
increased water use, an end result may be a decrease in water con-
servation. However, in this paper, the focus lies on the absence of
pricing in groundwater irrigation, as individual irrigators and farm-
ers are only required to cover their own pumping costs. In addition,
limited knowledge on the location and distribution of the water
source and a general lack of legislation and enforcement in this
area prevent the public administration from regulating and con-
trolling the withdrawal of groundwater, and from charging farmers
for any environmental costs. In conclusion, given that the pricing
methods applied by WUAs have the effect of stimulating ground-
water exploitation, it is important to analyze the specific effects of
different pricing methods on the use of this resource.
This paper investigates the potential impact on the water usage
and the economic effects of increasing water prices in a Mediter-
ranean agricultural area in southern Italy, where the local WUA uses
a VPM but where farmers are also able to use water from privately
owned wells. The analysis evaluates and compares the impact of
price increases under the VPM and ABM approaches. We focus on
how an increase in the price of water delivered by WUA, applied
using different pricing methods, could reduce the total water use
but increase the withdrawal of groundwater, whose control and
reduced use is one of the relevant objectives of the WFD. Such a
price increase would be needed if regional authorities ask farmers
to meet a larger share of the costs associated with providing water
services (as they have been requested by the WFD); i.e., in addition
to operational and maintenance costs related to water distribution
networks, farmers are expected to pay for long-term costs related
to infrastructure, the operational costs of dams, and environmental
costs related to the supply system and the use of water.2
This study is based on applying ex-ante simulation scenarios
using a mathematical programming model that represents the agri-
cultural activities practiced in the study area. Here, water from a
large dam is supplied to farms by a WUA, although farmers can
also opt to pump groundwater from their own wells. Moreover, the
analysis takes into account an econometrically estimated distribu-
tion cost function incurred by the WUA for operational costs related
to the water distribution network. This consideration is important
in terms of assessing how the simulated scenarios affect the finan-
cial situation of the WUA in terms of the size of water payments
and how their operational costs are recovered.
The following section summarizes current water-pricing poli-
cies in Mediterranean areas. Subsequently, the main characteristics
of the study area are presented, along with the model used to run
the simulations and the simulated scenarios. Finally, the results
of the analysis are discussed, revealing that increased water prices
under VPMs, not accounting for the use of private wells, simply pro-
mote the substitution of surface water from the WUA network with
groundwater. Such an outcome could negatively affect the environ-
ment and complicate the financial situation of the WUA. However,
it is difficult to design and enforce a VPM that accounts for ground-
2
The WFD includes resource costs (i.e., the opportunity cost of water compared
with a present or future alternative use) within the costs to be recovered, even
though the wisdom of this approach is currently being debated in the literature.
water. This paper suggests that even if the VPM is theoretically
desirable, in practice it is not always feasible; consequently, other
pricing methods may be more effective in controlling groundwater
extraction.
2. Water charging schemes in the Mediterranean areas of
southern Italy
Italian WUAs generally charge associated farmers only for oper-
ational costs of water supply networks, herein referred to as water
distribution costs (WDC). All other supply costs (i.e., the operational
costs of dams, long-term costs of infrastructure, and environmen-
tal costs) are not charged to farmers. WUAs use various methods
in charging WDC, but they generally employ a unitary per-hectare
fee or a two-stages charge (a type of binomial system).
The per-hectare fee has traditionally been the most widely
adopted method in Italy because it is the simplest to manage when
charging farmers. In fact, WUAs compute WDC at the end of the irri-
gation campaign and divide it by the amount of farmland to which
water is supplied by the collective irrigation network, regardless of
whether the land is irrigated; consequently, this approach bears no
relation to the amount of water used by farmers.
The two-stages system includes a basic payment and a comple-
mentary payment. The basic payment, which may be directly or
indirectly linked to water use, is computed by multiplying a uni-
tary price of water by the amount of water used by farms. Basic
payments that are directly linked to water use are calculated based
on readings from water meters installed at farm gates, while those
that are indirectly linked to water use are calculated by estimating
the unitary water needs for each irrigated crop. The unitary price
of water is usually defined before the start of the irrigation sea-
son and is generally set below the expected average WDC. Farmers
are then asked for a complementary payment at the end of the
irrigation season in order to recover the full WDC. These comple-
mentary payments are generally charged according to the amount
of land equipped with the collective irrigation network rather than
the amount of water used by farmers. In times of severe drought,
it becomes difficult for WUA to charge farmers for complementary
payments, in which case the payment may be covered in part by
public funds.
The basic payment component of this two-stages system can be
calculated using two contrasting methods. A VPM approach is used
in the case that water meters are installed and functioning on every
farm (as this enables water use to be monitored); this approach
does not generally apply when water is delivered to the farm gate
by gravity-fed canal networks. National and regional Governments
commonly provide financial support to encourage a switch from
canal to pipeline systems and to install farm gate meters as part of
collective networks. This financial support aims at reducing water-
losses from the network and providing a better service to farmers,
but also at metering water supplied to farms and encouraging a
switch to VPMs.
Alternatively, basic payments are calculated using ABMs, which
estimate the unitary irrigation requirements for each irrigated crop
(i.e., crop-based charges). Some WUAs calculate accurate and large
sets of estimates that vary according to crop type, irrigation tech-
nology, soil characteristics and climatic conditions. In contrast,
other WUAs refer to broad groups of crops with different unitary
irrigation requirements, although this approach yields a rough esti-
mate of farm water use. In the case that an ABM is employed,
farmers must apply to the WUA for water by reporting their irriga-
tion plan at the beginning of the season. The WUA then checks if the
actual extent of irrigated crops is consistent with the irrigation plan
(to prevent the avoidance of payments in the case that the plans
show fewer crops than actually cultivated). In the event of severe
 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805
Fig. 1. Consortium of Nurra, North-Western Sardinia.
drought, during which times farmers are forced to leave fields fal-
low, payments are calculated on the actual extent of irrigated crops,
not solely on the cultivation plan presented beforehand.
ABMs are based on irrigated acreage and the water needs of
crops, irrespective of whether the water comes from a WUA net-
work or from farm wells, thereby generating an indirect charging
effect on groundwater. VPM is widely supported in technical and
political debates because it directly links water payments to the
amount of water delivered to farmers. However, for both pricing
models, water charges are set by WUAs in order to recover the
operational costs of water distribution networks, whereas the WFD
requires the recovery of a larger proportion of the costs of water
services. The use of the average cost in these calculations deviates
from the prescription that a fully efficient allocation scheme for a
scarce resource such as water should be based on balancing the
marginal net benefits of its uses (Perman et al., 2003). The cur-
rently employed pricing methods do not consider the long-term
costs of the relevant infrastructure, the operational costs of large
dams, or the social and environmental costs of water use. Thus,
these methods of charging farmers for water supplied by WUAs
are economically imperfect but politically feasible and easily man-
ageable.
The following analysis evaluates the possible economic effects
and the impacts on water usage of introducing an additional charge
in accordance with the principle of full cost recovery, as introduced
by the WFD. The analysis is performed considering the two main
water-pricing methods discussed here: ABM and VPM. The follow-
ing section describes the area that is the focus of the empirical
analysis and considers the motivation for the introduction of an
additional charge in the study area.
3. Study area and motivations for increasing the price of
irrigation water
The study area covers the Cuga river basin in the Sassari district,
North-Western Sardinia (Italy), comprising 34,492 ha of farmland
(Fig. 1). On 21,043 ha of this area, around 2900 farms receive water
from the Nurra WUA, distributing the surface water stored in a
system of two artificial lakes, Cuga (30 million m3 ) and Temo (54
million m3 ).
The WUA distributes only surface water: groundwater is man-
aged by farmers as a private asset. In this system, the water stored
1797
in the two lakes is shared between urban and farm uses. In the
case of a water shortage, urban uses are given priority and farmers
respond by using water from private wells, if available.
Surface water is distributed via two interconnected network
systems that differ in altitude (i.e., for low and high land). For low-
land areas, water from the two lakes is directly introduced into
pipelines and distributed by gravity. For highland areas, water is
first pumped into gathering basins located at a relatively high alti-
tude, from where it flows downward through a pipeline network
gravity. In 2004, the two systems carried similar volumes of water.
The water fees paid by farmers are aimed at recovering the WDC
incurred by the WUA. Since 2001, the pricing method has been VPM,
whereby farmers pay 0.0301 D /m3 (in 2004) as a basic payment
for the water they use, measured via farm gate meters installed at
each farm of the WUA. Before 2001, the Nurra WUA adopted an
ABM based on per-hectare estimated water use for three different
groups of crops (Table 1).3
There are no official data on the extraction of water from
wells; however, the WUA’s engineers have estimated that the
annual withdrawal of groundwater is between 2.5 and 4 million m3 ,
depending on how much water from the dams is provided for agri-
cultural use. The number of wells owned by farms, as well as their
location and technical features, has been identified from agricul-
tural census data and data compiled as part of the RIADE Research
Project, jointly run by ENEA (National Agency for New Technology,
Energy and Sustainable Economic Development) and the University
of Sassari (Italy) (Dono et al., 2008). These data reveal that farms
use approximately 107 wells in the area.
The agricultural sector in the study area is represented by a
regional model of mathematical programming consisting of 24
blocks that describe the most relevant farming systems. Each farm-
ing system, called a macro-farm (with reference to the blocks in
the model), represents a group of farms that are relatively homo-
geneous in terms of size (cultivated land and livestock units),
production patterns, presence of wells and location in the study
area (Table 1). Thirteen of the macro-farms are located in the zone
to which the WUA delivers water; 11 are located outside of this
zone, where farms only rely on water from privately owned wells
3
In the study area, water meters were installed at farm gates with a financial
contribution from national and regional Governments.
1798 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805

