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Estimation of irrigation efficiency and economic value of environmental trade-offs in grapevine production in Mendoza, Argentina

IWRA World Water Congress 2017 - Cancun Mexico
6. Water and sustainable growth
Author(s): Sebastian Riera
Sebastian Riera
sebary@gmail.com


Keyword(s): irrigation efficiency, stochastic frontier, distance function, grapevine
Article:

Abstract

A.     Purpose

Estimate the technical efficiency of grapevine production with respect to irrigation efficiency. Outline the environmental efficiency of water management and externalities from (mis)management of surface and groundwater resources.

B.     Key issue

The Province of Mendoza is located in a semi-arid region in the central-west of Argentina. Economic activity is concentrated in the artificial oasis and agricultural sector contributes with USD 130 million to the regional GDP, representing 7% of the total. The irrigation system reaches 268,000 ha, which represents 85 per cent of the arable land.

Above the Sub-Carrizal Basin, the coexistence of oil and agriculture industries increases pressure on natural resources with high risk of contamination from different characteristics. Mainly, increasing salinity levels.

Most of the agro industry in the region holds a link with wine production. The growing reputation of Argentinean wines led to the settlement of international firms, which improved the industry in terms of technology adoption and market orientation.

More dependent on economic framework and local markets, the small wine grape producers may be trapped in a declining spiral of water scarcity, production quality and profitability. Although, the public sector creates policies oriented to small-scale producers, most of them aim to solve urgent needs instead of other core issues as quality and technical efficiency.

Although, some stochastic efficiency analysis has been carried in the region; there is no evidence of technical efficiency (TE) analysis with this focus on agriculture production.

C.     Methodologies

Following a stochastic frontier analysis approach, a TE analysis improve the economic understanding and explanation of the technical inefficiency in grapevine producers. Defining a suitable production function, a realistic level of TE is expected according to the producer’s farming and irrigation practices, human capital and policy tools. Regularly, deviations from this expected output are considered deterministically. However, the stochastic frontier approach analyses inefficiency considering two types of errors: random and stochastic.

Considering grapevines as the good output and environmental degradation as bad output, it is possible to define directional functions that will economically valuate the trade-offs of environmental and production effects from an efficient perspective. Main hypothesis is that technical and environmental efficiency are substantially different.

D.     Conclusion & results

Primary data from the area, allowed multi-scale assessment of grapevine and water management practices. More than 1,200 grapevine plots from 360 farmers allow an extensive heterogeneity in crop management that reflects the technology adoption from producers and their irrigation practices.

Overall, a metafrontier reflects the TE levels at different groups of producers clustered according to their similarities. The TE value of the industry is relatively high with interesting heterogeneity within inner frontiers.

E.     Implications

As a major outcome, this research project aims to provide reliable water efficiency estimations for designing policy instruments that address economic and environmental challenges focusing on the responsible use of natural resources. Furthermore, the directional distance functions approach is applicable as policy valuation tool for decision makers and as a cost internalization strategy for stakeholders. At the same time that facilitate the decision-making process for public policy on environmental adaptation and mitigation in affected area.

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