Irrigation water economic value and productivity: An econometric estimation for maize grain production in Italy

Climate change, characterized by rising temperatures and limited precipitation, has intensified the demand for irrigation water while simultaneously restricting its availability. This challenge poses significant risks to agricultural and food production, particularly in the Mediterranean regions where, recently, water deficits have led to substantial production losses and quality issues. Water is a critical determinant of crops' economic viability, especially for water-intensive crops, making it essential to estimate its economic relevance, especially in the absence of reliable water market prices. This study has two primary objectives: first, to evaluate the shadow price of irrigation water for maize grain at the farm level, which is defined as the value generated by the marginal unit of water consumed; and second, to analyse its heterogeneity. Leveraging a Farm Accountancy Data Network (FADN) panel of 1625 Italian farms over a decade (2010–2020), an econometric production function approach is employed. Moreover, quantile regressions reveal variations in the shadow price linked to geographical, managerial, and structural farm characteristics. Our findings underscore water's key role in economically viable maize grain production, significantly enhancing the productivity of other inputs like fertilizers and pesticides. The average shadow price is 0.29 €/m³, with a median of 0.20 €/m³ and water total productivity accounts for one-third of maize's average gross output. Quantile regressions uncover how factors like geographic location, altitude, farm management, irrigation water source, and farm size influence the distribution of water productivity, reflecting either efficient use or scarcity of this resource. Our estimation provides valuable insights for policymakers by offering accurate shadow price estimates for irrigation water in Italian maize grain production. Furthermore, it enhances our understanding of irrigation water's role in the economic viability of this crop, while contributing to support evidence-based water management strategies, identifying vulnerable areas and farms and allowing for future methodological developments.