Agricultural Water Management 98 (2010) 465–471 Contents lists available at ScienceDirect Agricultural Water Management journal homepage: www.elsevier.com/locate/agwat Farmers’ incentives to save water with new irrigation systems and water taxation—A case study of Serbian potato production Jens Erik Ørum a,∗ , Mads Vejlby Boesen a , Zorica Jovanovic b , Søren Marcus Pedersen a a Institute of Food and Resource Economics, Faculty of Life Sciences, University of Copenhagen, Rolighedsvej 25, 1958 Frederiksberg C, Denmark b Faculty of Agriculture, University of Belgrade, Nemanjina 6, 11080 Belgrade, Serbia article info Article history: Available online 20 November 2010 Keywords: Irrigation system Irrigation strategy Water tax Potatoes PRD Serbia abstract Drip irrigation systems and irrigation strategies like deficit irrigation (DI) and partial root drying (PRD) are potential water saving irrigation systems and strategies. This paper analyses the Serbian farmer’s economic incentive to use these water saving systems and strategies instead of the present sprinkler irrigation. The analysis is a partial budgeting analysis, based on irrigation application efficiency from the literature, standard figures for power requirements, pumping efficiency and friction losses for various sources of water and pressure requirements, yields and water use from recent Serbian field experiments, as well as prices and cost structures for potatoes collected in the Belgrade region. The analysis shows that changing the present system and strategy can save a significant amount of water (almost 50%). At the same time, however, irrigation costs are also significantly increased (more than doubled), and the total production costs are increased by 10% (deficit drip irrigation) and 23% (PRD). Increased taxes on water, investment subsidies, increased energy prices, and an increased yield or yield quality may provide incentives for farmers to change to new systems and strategies. The analysis indicates that a 0.80 to 1.97 D m -3 water tax is needed to make deficit drip irrigation and PRD profitable. The socioeconomic cost of providing water for irrigation and the alternative value of saved water are probably not that high. Thus, water taxation may not be a socioeconomic efficient means to improve the irrigation water productivity of Serbian potato production. Drip irrigation and PRD may, however, also increase the yield quality, and a 10–23% quality premium (price increase) is needed to make deficit drip irrigation and PRD profitable. © 2010 Elsevier B.V. All rights reserved. 1. Introduction The ever increasing demand for ground and surface water, due to population increase and development of domestic, agri- cultural and industrial sectors is a serious concern (FAO, 2009). On a global scale the agricultural sector continues to be the main water user, despite the increase in water use by other sectors. Irrigated agriculture accounts for about 70% of the freshwater with- drawals in the world (Calzadilla et al., 2008) and is seen as the main factor behind the increasing global scarcity of freshwater (FAO, 2003). The estimated increase in the irrigated area, especially in the developing countries, will result in a irrigation require- ment growth from 2.128 km 3 freshwater in 1999 to 2.420 km 3 in 2030 (FAO, 2003). To curb this increasing demand for irrigation water, there is increasing pressure for water to be used more effi- ciently in the agricultural sector. Technology improvements, such as more efficient irrigation systems and reduced leakage losses, ∗ Corresponding author. E-mail address: je@foi.dk (J.E. Ørum). are contributing to increased efficiency. Production and input sub- sidies, however, tend to provide perverse incentives to farmers (OECD, 2006). Market price support provides incentives to intensify agricultural production, while support for irrigation infrastructure (construction and depreciation costs), operation and maintenance costs (including institutional costs), together with support to lower water supply charges, discourages the more efficient use of water resources. Volumetric pricing, output or input prices, area prices, quo- tas and water markets are different ways to charge for water (Johansson et al., 2002; Tsur and Dinar, 1997). However, provided the farmer has the ability to control the measured water supply delivered to the farm, volumetric pricing will be most efficient as it will give farmers an incentive to use the water more efficiently, use more efficient strategies and consider changing to a more efficient irrigation system (Bos and Wolters, 1990). However, raising water prices to elicit water-savings have many problematic aspects: polit- ical sensitivity to increases in the price of food; competitiveness in international markets; the depressed level of most stable food prices, as well as their fluctuating nature; and the political risk asso- ciated with increasing the water charge to produce a greater impact on water use, to name but a few (Molle, 2002). 0378-3774/$ – see front matter © 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.agwat.2010.10.019