Sheep (heads)
or practice rain-fed agriculture. Note that the production of some
of these typologies is not considered as typically Mediterranean,
such as intensive dairy production and the associated cultivation
of irrigated crops for producing forage.

–
–
–
–
–
–
–
–
–
14,398
21,273
–
–
In the mathematical programming model, production technolo-
Cattle (heads) gies for crops and livestock are accurately defined based on the
main activities observed in the study area. In particular, the use
of water by crops is defined according to the employed irrigation
techniques. Drip irrigation techniques, which are used for horticul-
tural crops and tree crops, are represented in the model, whereas
–
1026
–
–
–
–
–
–
–
–
–
–
–
flood irrigation is not used at all and is therefore not represented
in the model.
n◦ of farms

The motivation for the additional charge considered in the sim-

ulations is linked to reorganization of the dam system in Sardinia
(Regional Law 19/2006). In fact, regional authorities have directly
27
52
148
540
25
542
8
10
33
45

44
assumed the management of the entire dam system upon the island
and have requested industrial, urban and agricultural users to pay
Ha per farm
Areas not served by WUA

for related operational costs, consistent with the WFD and subse-
quent guidance documents (WATECO, 2003).
Various hypotheses have been expressed by regional officials
12.6
55.8
7.7
0.9
13.4

8.7
2.1
76.3
34.4
1.0

2.0
–

regarding the level of the additional fee to be charged for the use
of local distribution networks. In this study, an additional charge
Total Ha

of 0.0301 D /m3 is considered, which represents the average of the

prices proposed to date; this charge is double that currently levied
–
339
2909
1139
486
330
542
72
21
2482
1541
–
88

by the WUA.
w
w
w
w
w
w
w
w
w
w

w
a

4. Model structure
Sheep (heads)

The analysis is based on a linear programming model. This

tool has already been used with remarkable results in the field
of irrigation4 and it has proven to be suitable for regional-level
modeling (McCarl and Spreen, 2004).
–
–
–
–
–
–
–
–
–
57,578
40,353
–
–

The mathematical programming model has the structure of a

regional model in order to represent the 24 farm typologies con-
Cattle (heads)

sidered (Conradie and Hoag, 2004). The general structure of the

objective function and the main constraints are shown below (Eq.
1.1); a more detailed representation is provided in the Appendix
1558
280
–
–
–
–
–
–
–
–
–
–
–

A. The objective function, to be maximized and subject to equality

and inequality constraints, is defined as Z, representing the sum
of farm gross margins. This function is obtained by summing all
n of farms

the revenues related to the production sold (Rp) and CAP (common
agricultural policy) direct aid (Rs), minus variable activity-specific
2
5
139
28
1509
33
543
41
49
34
94
1
136

production costs (C):

◦

  
Max Z = Rp + Rs − C (1.1)
Ha per farm

d,s d,s d,s

Areas served by WUA
Farm typologies in the areas served and not served by Nurra WUA.

532.4
37.6
66.1
10.2
0.7
12.3
0.8
14.8
2.8
64.1
26.1

2.7
693.0

The parameter C also includes the costs incurred by farmers

in pumping water from private wells, where applicable, and the
charges applied by the WUA on the water it distributes to farmers.
w stands for wells meaning that the farm owns wells.

The index d refers to the irrigation district, and the index s indi-
Total Ha

cates farm typology (macro-farm). The study area is divided into

1065
188
9173
286
1056
406
434
614
136
2169
2455
693
367

two districts (those served and not served by the WUA), with 13
farm typologies in the first district and 11 in the second. Each ele-
ment of this function includes several variables and parameters. In
w
w

w
w
w
w
w
w
a

particular, a large set of variables refers to all the main crop and live-
stock activities carried out in the farms of the study area. Further
Cattle, small farms with wells

details on the model are given in the Appendix A.

