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WATER: ECONOMICS,MANAGEMENT AND DEMAND

Edited byMelvyn Kay

Silsoe College, Cranfield University, UK Tom Franks

University of Bradford, UK andLaurence Smith

Wye College, University of London, UK

E & FN SPONAn Imprint of Chapman & Hall

London · Weinheim · New York · Tokyo · Melbourne · Madras


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Published by E & FN Spon,An imprint of Chapman & Hall, 2–6 Boundary Row, London SE1 8HN, UK

Chapman & Hall, 2–6 Boundary Row, London SE1 8HN, UK

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First edition 1997

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errors or omissions that may be made.

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Publisher’s note

This book has been produced from camera ready copy supplied by the individual contributors inorder to make the book available for the conference.


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CONTENTS

PREFACE x

SECTION A: THE VALUE OF WATER FOR IRRIGATION 1

WATER AS AN ECONOMIC GOOD: A SOLUTION, OR A PROBLEM?C.J.PERRY, M.ROCK and D.SECKLER

2

EXPOST ECONOMIC ANALYSIS OF IRRIGATION IN THE BAS-

RHÔNE LANGUEDOC REGIONI.CARRIERE and F.Le LANDAIS

10

TO BE OR NOT TO BE? SOUTH AFRICAN IRRIGATION AT THECROSSROADSA.M.CONLEY

19

ECONOMIC CONSIDERATIONS FOR WATER USED IN IRRIGATIONIN ISRAELY.SHEVAH and G.KOHEN

26

APPROCHE DES USAGES GLOBAUX DES EAUX AGRICOLES ENBASSE DURANCE

A.GALAND, M.TERRAZZONI and C.FAYOLLET

35

COSTS OF WATER IN KUWAITM ABDAL

43

VALUING THE MULTIPLE USES OF IRRIGATION WATER R.MEINZEN-DICK

47

AVAILABILITY OF COLORADO RIVER WATER FOR TRANSFER INSOUTHERN CALIFORNIAK.M.BALI and R.A.GONZALEZ

55

EFFECTS OF WATER MANAGEMENT ON WATER VALUE RELATIVETO ALFALFA YIELDM.E.GRISMER , K.M.BALI, F.E.ROBINSON and I.C.TOD

63


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ASSESSMENT OF IRRIGATION INVESTMENTS IN BULGARIAR.PETROVA and S.CHEKHLAROVA

70

RENT-SEEKING BEHAVIOUR AND WATER DISTRIBUTIONJ-D.RINAUDO, S.THOYER and P.STROSSER

76

FOOD SECURITY IMPLICATIONS OF RAISING IRRIGATIONCHARGES IN DEVELOPING COUNTRIESRAMESH BHATIA

85

SECTION B: THE VALUE OF DRAINAGE AND FLOOD CONTROL 90

THE ECONOMIC BENEFITS OF FLOOD WARNING ANDFORECASTINGP.J.FLOYD, J.R.V.ASH, M.S.HICKMAN and P.F.BORROWS

9

OPTIMIZING WATER MANAGEMENT IN POLDER FLEVOLAND

SAIFUL ALAM and E.SCHULTZ

99

SECTION C: SOCIAL AND ENVIRONMENTAL VALUE OF WATER 107

ALLOCATING WATER FOR PRODUCTION AND RURALCONSERVATION: CHOICES AND INSTITUTIONSI.D.HODGE and W.M.ADAMS

10

SOCIAL BENEFITS AND ENVIRONMENTAL CONSTRAINTS OFIRRIGATION IN AN ERA OF WATER SCARCITYE.FERERES and F.CEÑA

117

NEED FOR NEW APPROACHES IN VALUING WATER: LEARNINGFROM A LESS SUCCESSFUL CASEJ.C.CALDAS, P.L.SOUSA and L.S.PEREIRA

125

APPROCHE ECONOMIQUE POUR CONCILIER IRRIGATION ETENVIRONNEMENT DANS LE BASSIN VERSANT DE LA CHARENTEM.MONTGINOUL, T.RIEU and J.P.ARRONDEAU

132

THE PRODUCTIVITY OF WATER IN PUBLIC IRRIGATION SYSTEMSOF THE GUADALQUIVIR RIVER BASINM.MARTÍN R.N.

