of consumer and producer surplus change contrast with the change in water demand; 3) water
demand elasticities; and 4) government revenue from each policy scenario.
Model Results for Egypt
Under water pricing scenario, the cropping area decreased for almost all major crops except
citrus, most of all cotton and vegetables at the cost recovery water pricing level (Pw1) (Table 2).
Cotton and vegetables have higher profitability than other crops in Egypt. With an increase in
production cost (water cost), results favor production of higher valued crops than lower valued
crops. The cropping area of onion and some cotton increased at the pw1 level. At a higher water
pricing level such as Pw2 and Pw3, the model results show that cropping area of all crops
decreased. Some crops, such as maize, paddy rice, sugar beet and sugar cane, dropped more than
others (for example, vegetables). Land goes out of production at the cost recovery water pricing
level, and at the water pricing levels Pw2 and Pw3. There are two reasons explaining this result:
1) increasing costs will cause activity levels to decrease until marginal revenue equals marginal
cost. Land will go out of production if other activities can not be expanded profitably; 2) the
PMP approach imparts a quadratic cost term which causes production costs to increase at an
increasing rate as production deviates from the base. In other words, the PMP coefficients likely
render the model too sensitive to cost and revenue changes.
For the water complementary input factor scenario, N-fertilizer and energy taxes results a
similar cropping pattern change as with the water pricing scenario. However, a pesticide tax is
not effective in decreasing the cropping area of water intensive low profit crops, such as sugar
cane and paddy rice. This is because sugar cane does not use much pesticide and pesticide use is
generally small for paddy rice in Middle Egypt and West Delta regions.
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