*3.3. Land and Water Management*

To understand the welfare changes reported in Figure 4, it is important to study agricultural land and water management decisions with respect to the four salinity tolerance groups presented in Figure 2 as well as the group of rain-fed crops. Figure 5 shows the shares of these five groups in terms of the country's total agricultural land, irrigation water, production value, and profit. While 26% of the land is allocated to salinity-sensitive crops, this group consumes more than 50% of the irrigation water, and accounts for 40% of the total profit. In comparison, the moderately sensitive crops are also responsible for 40% of the profits but consume more land and less water. The other groups of crops produce about 20% of the profits, with relatively little water consumption.

**Figure 5.** Shares of the groups of salinity-tolerant/sensitive crops and rain-fed crops in the state-wide total agricultural land, irrigation water use, production value, and profit at the calibration stage.

In essence, the shift from FB to RB increases the salinity of the irrigation water for salinity-sensitive crops and reduces that of irrigation water for salinity-tolerant ones. In Figure 6, we report changes (RB minus FB) for a range of measures associated with that shift in relation to the five groups under consideration. Figure 6a shows that the salinitysensitive crops obtain larger amounts of TWW and less freshwater under RB, whereas all of the other groups face the opposite change. Consequently, the average salinity of the

irrigation water applied to the salinity-sensitive crops under RB increases compared to FB, and that of the irrigation water for the other groups declines (Figure 6b); this is because the salinity-sensitive crops consume more than half of the irrigation water (Figure 5), and therefore, on average across all groups, the salinity of their irrigation water increases from 1.11 to 1.16 dS m−1. Figure 6b also shows that the changes in the average VMPs of the irrigation water types are opposite to those of the salinity-sensitive crops (except for the moderately salinity-sensitive crops, in which the change in the average VMP is slightly negative). As previously mentioned, the VMP constitutes the efficiency price of the irrigation water in our model such that lower VMPs imply lower prices; because the salinity-sensitive crops consume most of the water, the average water price declines by 10% (from USD 0.42 to USD 0.38 per cubic meter), and the number of payments delivered to the water suppliers by the agricultural sector decrease. Although urban water consumers face a slight price increase—and therefore their total welfare diminishes (Figure 4)—the overall profit of the water suppliers declines (Figure 4).

**Figure 6.** Differences between the RB and FB scenarios (RB minus FB) with respect to (**a**) irrigation water use, (**b**) salinity and VMP of irrigation water, (**c**) changes in Laspeyres quantity and price indices, and (**d**) land allocation, per hectare profit, and total profit—all reported for the groups of crops classified based on their salinity tolerance.

Figure 6c presents changes in the Laspeyres quantity and price indices (FB = 100), and Figure 6d reports the respective changes in land allocation and profits. The per hectare quantity index (computed by holding both the land allocated to the crops and their prices at their values under the FB scenario fixed) of the salinity-sensitive crops exhibits the largest reduction; however, because the land allocated to these crops increases (Figure 6d), the overall quantity of the salinity-sensitive crops' production declines only slightly. In turn, the output prices of these crops increase. Increasing the share of the salinity-sensitive crops in the total agricultural land entails less water for all of the other irrigated crops, and therefore, their share of the land shrinks, and they are replaced by rain-fed crops. Similarly, the combinations of changes in land and the per hectare productivity of the other groups dictate the overall quantity and price changes (Figure 6c), and, in turn, the per hectare profitability and total profit (Figure 6d).

In terms of per hectare profit, even after adaptation through a change in the crop portfolio, the growers of salinity-sensitive crops lose the most from the shift from FB to RB; farmers who grow moderately salinity-sensitive crops show a slight loss, and all other crops benefit. So why is more land allocated to salinity-sensitive crops? We explain this phenomenon using the differences across the crop groups with respect to the relationships between production and output prices, which affect the equilibrium in the markets for agricultural products. On average, the demand elasticity (computed here by dividing the change in the price index by that in the quantity index) of the salinity-sensitive crops is two orders of magnitude larger than that of the other groups; this is because the prices of most of the crops in that group are determined at equilibrium in the agricultural markets for fresh products, which are subjected to import tariffs. Thus, the lower per hectare production of the salinity-sensitive crops will increase the output prices of those crops, thereby increasing their per hectare profitability and motivating farmers to increase their land share; this, in turn, will moderate price changes until equilibrium is reached. As shown in Figure 4, for farmers, the land reallocation benefits amount to USD 115 million a year—about 7% of their profits under the FB scenario.
