Farmers’ incentives to save water with new irrigation systems and water taxation—A case study of Serbian potato production

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 farmerʹs 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 € 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.