| Summary: | Agricultural production and sustainable management of water resources are often in conflict. Focusing on the economy-agriculture-water resources links, two major policies are currently in place in the European Union: the Water Framework Directive (WFD) and the Common Agricultural Policy (CAP). Within these two policies, we are dealing with two conflicting goals in relation to agriculture: to minimise the adverse impacts of the sector on the water environment, and to maximise its economic return. Nitrogen fertiliser use is a particularly sensitive issue, given that it is one of the most significant factors determining farm productivity and agricultural diffuse pollution, and its impact on crop yields and pollution losses is determined by complex processes controlled by both natural and man-made factors. Clearly, analysing and modelling such a system requires understanding of both natural and social sciences. This thesis analyses the problem of nitrate water pollution from agricultural sources, with a focus on arable cropping systems. The impact of agricultural and water management policies on farmers' decision making and the resultant economic and nitrate pollution effects are investigated. The Lunan Water catchment in Scotland was used as a case study to i) explore the water quality and economic effects of the 2003 CAP Reform and the CAP Health Check, ii) assess the cost-effectiveness of economic and managerial measures against nitrate pollution, and iii) evaluate the effectiveness of the methodology used. The above goals were achieved by using a bio-economic modelling approach, which combines bio-physical and mathematical programming modelling. The results indicate that the decoupling of subsidies under the CAP reform resulted in minor changes regarding land use and subsequently economic and water quality indicators. The abolition of set-aside under the CAP Health Check increased farm incomes through the substitution of set-aside by profitable winter cereal crops. Even though these changes resulted in increased fertiliser use, the results indicate that this does not necessarily imply increased nitrate leaching due to rotational effects associated to the nature of nitrate losses. An analysis of the relative cost-effectiveness of measures demonstrated that similar leaching reductions can be incentivised through a number of economic instruments, such as per unit taxes on nitrogen fertiliser inputs and nitrate leaching, per hectare nitrate leaching standards and nitrogen fertiliser quotas, and subsidies and cross-compliance measures aiming at the reduction of fertiliser intensity. Taxes impose considerable costs on farmers without resulting in significant nitrate leaching reductions. On the other hand, subsidies impose the costs of environmental protection on the rest of the society, while cross-compliance can deliver water quality improvements at a lower cost compared to taxes. Cross-compliance instruments can either be used for the enforcement of measures at the farm level, such as nitrogen quotas, or measures at the field level, such as crop and soil specific reductions in fertiliser inputs. Further, the results indicate that considerable leaching reductions through changes in inputs can only be achieved at a significant cost. Thus, farm infrastructure measures and training and education of farmers, could further assist in achieving water quality objectives. The bio-economic modelling methodology used provided a consistent framework for water policy assessment in the agricultural sector, as it allowed integrating agronomic, environmental and economic information in a single framework. This was achieved at three spatial scales: the field scale capturing agronomic and environmental diversity, the farm scale that offers a better representation of farmers' actual behaviour, and the catchment scale that allows consideration of the aggregate policy impacts. The thesis also demonstrates the complexity of the issues involved, and highlights the challenges to be overcome.
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