Vegetable crops, medium

The model constraints can be classified into several groups. The

Vegetable crops, small
Olive groves, medium

first group refers to the availability of resources such as labor, land

Vineyards, medium
Olive groves, small

and water. Some of these constraints ensure that the total water
Vineyards, large
Arable, medium

Sheep, medium

required by macro-farms is never greater than the expected avail-

Arable, small
Arable, large

Sheep, small
Cattle, large
Table 1

4
For a review of mathematical programming models used in the field of economic
a

analysis of irrigation, see, for example, Conradie and Hoag (2004).

 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805
ability of water in the WUA network and that derived from private
wells. The expected availability of water in the WUA network was
estimated (for each irrigation period) by calculating the average
amount of water released by the WUA, based on a 12-year dataset
provided by WUA officials. Water constraints included in the model
have the following structure:
  of land and water use under the economic conditions of 2004 (base-
xa,d,s · AAa,t ≤ acqdst,d,s · COPERDd,t + apomt,d,s (1.2)
a same year by remote sensing (CASI4 database) and field surveys.
Water required by the farms is calculated by multiplying each
activity level (xa,d,s ) (index a), measured in hectares or heads, by
the unitary irrigation requirements (AAa,t ) for the corresponding
activity in each period (index t), acqdst,d,s is the water delivered
by the WUA to the farms. The amount of water globally delivered
in each period by the WUA cannot exceed the water availabil-
ity accounted for in another set of constraints. Losses of water
through the distribution network are accounted for by the param-
eter COPERDd,t .5 An average water-loss coefficient of 19% has been
estimated previously.6 The variable apomt,d,s is the amount of water
directly withdrawn by farmers from their own wells. The cost of
pumping water from farmers’ own wells, which is not accounted for
in the charge applied by the WUA, has been estimated by taking into
account electricity costs and the capacity, depth and performance
of pumping equipment. The unitary pumping cost is directly related
to pumping depth by a quadratic relationship, and it increases in
a step-wise manner with increasing depth from which water is
pumped. Based on the results of farms surveys, 10 categories of
wells have been assigned that differ in terms of capacity, under-
groundwater level, and, accordingly, unitary pumping costs. These
costs range from 0.0259 to 0.0323 D /m3 for shallow wells, which
are most common, to 0.0910 D /m3 for deep wells, of which there
are few.
Under VPM, the water charge, included in the objective function
as cost, is equal to the product of the average price of water (D /m3 )
and the amount of water effectively delivered by the WUA at the
farm gate (acqdst,d,s , COPERDt,d, ). Under ABM, the water charge at
the farm level is calculated as follows (1.3):
 able cost function whose parameters have been econometrically
Water Costd,s = (HC aco,d · xaco,d,s ) (1.3)
aco
Fees for this pricing method are calculated by classifying crops
according to their unitary water requirement. The parameter HC
(the charge per irrigated hectare) depends on the crop and the irri-
gation technology (the set aco covers crop/irrigation technologies).
A second group of constraints concerns agronomic and rota-
tional practices commonly adopted in the area in order to avoid
a decline in the yield level of certain groups of crops (McCarl and
Spreen, 2004). Some of these constraints prevent the model from
adopting too large a ratio between land planted in cereals and land
in other arable crops, and between horticultural land and land in
other arable crops. Other constraints refer to multi-annual crops
such as alfalfa and artichokes, for balancing between the first and
subsequent years. Another group of constraints refers to CAP instru-
ments of supply control, such as production quotas and set-aside,
as well as to the rules used to identify the amount of decoupled aid
provided by the single payment scheme of the CAP, including mod-
ulation of direct aid received by farmers. The model also accounts
for relationships between livestock activities and feed crops. In par-
5
This refers to losses from the WUA network, not to farm-level losses. As noted by
Carter et al. (1999) and Perry (2007), a proportion of such losses could contribute to
recharging the aquifer from which private wells draw water. However, this process
is difficult to quantify and is not accounted for in the present model.
6
This means that from 100 m3 of water released to the network from the dam,
farmers obtain around 81 m3 at the farm gate.
1799
ticular, a set of constraints ensures that the balance is respected
between animal feeding needs (expressed in terms of energy, pro-
tein and fiber content) and the feed obtained by crops or purchased
on the market.
The model was developed in GAMS (Brooke et al., 1992), and
was calibrated and validated by comparing model results in terms
line situation) with the situation observed in the study area in the
The acreage validation (based on the share of different crop groups)
was performed using the similarity index of Finger and Kreinin
(1979), which yielded a remarkable 90% result.7 As additional data
for validation, the amount of water delivered to farmers by the WUA
(as estimated by WUA officials) is similar to that indicated by the
model results under baseline conditions. Furthermore, the valida-
tion process considered whether the model’s constraints strongly
conditioned the space of the possible simulation results. To this end,
the level of shadow prices of the most important constraints was
examined, such as those on land, labor, and water availability. The
constraints on labor and land are binding only in 1 of the 20 con-
sidered periods of the year, and their shadow prices are generally
low compared with the market price. In addition, agronomic and
rotational constraints are binding only for several groups of crops
and only in 2 of the 13 farm typologies, with shadow prices being
significantly lower than the income of those crops. Surface water
scarcity takes a more relevant role in conditioning the choices, as
explained below.
The model was developed to represent conditions in the year
2004. It was then further updated to represent the introduction
of the single payment scheme of the CAP, which occurred in 2005.
This latter version of the model was used to perform the simulations
discussed in this paper.
4.1. Water distribution costs
WDC incurred by the Nurra WUA were computed by a cubic vari-
estimated using data from another WUA, located in the Oristano
Province of Sardinia (Dono and Severini, 2008).8 The network of
water distribution pipelines used by the Oristano WUA is techni-
cally similar to the system used by the Nurra WUA, and the served
areas in Oristano and Nurra are of similar size. Moreover, both sys-
tems obtain water from lakes located upstream, allowing water to
flow into part of the network via gravity. Similarly, in other parts
of both WUA networks, water is pumped to serve areas at differ-
ent elevations. Explanatory variables of the Oristano WUA model
are water supplied to farms and irrigated farmland; these variables
explain the operational costs of supplying water (WUA’s labor and
energy). Each observation represents 1 year of data for each of the
11 districts that constitute the entire irrigated territory supplied by
the Oristano WUA. These districts are clustered into four macro-
districts using dummy variables, according to the technological
characteristics of their water distribution systems. In the D1 and
D2 macro-districts, water is distributed through pipes and lifted by
mean of electricity-powered pumping, at high pressure in D1 and
at low pressure in D2. In D3, water is lifted above a certain altitude
by electrical pumping and is then distributed by canals, mainly by
gravity. In D4, water is distributed by gravity.
7
This means that from 100 m3 of water released to the network from the dam,
farmers obtain around 81 m3 at the farm gate.
8
The model was estimated using data for the years 1995–2003, adjusted for
inflation and expressed in 2003 values.
1800 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805
Table 2
Consortium’s water distribution cost function. Regression results.
Parameters Estimated value T-statistic
ı1 41.5320 9.51594
ı2, 3, 4 27.4857 8.56729
 1, 2, 3, 4 −2.841E−03 −3.50279
1, 2, 3, 4 9.568E−08 2.34449
ˇ1 58.0409 3.26784
ˇ2 132.095 5.08040
135 Observations R2 R2 adj.
0.938 0.935
Hence, the estimated function is:

