Water Regulation and Irrigated Agriculture Under the EU Water Framework Directive

Water management for irrigation requires suitable policy tools able to meet social objectives and private behaviour. The legal framework in the EU is today faced with the new water framework directive (60/2000), that sets up new criteria for water management, regulation and pricing. Among other things, the water framework directive introduces the principle of full cost recovery and the polluter pays principle for water users. For many areas of Italy, this may be a significant shift compared to present payment criteria, based on traditional rights, political prices, partial running cost coverage or others. The aim of this paper is to analyse the problem of water regulation in agriculture as applied to irrigation issues. This is made by setting up and testing a simulation model based on the integration of a mathematical decision making model at farm level and a principal agent model at the level of irrigation boards. The model allows to quantify water demand and the optimal regulation from the point of view of the policy maker. The results show major impacts of water availability and prices on farm income. The adoption of a mix of pricing instruments related at the same time to crop rotation, water consumption and pollution can significantly improve water policy efficacy.