*3.2. Welfare*

The welfare implications of imposing RB instead of FB are summarized in Figure 4, which shows the associated average annual welfare changes (RB minus FB) expected for the various sectors (urban water consumers, consumers of agricultural products, farmers, water suppliers and the overall welfare; the welfare elements represent the annual discounted

values, averaged over the planning horizon). In addition, to elicit the impact of agricultural adaptation, we compared the two blending alternatives while assuming that farmers do not adapt to changes over time by reallocating their land to different crops; these scenarios are termed as FBNA and RBNA (NA stands for "no adaptation") in the figure.

**Figure 3.** Trajectories of freshwater types supplied from desalination plants and natural sources throughout the simulated 30-year period under the FB and RB scenarios.

**Figure 4.** Differences in welfare elements computed under the field blending (FB) and regional blending (RB) scenarios when agricultural land adaptation is allowed (RB minus FB) and not allowed (RBNA minus FBNA).

The overall welfare change is nearly USD 100 million a year—about 5% of the total variable water supply costs. On average, the deadweight loss amounts to USD 0.08 per cubic meter of irrigation water. Most of the burden associated with imposing RB falls on the water suppliers; as it will be shown later, this loss is due to lower efficiency water prices, which stem from the higher salinity of the irrigation water and consequently, its lower VMP. With no adaptation (RBNA minus FBNA), most of the welfare loss caused by RB versus FB is experienced by the farming sector, whereas the consumers of urban water benefit from this situation. Thus, by reallocating agricultural land and irrigation water across crops, farmers manage to reduce their welfare loss by 85% (see Section 3.3).