4 
4 
4
WDC = dv1i ıi wi + dv2i i wi2 + dv3i i wi3
i=1 i=1 i=1

4 cover the WDC. Based on this pricing method, only the basic pay-
+ dv4i ˇi iai + ε
i=1
where WDC is the sum of the yearly WUA labor and energy costs
for the annual supply of water to farms in the district; i is the type
of macro-district (i = 1, 2, 3, 4), ı is the amount of water supplied
to farms (w),  and  are the parameters for the square (w2 ) and
cubic values (w3 ) of the given variable, respectively and ˇ is the
size of the irrigated area (ia) within the district. Dummy variables
(dv) were included in the model to enable macro-districts to have
different coefficients for the same parameter. A restricted version of
(1.4) was adopted based on test results that revealed no statistically
significant difference among the estimates of certain coefficients.
Hence, a single coefficient was estimated for the parameter ı for
macro-districts D2 –D4 , while the macro-district D1 retained its own
coefficient. A single coefficient was estimated for  and .
Table 2 lists the signs and values of the estimated parameters,
which are coherent with non-negativity and the convexity hypoth-
esis. T-statistics indicate the very high significance of the estimated
coefficients. More than 93% of the data variance was captured by
the model.
Part of the results was used in this study to calculate WDC based
on the outcomes of the Nurra programming model with the sim-
ulated scenarios. In particular, outcomes regarding irrigated land
surface and water distributed by WUA were used for an ex-post
calculation of Nurra WDC based on estimated coefficients for Oris-
tano macro-districts D4 (gravity) and D1 (pumping). The obtained
results were considered to be representative of the Nurra WUA cost
distribution situation, based on an assessment by WUA officials.
The computed WDC amounts were compared with the farm
basic payments of the simulated pricing methods in order to eval-
uate the degree to which they recover the WDC (basic payment
share, BPS). This aspect is relevant because basic payments do not
fully cover WDC, and at the end of the irrigation campaign, com-
plementary payments should be charged to farmers to cover the
difference. However, the charging of a retroactive complementary
payment generates problems for the management of the WUA, as it
results in opposition from farmers and litigation. Consequently, BPS
variations provide further insights to be considered in comparing
the results of simulations on different water-pricing methods.
In the present study, the complementary payment is assumed
to be fully paid by farmers. Its total value is distributed among the
farms according to the amount of land reached by the network.
Therefore, in the decision process of individual farmers, and in the
optimization model, the complementary payment is regarded as a
lump sum charge that varies according to the pricing method but
that is decoupled from the amount of water used by farmers.
Table 3
payment classes in Nurra WUA (based on the parameters applied in 2001).
Significance I – (104.30 D /ha) II – (143.84 D /ha) III – (179.77 D /ha)
.000 Tomato under glass Ryegrass Artichoke
.000 Watermelon Alfalfa
.001 Melon Clover
.021 Olive tree Corn
.001 Vineyard Tomato
.000 Peach tree
F (6, 129)
326.68
5. Simulation scenarios
The model was used to evaluate the impact on farms and on
the WUA budget of increasing the level of water prices under dif-
ferent water-pricing methods. The baseline situation refers to the
VPM, as applied by the Nurra WUA in 2004 when the basic payment
was set at 0.0301 D /m3 for water delivered by the WUA distribu-
tion network and the complementary payment was charged to fully
(1.4) ment directly affects farmers’ water use. No charge for the use of
groundwater is applied in the baseline.
Two other scenarios refer to ABM. In these cases, the farm
payment for water is represented by two components. The basic
payment is charged according to estimates of the water require-
ments of crops, multiplied by the water unitary price (0.0301 D /m3 ).
In the ABM scenarios, a complementary payment is again charged
to ensure that the WDC is fully recovered.
The two simulated ABM scenarios (ABM-1 and ABM-2) refer to
two different ways of estimating the water applied to each crop.
In ABM-1, these estimates accurately reflect the irrigation require-
ments of each crop. In ABM-2, crops are clustered into classes that
consider the average irrigation requirements of the crops.9 This lat-
ter scenario considers the ABM practiced by Nurra WUA until 2001,
where the estimates of unitary irrigation requirements used in cal-
culating the payments were not always consistent with the actual
requirements of crops (Table 3).10
The main feature of ABMs is that the payment is charged
regardless of the water source (i.e., surface water from WUA or
groundwater from private wells). Furthermore, all irrigated areas
are supposedly charged by the WUA. Given that farmers pay accord-
ing to the area under irrigation and that the price is set considering
irrigation requirement estimates, irrigation payments are affected
by cropping patterns but not by the source of water.
In addition to the VPM and ABMs scenarios described above,
other scenarios are simulated for which the water unitary price is
raised from 0.0301 to 0.0602 D /m3 . Such an increase is consistent
with the values proposed by the Sardinia Regional Authority as an
additional charge aimed at recovering (by farm payments) the costs
associated with management of the dam system.
One further simulation scenario refers to applying the additional
charge to the amount of water that farmers pump from their own
wells. This scenario is motivated by the fact that applying the addi-
tional charge only to water delivered by WUA has the effect of
increasing the withdrawal of groundwater. This situation is consid-
ered in the WFD because, according to the WFD and as reported in
EU Communication 477 (EU, 2000b), water-pricing should consider
both surface water and groundwater. In fact, a strict application
9
Some WUAs chose this last option to simplify the administrative burden and
because of political reasons such as considering the relative contribution of certain
crops in terms of farm employment or income.
10
For instance, clover and alfalfa in the second class (Table 3) pay less than arti-
choke in the third class, yet the water needs of the former are approximately twice
those of the latter crop. This favorable treatment is justified by WUAs because
alfalfa and clover crops are relevant to the cow- and sheep-milk sectors, which are
considered to be important for the economy of the entire area.
 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805 1801

Table 4
Use of water and crop pattern in VPM baseline and in ABMs: absolute levels and percentage variations of ABMs versus VPM (absolute values in italic).

