Northwest China frequently experiences significant droughts and water shortages. To better balance the supply and demand, and provide sufficient funds for water resource projects, this study applied a computable general equilibrium model to construct an agricultural water pricing policy model that depends on the crops' economic value and regional water use characteristics. Wuwei City in Gansu Province was used as a case study to test the model. Three agricultural water price increase policies and three supporting subsidy policies were developed. The study quantitatively investigated the impact of these policies on the agricultural economy, water use, and efficiency of water use from different water sources. The results indicated that water pricing reform promotes water conservation and improves water use efficiency. Subsidies can reduce the negative impact of water pricing policies on the agricultural economy. Economic crops (e.g. vegetables) are more sensitive to water prices compared to food crops (e.g. wheat). Finally, to best our knowledge, this study provided the best water pricing reform scenario expected to be the most effective for local development.
The impact of agricultural water pricing reform on water uses and economics was quantitatively analyzed using the CGE model.
Three agricultural water price policies and three supporting subsidy policies were developed, based on local farmers' water price bearing capacity.
Water was subdivided into various sources and different elasticities were substituted. The agriculture was subdivided into three crops.