Introduction

Water scarcity has emerged as one of the most pressing global challenges of the twenty-first century, particularly in arid and semi-arid regions where natural water availability is inherently limited. In recent decades, this crisis has intensified due to a combination of interrelated factors, including climate change, rapid population growth, urbanization, economic development, and increasing water demand across all sectors. Climate change has altered precipitation patterns, increased the frequency and severity of droughts, and intensified evapotranspiration rates, thereby reducing renewable water supplies. At the same time, population growth and economic expansion have led to rising demand for water for domestic, industrial, and agricultural uses, placing unprecedented pressure on already stressed water resources.

Among all water resources, groundwater plays a particularly critical role in ensuring water security. In many regions, groundwater serves as the primary source of drinking water, supports agricultural production, and contributes to ecosystem stability by sustaining base flows in rivers and wetlands. However, excessive and unsustainable groundwater extraction, often driven by weak governance, inadequate monitoring, and misaligned economic incentives, has resulted in declining water tables, land subsidence, salinization, and deterioration of water quality. These trends threaten not only current water availability but also the long-term resilience of socio-ecological systems.

Traditionally, water management policies in many countries have focused on supply-side solutions, such as dam construction, reservoir expansion, and inter-basin water transfers. While these approaches were effective in earlier stages of development, their potential has largely been exhausted, particularly in closed or overexploited basins where no new water sources can be developed. Moreover, such infrastructure-based solutions are often associated with high financial costs, environmental degradation, and social conflicts. Consequently, there has been a growing recognition that sustainable water management must shift from supply augmentation to demand management.

Demand-side approaches emphasize improving water use efficiency, reallocating water to higher-value uses, and employing economic instruments such as water pricing, extraction quotas, and water markets. Within this framework, water banking has gained increasing attention as an institutional mechanism that facilitates voluntary water trading among users, particularly farmers. A water bank acts as an intermediary that reduces transaction costs, enhances transparency, and ensures that water is allocated to uses with the highest economic and social value. By enabling temporary transfers of water rights, water banking can help improve water productivity, reduce pressure on groundwater resources, and enhance adaptive capacity during drought periods.

In Iran, where agriculture accounts for the majority of total water consumption and where many aquifers are severely overexploited, the need for innovative water management tools is particularly urgent. The agricultural sector faces the dual challenge of maintaining food security while reducing water use and preventing further environmental degradation. In this context, the establishment of an agricultural water bank could play a pivotal role in promoting sustainable water allocation, enhancing farmers’ income stability, and supporting long-term water resource sustainability. This research therefore seeks to clarify the role of water banking in improving water allocation efficiency and promoting sustainable water resource management under conditions of increasing water scarcity.



Materials and Methods

This study employs a Crop–Orchard simulation model to analyze farmers’ decision-making behavior under conditions of water scarcity and the presence of a water market facilitated by a water bank. The model is designed to capture the complex interactions between water availability, crop choice, economic profitability, and farmers’ responses to changing hydrological and market conditions. By integrating both field crops and horticultural crops, the model reflects the diversity of agricultural production systems and their varying water requirements.

The primary objective function of the model is to maximize the farm’s gross margin (MBT), which serves as an indicator of economic performance. Gross margin is calculated as the difference between total revenues and total variable costs. Revenues include income from crop sales as well as any applicable subsidies, while variable costs encompass production inputs such as seeds, fertilizers, labor, and irrigation-related expenses, including water pricing. By focusing on gross margin, the model captures short-term economic incentives that strongly influence farmers’ production and water use decisions.

To reflect heterogeneity among farmers and production systems, the study categorizes agricultural activities into seven distinct clusters of field and horticultural crops. These clusters differ in terms of cultivated area, crop composition, water demand, and profitability. Such clustering allows for a more nuanced analysis of behavioral differences and distributional impacts of water scarcity and water trading mechanisms.

The model incorporates four drought scenarios representing different levels of water shortage: 0% (normal conditions), 25%, 50%, and 75% reductions in water availability. These scenarios simulate increasing drought severity and allow for the examination of farmers’ adaptive responses across a wide range of hydrological conditions. Under each scenario, farmers are allowed to participate in a water bank, either by purchasing additional water to maintain production or by selling surplus water when cultivation becomes less profitable.

Through this simulation framework, the study analyzes changes in cropping patterns, water trading volumes, economic returns, and shadow prices of water. The shadow price reflects the marginal value of water in production and provides insight into the economic scarcity of water under different conditions. By comparing outcomes across clusters and drought scenarios, the model assesses the effectiveness of water banking as a tool for mitigating the impacts of water scarcity and improving overall economic efficiency in the agricultural sector.



Results and Discussion

The results of the simulation model highlight the critical role of water availability in shaping cropping patterns, economic profitability, and farmers’ water allocation behavior. Under normal conditions, clusters with greater access to water resources particularly Clusters 1 to 3 exhibit higher levels of crop diversity, larger cultivated areas, and significantly higher gross margins. In these clusters, farmers are able to allocate water to a mix of high-value and moderately water-intensive crops, resulting in substantial economic returns, with gross profits reaching up to 57.7 trillion rials.

As drought severity increases, the disparities between clusters become more pronounced. Clusters facing moderate water constraints adjust their production strategies by reducing the area under water-intensive crops and increasing reliance on water trading through the water bank. The availability of a water market enables these farmers to purchase additional water when the expected marginal returns justify the cost, thereby stabilizing income and maintaining production levels to the extent possible.

In contrast, clusters experiencing severe water scarcity such as Clusters 6 and 7 face significant limitations in their ability to sustain agricultural production. These clusters exhibit sharp reductions in cultivated area, a shift toward low-water-demand crops, and substantially lower economic returns, in some cases falling below 1 trillion rials. The shadow price of water in these clusters rises dramatically, exceeding 1,240,000 rials per cubic meter, indicating extreme economic scarcity and highlighting the high opportunity cost of water use.

The introduction of water banking plays a crucial role in enhancing adaptive capacity across all clusters. As drought intensity increases, the model shows a clear increase in water purchases and a corresponding decrease in water sales, reflecting farmers’ efforts to secure sufficient water to sustain profitable activities. Conversely, under less severe conditions, some farmers choose to sell water through the bank, particularly when the returns from water sales exceed those from crop production. This flexibility allows for a more efficient reallocation of water resources, directing water toward uses with higher economic value while providing income opportunities for water sellers.

Overall, the findings demonstrate that water banking can significantly mitigate the negative economic impacts of drought by enabling flexible water reallocation, reducing vulnerability, and improving the efficiency of water use. Differences in behavioral patterns among clusters further underscore the importance of considering crop diversity, farm size, and profitability in the design and implementation of water market mechanisms.



Conclusion

Based on the results of the integrated crop–orchard simulation model incorporating a water bank, this study concludes that drought severity has a direct and significant impact on farmers’ water trading behavior, particularly on the volume of water purchases. The presence of a water bank enhances farmers’ flexibility in managing water resources, allowing them to respond more effectively to water scarcity while maintaining economic viability.

Clusters characterized by greater crop diversity and the ability to sell water during periods of lower demand demonstrate higher profitability and greater resilience to drought. These findings suggest that water banking can serve as an effective institutional tool for balancing economic efficiency with environmental sustainability in water-scarce regions. Consequently, the expansion of water banking systems, coupled with farmer training, incentive-based policies, promotion of low-water-consumption crops, and intelligent monitoring of water resources, is recommended as a comprehensive strategy to reduce drought risk and enhance both economic and environmental sustainability in the agricultural sector.