.000 m3 VPM baseline ABM-1 % ABM-2 %

Alfalfa 2821 927 −67.1 2818 −0.1

Fodder corn 2366 2366 0.0 2366 0.0
Artichoke 1341 1341 0.0 538 −59.9
Other irrigated crops 11,933 11,932 0.0 11,932 0.0

Water from collective networks 15,032 14,261 −5.1 14,476 −3.7

Water from private wells 3429 2305 −32.8 3178 −7.3

Total irrigation 18,461 16,566 −10.3 17,654 −4.4

of economic and environmental principles in the pricing of sur-
face water may lead to a notable increase in groundwater use and
over-extraction, which could in turn lead to negative environmen-
tal effects. Thus, water-pricing should be calculated considering all
sources of water, and it should be designed to encourage parity
among them. In this case, the simulation of an additional charge
on groundwater, even when not strictly related to covering the
costs incurred by regional authorities, is justified by the need to
avoid the increase in environmental costs generated by increased
groundwater use.
Note that VPM-GW (volumetric pricing method including
groundwater) is difficult to apply in reality because it requires
metering the amount of water pumped from the wells of every
farm. Therefore, this scenario is clearly not aimed at identifying
a pricing method to be directly applied under the actual condi-
tions. However, this simulation seems useful because it establishes
a kind of parity condition between VPM and ABMs, as within VPM,
it charges farmers for all water sources.
of 0.0259–0.0295 D /m3 , which is below the price charged for WUA
water. In other farm typologies, pumping costs reach 0.0323 D /m3 ,
exceeding the price for WUA water; consequently, in such cases it
is the scarcity of WUA water during certain times of the year that
generates the need to use groundwater.
Regarding water scarcity, it is worth noting that most of the
water distributed by WUA to farmers is used from April to the
second 10-day period of July; in this period, the model uses all avail-
able surface water and positive shadow prices emerge. In contrast,
from the third 10-day period of July through October, not all of
the available water is used. However, even if water availability is
only binding in the first part of the irrigation campaign, it limits the
choices of farmers all year round. In fact, most autumn crops also
need irrigation during the first part of the campaign, when scarcity
constrains the expansion of their acreage. This leaves an unused
component of the total annual available water.
6.2. Comparison of volumetric and area-based pricing results

6. Results The data in Table 4 enable a comparison of the baseline with

The following section examines the baseline (VPM) results. Sub-
sequently, the model results under VPM, ABM-1, and ABM-2 are
compared. Based on the data in Tables 4 and 5, the baseline results
are discussed and compared with the outcomes of ABM-1 and ABM-
2. Finally, the results obtained by introducing an additional charge
in the model are discussed in terms of the VPM, ABM-1, ABM-2 and
VPM-GW scenarios. The results of these simulations are presented
in Tables 6 and 7. The results presented in the tables refer only to
the portion of the study area served by the WUA.
6.1. Baseline results under the volumetric pricing method
Table 4 lists data on water use for irrigation in terms of crop
type and supply source. For the VPM baseline, about 26% of water
is provided to crops for animal feed, and groundwater extracted
from private wells represents 18.6% of the total irrigation water
used in the area. Groundwater is used because of constraints on the
availability of water from the WUA at certain times of the year, and
because it is relatively inexpensive when drawn from shallow wells.
In fact, most of the farms with wells have average pumping costs
the outcomes of ABMs. Under ABM-1, Nurra agriculture uses 10.3%
less of the total water compared with the VPM baseline. This reduc-
tion is mainly due to a decrease in alfalfa cultivation. A significant
abatement of groundwater is achieved, with its use reduced by
32.8%. This occurs because groundwater under VPM is a substi-
tute for water distributed by WUA, whereas under ABM it is used
to complement water distributed by WUA, as its extraction gen-
erates extra pumping costs but does not save on irrigation costs.
This eliminates cost competition among the two water sources and
notably reduces the use of groundwater.
ABM-2 has a similar impact to AMB-1, although less pro-
nounced. There is no reduction of water from the collective network
and a much smaller effect in abating the withdrawal of groundwa-
ter. The crop-clustering criteria of this method, applied in the area
until 2001, particularly favors alfalfa, which remains at the same
level as that under VPM. Alfalfa cultivation, which has a high water
requirement, is notably facilitated by this method of charging irri-
gated crops. Thus, the crop remains at the same level as that under
VPM and the use of water shows only a slight decrease. In con-
trast, artichoke is strongly penalized by ABM-2, showing a marked
reduction in planted area compared with the outcome of VPM.

Table 5
Farm margins and payments to WUA in VPM baseline and in ABMs: absolute levels and percentage variations of ABMs versus VPM (absolute values in italic).

.000 D VPM baseline ABM-1 % ABM-2 %

Gross margins: total farms 55,684 55,662 −0.04 55,653 −0.05

Net income: total farms 32,559 32,537 −0.07 32,528 −0.10
Net income: most affected farms – 11,198 −2.00 19,057 −2.5
Average farm pumping cost (D /m3 ) 0.0289 0.0273 0.0286

(A) Water distribution costs 781 760 −2.7 775 −0.9

(B) Basic payments 453 475 +4.9 429 −5.3
(C) Complementary payments 328 285 −13.1 346 +5.2

BPS (B/A)(%) 58.0 62.5 +4.5 55.4 −2.6

1802 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805

Table 6
Introduction of the additional charge under different pricing methods. Impact on water use. Percentage variations over VPM baseline of use of water, total and for some crop
groups (absolute values in italic).

.000 m3 VPM baseline VPM ABM-1 ABM-2 VPM-GW

Alfalfa 2821 −79.6 −95.6 −2.1 −79.6

Fodder corn 2366 −5.0 −5.0 −5.0 −5.0
Artichoke 1341 −100.0 −100.0 −100.0 −100.0
Other irrigated crops 11,933 −5.0 −5.0 −5.9 −5.0

