Policy strategies and technological change in agriculture in a Spanish semi-arid area: Insights from a dynamic CGE model

The evolution of water supplies in the province of Huesca, north-eastern Spain, in recent years is used as a basis for a forecast with a 2028 time horizon. The main aim of this paper is to seek water management strategies to deal with future water availability including extreme events like drought.For this purpose, we develop a dynamic computable general equilibrium (CGE) model. The core strategies focus on smoothing the impacts of water constraints through an improvement in resource management in irrigated agriculture. Four kinds of technological improvements in irrigated agriculture are evaluated. In addition to technological change, we consider the Water Framework Directive (EC 2000/60), which establishes water recovery costs as a key goal. In a context of limits on natural resources, finding new designs for water pricing policies could be a challenge. We assess strategies that combine water pricing and improved technology. The results show that future water availability can be assured even in the event of drought by reversing the long-term economic trend through policy strategies to foster technical progress. The study also confirms lower price volatilitycan improve optimal water use.