Abstract: Exploitation of alternative water sources is expected to grow in the decades to come in water-stressed countries with fast population growth, especially in regions where a further decline of natural freshwater availability is expected due to climate change. Increasing utilization of non-freshwater usually leads to salinity build-up in fields and water sources as well as accumulation of various pollutants — both having a considerable impact on the suitability of non-freshwater for irrigation due to constraints associated with crop salinity tolerance and food safety regulations. We developed a linked Computable General Equilibrium (CGE) — farm-level model of a water economy with representation for multiple water types characterized by different qualities. We employ the model to assess the impact of water shortage on the Israeli economy, where steadily growing water scarcity leads to an increasing utilization of alternative water sources. We simulate water shortage scenarios based on the Long Term National Master Plan for The Water Economy developed by the Israeli Water Authority (IWA). The linked CGE — farm-level model provides a mechanism for estimating the Constant Elasticity of Substitution (CES) rates between different irrigation water types used in agriculture. This mechanism accounts for the effects of salinity on yields and takes into consideration food safety regulations for irrigating crops with treated wastewater. We demonstrate that, in contrast to previous studies, CES rates between different water types are not identical. The CES rates obtained in our study have relatively low values, which can be attributed to the constraints associated with crop salinity tolerance and food safety regulations. Our results reveal that water shortage can lead to a significant decline of Israel’s GDP, where a considerable part of the decline is attributed to the decrease in agricultural outputs. The magnitude of the impact depends on the underlying assumptions regarding future desalination capacity. To further study the effect of desalination, we run simulations under various desalination levels and examine its impact on the GDP. We also examine the extent to which the impact of water shortage is sensitive to CES rates between different irrigation water types.

Abstract: Agricultural practice is facing multiple challenges under volatile commodity markets, inevitable climate change, mounting pest pressure and various other environment-related constraints. The objective of this research is to present a dynamic optimization model of crop rotations and farm management and show its suitability for economic analysis over a 30 year time period. In this model, we include management practices such as fertilization, fungicide treatment and liming, and apply it in a region in Southwestern Finland. Results show that (i) growing pest pressure favours the cultivation of wheat-oats and wheat-oilseeds combinations, while (ii) market prices largely determine the crops in the rotation plan and the specific management practices adopted. The flexibility of our model can also be utilized in evaluating the value of other management options such as new cultivars under different projections of future climate and market conditions.