Water from collective networks 15,032 −45.6 −22.2 −12.3 −24.5

Water from private wells 3429 +74.4 −41.2 −10.7 −17.9

Total irrigation 18,461 −23.3 −25.8 −12.0 −23.3

Table 5 shows that switching from VPM to either ABM generates
a small reduction in the total gross margin and net incomes of all
farms. These small reductions are recorded when the entire farm
sector of the area is considered, even if this aggregate values do not
reveal that different typologies of farm are differently affected by
these changes in pricing method. The third row of Table 5 reports
the net income of those farms for which net income is reduced by
more than the average reduction for all farms. Furthermore, the
change from VPM to the two ABMs changes the internal compo-
sition of the relatively penalized group of farms. Hence, when the
change is simulated from VPM to ABM-1, a smaller group is more
strongly negatively affected; this group accounts for 30% of the total
net income produced under VPM (D 11.4 million); when the change
is from VPM to ABM-2, a larger group is more strongly negatively
affected, accounting for 60% of the total net income produced under
VPM (D 19.5 million).
The results regarding WDC and farm basic and complementary
payments are provided in Table 5. These data enable us to con-
sider to what degree the basic payments cover the WDC, and shows
the need to resort to retroactive complementary payments. Under
VPM, the basic payment covers 58% of WDC and the remaining
share is recovered by the complementary payment. ABM-1 sig-
nificantly increases the BPS, thereby reducing the complementary
payment. This can be considered a positive outcome, given that it
would reduce any disappointment among farmers and avoid lit-
igation between the farmers and WUA management. In contrast,
ABM-2 results in a reduction in BPS below the level reached under
VPM, resulting in turn in an increase in the complementary pay-
ment.
In conclusion, the model of the studied farm system reacts to
pricing methods in a complex way, not solely by substituting WUA
water with groundwater. This occurs because many farms in the
area, being located on land with granitic soil, do not have their own
wells and therefore cannot make this substitution. In addition, well
capacity is limited and insufficient to enable the use of well water as
a substitute for WUA supplies. Ultimately, the various farms react
in different ways to the increase in WUA water price in the sim-
ulated scenarios: they react by modifying their incomes, altering
their use of water sources, or changing crop patterns, as this affects
profitability.
6.3. Increasing the price of water under different pricing methods
In the previous two sections, water payment scenarios refer to
the costs incurred by the WUA in managing the water distribu-
tion network. The following set of simulations aims to estimate the
effect of different pricing methods when an additional charge of
0.0301 D /m3 is applied to the water price in order to recover the
management costs of the dam. This additional charge is considered
as being due to the regional authorities responsible for applying the
cost recovery principle of the WFD, and hence is not accounted for
in the WUA’s budget. The WUA simply acts as a charging authority
that turns the additional charge over to the regional Government.
Thus, the total water payment now comprises three components: a
basic payment, a complementary payment (both paid to the WUA)
and an additional charge (to the regional Government, but collected
by the WUA). Tables 6 and 7 report the outcomes of simulating the
additional charge within the considered pricing methods. These
results are reported as percentage variations over the VPM baseline
outcomes of water use (Table 6) and economic results (Table 7).
The application of the additional charge under VPM results in
a significant reduction in water use (−23.3%) with respect to the
baseline. However, considering that this is the effect of doubling
the price that farmers pay for water obtained from their WUA, this
shows a relatively small level of elasticity in their demand for water.
This result is consistent with empirical evidence presented in pre-
vious studies regarding the response of the farm sector to pricing
as an instrument for reducing water use. This reduction is due to
a drastic change in the relative economic weight of water sources,
with a drop in use of the collective network and a notable rise in
the exploitation of groundwater, which grows from 15.7 to 35.2%
of total water use.
The impact on total farm gross margins and net incomes is neg-
ligible; however, such impacts are mainly concentrated on a group

Table 7
Introduction of the additional charge under different pricing methods. Impact on economic results. Percentage variations over VPM baseline of farm economic results and
water payments (absolute values in italic).

.000 D VPM baseline VPM ABM-1 ABM-2 VPM-GW

Gross margins: total farms 55,684 −0.5 −1.0 −0.9 −0.9

Net income: total farms 32,887 −0.9 −1.7 −1.6 −1.6
Net income: most affected farms – −3.3 −4.4 −6.2 −4.1
Average farm pumping cost (D /m3 ) 0.0289 0.0334 0.0268 0.0284 0.0273

(A) Water distribution costs (WDC) 781 −37.2 −13.7 −3.4 −18.8
(B) Total payments (C + D + E) 453 +18.5 +82.1 +71.7 +79.4

(C) Basic payments 453 −54.4 −37.2 −29.6 −38.0

(D) Complementary payments 328 −13.5 +18.7 +32.8 +7.6
(E) Additional charge (000 D ) 0 330 541 459 532

