Effects of Water Priority Policy on Farmers' Decision on Acreage Allocation in Northwest China

This article analyses the impact of a water allocation priority policy for a specific crop on farmers’ acreage allocation to different crops. To accomplish this, a system of crop acreage demands conditional on output yields, prices of variable inputs and levels of quasi-fixed inputs is estimated. The analysis based on a two-year farm household panel data from an arid region in northwest China. The results show that the water policy change results in a lower elasticity of land demand not only for Atlantic potatoes (i.e. the preferential crop), but also for the other crops. Acreage allocation to grains differs from other crops due to their use within the farm household. Moreover, the estimated elasticities of quasi-fixed inputs reveal that whereas the area of cash crops and Atlantic potatoes increases with increased use of own labour before the policy change, it does so only for cash crops after the policy change. With respect to own and exchanged labour Atlantic potatoes behave like grains and regular potatoes after the policy change.