Insights from a Calibrated Optimization Model for Irrigated Agriculture under Drought in an Irrigation District on the Central Mexican High Plains

An economic assessment of the value of agricultural water was conducted at the subdistrict (module) level within the Alto Rio Lerma Irrigation District 011 in Guanajuato, Mexico. The assessment employed positive mathematical programming (PMP), a deductive valuation methodology, which self-calibrates to baseline production input use. Production and water use values for the 2016-2017 agricultural year, and the averages of the 2014 to 2017 agricultural years for yields, agricultural commodity prices, and production costs were employed disaggregated per irrigation module. Results indicate that the economic value of water is 1.8 to 4.7 times higher than the rate currently paid by users, about US$7.89 dam(-3) (cubic decameters). The differences among the rate and shadow prices could create a pricing water policy focused on water conservation and its efficient use. This work also conducts an assessment of a formal water market in the irrigation district as way to achieve economically efficient water allocations and reduce the potential economic impacts of water shortage during droughts. Modeling results show that an active water market would allow the irrigation district to adapt to scarcer water conditions by shifting cropping patterns and trading water among subdistricts, by reducing loss in net income at the irrigation district. A successful implementation of this system would be feasible, provided that the irrigation modules are able to import and export water, under water scarcity scenarios considered for the water market model. Potential distributional effects and policy insights from this assessment are discussed.