Basic payment share (BPS) (C/A) 58.0 42.1 42.2 42.3 44.3
 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805
of farms (mostly dairy farms and those that grow arable crops) that
are the main users of water resources and represent almost 50% of
the total farm net income.
Farmers use groundwater to minimize the impact on farm net
income because in doing so they are not subjected to the additional
charge (related to the costs of dam management). However, the
increase in groundwater use also generates an increase in average
pumping costs under VPM. Because the WUA distributes less water,
its WDC decreases, while total payments from farmers grow. In
fact, D 330,000 gathered from the additional charge is passed on to
the regional Government and only the basic and complementary
payments are used to cover WDC; consequently, BPS is reduced to
42.1%. However, because WDC is lower, the WDC recovery requires
a lower complementary payment than that under the VPM baseline
conditions.
The additional charge under ABM-1 has a greater effect in reduc-
ing total water use over VPM baseline than the previous case;
however, it is relevant that the reduction has a marked effect on
groundwater. Even more interesting is the fact that this reduc-
tion is due to the adoption of ABM-1 itself, rather than to the
increase in water prices associated with this method. A comparison
of Tables 4 and 6, which enables these two effects to be assessed,
indicates that the adoption of ABM-1 itself (without the additional
charge) induces a 41% reduction in total water use and an 82%
reduction in the use of water from private wells.
The inclusion of the additional charge with ABM-1 reduces farm
income to a greater extent than that under VPM (Table 7). However,
a comparison of Tables 5 and 7 shows that the adoption of ABM-1
itself has a negligible impact in reducing the total income: the main
factor in this regard is higher water prices. This impact is even more
pronounced than that for the previous payment method, because
it significantly affects farms that produce just over 42% of the total
agricultural income of the area.
The additional charge also affects water distribution costs and
water payments (Table 7). WDC shows a smaller reduction with
ABM-1 than with VPM because of the smaller decrease in the
amount of water distributed by the WUA. Moreover, charging for a
larger amount of water supplied by the collective network would
significantly increase the total payments for water compared with
the previous method: in particular, it affects payments for the addi-
tional charge and the complementary payment. An increase in this
latter element, complementary payments, could result in increased
litigation between farmers and the management of WUA, who
could request greater financial support from the regional Govern-
ment in covering the WDC. In any event, the financial resources
made available by increasing the water prices under ABM-1 could
enable the regional Government to accept a forfeit transfer of
D 330,000 (i.e., the amount of additional charges generated under
VPM) and to leave the difference to the WUA. Thus, the complemen-
tary payment would be reduced to D 182,000 and the reduction in
total farm gross margin would be limited to 0.64%, which is close to
the result of the previous simulation. This outcome would reduce
the coverage of dam costs but would ensure a reduction in total
water use, including a drastic reduction in groundwater exploita-
tion.
The application of ABM-2 has even weaker effects on total water
savings than the VPM baseline, and the drop mainly affects the use
of groundwater. As in the previous case, it is the adoption of ABM-2,
more than the application of the additional charge, which generates
these changes (Tables 4 and 6). The reduction in income incurred by
applying ABM-2 is slightly smaller than the effect obtained through
ABM-1, although this impact is more diffuse than that achieved
with ABM-1 because it strongly affects farms that generate almost
64% of the total farm income in the area.
Given the slight reduction in the amount of water distributed
by the WUA, even the cost of this service (WDC) shows a moderate
1803
decrease and there is a remarkable growth in total payments for
water. The increase in complementary payments would be even
larger than that in ABM-1, potentially leading to tension between
farmers and the management of WUA. Even in this simulation,
financial resources are made available to enable the regional Gov-
ernment to accept a transfer of D 330,000 (i.e., the same amount of
additional charges generated under VPM) and to leave the differ-
ence to the WUA. However, this difference would be smaller than
that in ABM-1, reducing the complementary payment to D 310,000.
The reduction in total farm gross margin would be 0.64%, similar
to the result obtained in the previous simulation. Again, this would
ensure a reduction in water use, even if much smaller than that in
the previous case and not associated with a significant reduction in
groundwater exploitation.
In conclusion, the adoption of ABM-1 would generate the largest
water savings and a significant reduction in groundwater use.
This method may generate notable tension between farmers and
the management of WUA, although such a development could be
avoided by channeling part of the payments collected through the
additional charge to the WUA. A trade-off emerges between cover-
ing the management costs of dams and environmental protection,
albeit in a context of increased financial participation by farmers.
The increase in water prices associated with using VPM would lead
to a similar trade-off, even if reversed at the expense of environ-
mental protection. Finally, ABM-2 is not advisable because it would
produce only small reductions in the water applied to crops, would
not protect groundwater, and would result in lower coverage of the
management costs of the dams.
6.3.1. Charging for groundwater using VPM
The VPM-GW simulation also charges for groundwater using the
additional charge. VPM-GW overturns some of the results obtained
under VPM because it reduces the use of groundwater by restoring
the relative economic interest for water provided by the WUA. The
pricing of groundwater results in reduced farm income, compara-
ble with the impact of ABM-2. Similarly, the moderate decline in
the use of WUA water is coupled with a slight reduction in WDC
and a substantial rise in total payments. Again, a viable political
strategy is to pass on to the regional Government the same amount
of money as that in the VPM-price-increase simulation (D 330,000)
and to keep the difference for the WUA in order to reduce the
complementary payment. This option would reduce farm income
by −0.54% but would ensure reductions in total water usage and
groundwater exploitation.
7. Conclusions
The European water framework directive aims to protect the
environmental quality of aquifers and surface water, and to stim-
ulate the efficient use of these resources. The directive states that
these objectives should be reached by applying appropriate water-
pricing policies in order to improve water allocation and encourage
conservation. Although the effectiveness of water-pricing has been
criticized, the WFD requires the recovery of all costs associated with
water services and to link water payments to the amount of water
used in each farm. This directive will have direct implications for
the farming sector in Italy once regional Governments levy addi-
tional charges on water delivered to farmers in order to recover the
long-term costs of infrastructure or environmental costs related to
irrigation activity. In the studied case, the regional Government is
involved in the management of large reservoirs and asks for addi-
tional charges on the irrigation water in order to recover at least
part of the long-term costs of the infrastructure.
The analysis revealed that the impact of additional charges
varies with the method adopted by WUAs in charging farmers for
1804 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805
water use; i.e., area-based pricing methods (ABM) or volumetric
pricing methods (VPM). In the EU countries, the latter methods are
commonly believed to be more in line with the principles concern-
ing water-pricing promoted by the WFD because VPM directly links
water payments to actual amount of water delivered to farmers.
However, VPM can only be applied in this way if functioning water
meters are installed at farm gates. Furthermore, the use of VPM
poses even greater problems when individual farmers have direct
access to uncontrolled water sources such as groundwater, as is
the case in the study area and in many other Mediterranean areas.
This problem arises because wells are generally a private asset of
the farm and because there is a lack of information and legislation
regarding this source of water, which would be required to con-
trol its level of exploitation. These results are consistent with the
findings of other studies regarding the use of volumetric pricing
(Cornish et al., 2004; Dinar et al., 1989).
An original result of the present analysis concerns the appli-
cation of ABM pricing, which, unlike VPM, is able to restrict the
withdrawal of groundwater. This is because ABMs charge for
the irrigation of crops regardless of the water source. Therefore,
groundwater under VPM is a substitute for water distributed by
the WUA, whereas under ABM it is complementary to water dis-
tributed by the WUA, as its extraction generates extra pumping
costs but does not save on other irrigation costs. This eliminates
cost competition between the two water sources and results in a
marked reduction in groundwater use.
Under such conditions, applying an additional charge to the
water price has a broad-based impact. For both methods, the total
amount of water applied to crops at farm level shows a marked
reduction, even if the additional charge considered in this study
results in a doubling of the price that farmers pay to the WUA
for water. A low price elasticity emerges regarding the demand for
irrigation water, consistent with the findings of previous studies.
In other words, pricing is somewhat ineffective in reducing water
usage. Furthermore, with VPM, the reduction in total water use is
obtained by reducing the amount of water delivered by the WUA,
whereas groundwater exploitation is stimulated. Therefore, under
VPM, imposing an additional charge solely on the amount of water
delivered by the WUA represents a trade-off between the WFD
objectives of cost recovery for water service and the protection
of groundwater resources. The imposing of an additional charge
under ABMs can be more effective than VPMs in terms of control-
ling the overall water applied by farmers; above all, it generates a
significant reduction in the use of groundwater. However, to obtain
these results, the water requirements of crops considered in ABMs
must be adequately estimated by WUAs. In fact, a comparison of
the simulation results for ABM-1 and ABM-2 reveals that the effec-
tiveness of ABMs is strongly affected by the way in which these
water requirements are estimated.
Finally, ABMs appear to have an additional positive character-
istic compared with VPMs: AMBs generate a larger flow of basic
payments than that under VPM, making it easier to recover the cost
to WUAs of providing water services (WDC). This result has two
main positive implications for water management. First, it allows
the basic payment to provide an adequate signal of irrigation cost
to farmers before they plan their cropping patterns. This allows for
better planning and a more efficient use of farm resources. Sec-
ond, it enables complementary payments (charged at the end of
the irrigation campaign in order to fully cover WDC) to be main-
tained at a low level, thereby reducing the uncertainty faced by
farmers regarding payments related to irrigation and protecting
the WUA management from dealing with farmer disappointment
and potential litigation.
In conclusion, the model used for this analysis can be improved
by considering the interactions between network losses and
groundwater recharging that affect the water balance of the entire
watershed. In fact, a reduction in the amount of water applied to
crops does not necessarily correspond to increased water conser-
vation, as farmers may respond to an increase in the price of water
by using improved irrigation technologies. Typically these tech-
nologies allow reduced water application for a given level of crop
consumption, or an increase in irrigated area for the same quantity
of water applied. Neither outcome is a real saving of water – indeed
the latter will result in increased water consumption at the water-
shed level, and less water availability downstream. However, in the
present study area, there exists little scope in terms of improving
the available irrigation technology; instead, farmers must consider
making changes to cropping patterns. Therefore, even considering
these limitations of the model, the results indicate an advantage in
adopting ABMs rather than VPM.
Acknowledgement
This article is the result of a research activity co-financed
by MIPAF (Italian Ministry of Agricultural and Forestry Policy)
(Research project “Agroscenari”) and by MIUR (Italian Ministry of
University and Research) (Research project: “Il recepimento della
Direttiva Quadro sulle Acque (60/2000) in agricoltura”).
The authors agree that none of them is the first author, as they
each made an equal contribution to this work.
Appendix A. description of the linear programming model
The objective function to be maximized is the sum of gross mar-
gins (Z) of the farms in the area, which is expressed as:
  
Max Z = Rp + Rs − C (1.5)
d,s d,s d,s
where Rp and Rs refer to revenues from sales and direct CAP (com-
mon agricultural policy) aid, respectively and C refers to variable
specific production costs. Macro-farms are identified by typology
(s) and the district (d) in which they are located.
Revenues from the sold products of each macro-farm have the
following structure:
 
Rpd,s = PCOaco · xaco,d,s + PCAaca · xaca,d,s
aco aca

+ PLAala · xala,d,s (1.6)
ala
where lower-case elements represent variables and upper-case
elements are data (parameters). The variable x refers to farm pro-
duction activities such as the acreage of each cropping activity,
cropping, and heads of livestock, while PCO, PCA and PLA refer to
unitary sale values for each product and are calculated as follows
(the sets aco for crop/technology, aca for meat production, and ala
for milk products are subsets of set a):

PCOaco = PZCOaco,pro · Yd,aco,pro
pro

PCAaca = PZCAtz · RESACtz · PESOVtz · CATANtz
tz

PLAala = PZLAtz · YLATtz · CATANtz .
tz
where PZCOaco, pro , PZCAaco, pro and PZLAaco, pro are the prices for
crops, meat and milk products, respectively, Yd, aco, pro are the uni-
tary yield coefficients for all crops, considering all possible products
 G. Dono et al. / Agricultural Water Management 97 (2010) 1795–1805
(set pro), RESACtz are the yields in meat of each category of live-
stock (set tz), PESOVtz are the weights of each livestock unit of each
category of livestock (set tz), CATANtz are the relative weights of
each category of livestock (set tz) and YLATtz are the yields of each
livestock unit of each category of livestock (set tz).
As is generally the case in LP, production technologies are
represented by a fixed-coefficients matrix; e.g., unitary yield and
irrigation water requirements are constant.
The mid term review (MTR) of CAP introduced the single
payment scheme and the modulation of direct payments; these
elements are accounted for by entering the following terms in the
objective function:
Rs = hammd,s · PUAZd,s + SUSAd,s · ASETASd,s
 
+ PCa · xa,d,s − rdmd,s − CINC · hbpad,s,ct (1.7)
a ct
The first element of (1.7) refers to the decoupled farm aid defined
by the single payment scheme: hammd,s is the number of entitle-
ments eligible for payment and PUAZd, s is the unit value of the
entitlements. The second element of (1.7) refers to farm aid for
set-aside land: SUSAd,s is the amount of set-aside entitlements,
and ASETASd,s is the unit value of the set-aside entitlements. The
third element refers to the farm aid that remains coupled with
the cropped area or the number of livestock, such as those estab-
lished by Articles 69 and 71 of EC Regulation n. 1782/2003: PCa is
the unitary value of such aid for each farm activity and rdmd,s is
the quantity of direct aid withdrawn by modulation. The last term
in (1.7) refers to the explicit cost incurred in attaining the sound
agronomical and environmental conditions required by the con-
ditionality for land that is not cultivated but still eligible for the
entitlements: CINC is an estimate of this cost and hbpad,s is the area
of this type of land.
The term in (1.5) that represents variable specific production
costs (C) has the following structure:
   Irrigation Water Values. Water S. A., pp. 30–33.
C = xaco,d,s · FIVaco,v + PALIMali · xali,d,s + PLAVE · lestt,d,s
aco,v ali t 5r-r105211-5.
 
   and finance subsurface drainage disposal. Agricultural Water Management 16,
+ xcapir,d,s · INVId,s + CPMd,s,tp · apomt,d,s,td
capir tp t Farmers have Alternative Water Sources, DEAR Working Paper, University of
    Tuscia, Viterbo.
 
+ HCaco,d · xaco,d,s + VOLd · (acqdst,d,s · COPERDd,t )
aco t EU, 2000a, 2000a. Council directive of 23 October 2002. Establishing a framework
HECTARE/CROP VOLUMETRIC
(1.8)
The first element in the first line of (1.8) refers to explicit vari-
able costs for crops: FIV is the unitary cost of production for variable
factors referred to in set v. The second element refers to livestock
feeding costs: PALIM represents unitary costs for each feeding cat-
egory (set ali). The third element refers to the costs of hired labor:
PLAVE is the hourly wage paid to laborers and lest, d, s is the amount
of labor hired in each period (set t). The first element of the sec-
ond line refers to the cost of expanding irrigation to land that is
not generally irrigated: the variable xcapird, s refers to the number
of hectares of irrigated crops that exceeds the irrigated land in the
baseline and INVId, s is an estimate of such unitary costs. The next
element refers to the cost of pumping water from privately owned
wells: CPMd, s, tp are estimates of unitary pumping costs for each
category of well (set tp) and apomt, d, s, td are variables that refer to
1805
the amount of water pumped in each period (set t) and from each
well (set tp) by each farm. The third line refers to water charges paid
by farmers to the WUA under the hectare/crop (area-based method)
and volumetric schemes: HCaco, d refers to the per-hectare charge,
which varies according to the crop/irrigation technology (set aco)
and irrigation district (set d); VOLd is the average cost charged for
each unit of water delivered on farm; acqdst, d, s is a variable that
represents the gross amount of water delivered to each macro-farm
in each period (t) and COPERDd, t is a set of parameters that refers
to losses from the water network.
Labor availability is estimated for each farm and for each period
based on an analysis of FADN data and the results of a questionnaire
survey of local farmers. Labor availability is calculated based on the
number of family members working on the farm, minus holidays
and rainy days. The restrictions have the following structure, for
each farm and period:
 
xa,d,s · LFABa,t ≤ LDISs,d,t + lestt,d,s (1.9)
a
where LFABa, t is the average amount of labor required for each
activity in each period (t), LDISs, d, t is the availability of family labor
on the farm and lestt, d, s is the amount of hired labor. For each
period, the availability of labor that could be hired was estimated
by interviewing trade union officials, farmers, and technicians
employed by agricultural cooperatives and the WUA. Local workers
are the main source of available labor; however, during periods of
peak labor demand in summer, other seasonal workers are impor-
tant in this regard.
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