, RODRÍGUEZ and J.LÓPEZ MARTOS

143

THE WISE USE OF MANGROVE SYSTEMS: THE SOCIAL ANDENVIRONMENTAL VALUE OF WATER TOM FRANKS

152

vi


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, MOHD SHAHWAHID and H.O LIM HIN FUI

WATER, CONFLICT AND THE ENVIRONMENT: A CASE STUDYFROM TANZANIAM.A.BURTON and C.K.CHIZA

160

SECTION D: PAYMENT FOR SERVICES 16

COSTS, BENEFITS AND RATES OF IRRIGATION WATER IN ITALYL.NOLA

169

THE VALUE OF WATER IN COMPETING USESJOHN J.PIGRAM

175

PROBLEMS OF PAYMENT FOR WATER SERVICES IN RUSSIAE ARENT

182

WATER PRICING FOR IRRIGATION DURING THE TRANSITION TOMARKET ECONOMY IN BULGARIAM.KOUBRATOVA

186

PARTICIPATORY IRRIGATION MANAGEMENT: CASE STUDY OFABILITY TO PAYL.E.D.SMITH and A.SOHANI

194

WATER AS AN ECONOMIC GOOD IN AFRICAN SMALLHOLDER FARMSF CHANCELLOR

202

SECTION E: MANAGEMENT SYSTEMS 210

AN ASSESSMENT OF THE POTENTIAL OF OPTIMISATION INR.B.WARDLAW

, D.N.MOORE and J.M.BARNES

21

PROVIDING A WATER DELIVERY SERVICE THROUGH DESIGNMANAGEMENT INTERACTIONS AND SYSTEM MANAGEMENTB.A.LANKFORD and J.GOWING

220

DEMAND MANAGEMENT IN SUPPLEMENTARY IRRIGATIONJ.W.GOWING and C.J.EJIEJI

230

THE ECONOMICS OF LOW FLOW RIVERSM.G.POSTLE, N.BERRY and R.WESTCOTT

237

FINANCIAL-ECONOMIC ANALYSIS OF DUTCH WATER MANAGEMENT POLICYM.J.VAN DRIEL and P.M.LICHT

245

ECONOMIC ASPECTS OF IRRIGATION SYSTEMS MANAGEMENT INDAGESTAN

253

v


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AIDAMIROV DJABRAIL

FINANCIAL AND ECONOMIC CONSIDERATIONS ININTERNATIONAL WATER MANAGEMENTK.LEENDERTSE

256

SECTION F: POLICY FRAMEWORK—LEGAL AND INSTITUTIONAL ISSUES 264

THE ECONOMICS OF REGULATION IN WATER SUPPLY,IRRIGATION AND DRAINAGER.LASLETT

265

DEMAND MANAGEMENT FOR EFFICIENT AND EQUITABLE USEJ.T.WINPENNY

273

DEMAND MANAGEMENT OF IRRIGATION SYSTEMS THROUGHUSERS’ PARTICIPATIOND.GROENFELD and P SUN

28

WATER AS AN ECONOMIC GOOD: INCENTIVES, INSTITUTIONS,

AND INFRASTRUCTURER.MEINZEN-DICK and M.W.ROSEGRANT

289

ECONOMIC INSTRUMENTS IN WATER MANAGEMENTP.KESSLER

297

THE FEASIBILITY OF TRADEABLE PERMITS FOR WATER ABSTRACTION IN ENGLAND AND WALESJ MORRIS, E K WEATHERHEAD, J A L DUNDERDALE, C GREEN, S TUNSTALL

303

MANAGING WATER AS AN ECONOMIC GOODJ.BRISCOE

313

INTERSECTORAL WATER MARKETS: A SOLUTION FOR THEWATER CRISIS IN ARID AREAS?M.SCHIFFLER,

333

ANALYSING THE LINK BETWEEN IRRIGATION WATER SUPPLYAND AGRICULTURAL PRODUCTION: PAKISTANP.STROSSER and T.RIEU

340

GROUNDWATER MANAGEMENT IN SOUTH ASIA: WHAT ROLE FOR

THE MARKET?R.W.PALMER-JONES

349

MANAGING CHANGE IN ROMANIA’S IRRIGATION AND DRAINAGESECTOR

357

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D.B.STACEY, D.H.POTTEN and MOGUR BOERU

WHICH POLICY INSTRUMENTS FOR MANAGING THE IRRIGATIONSECTOR IN PAKISTAN?M.MONTGINOUL and P.STROSSER

364

SECOND GENERATION PROBLEMS OF PRIVATIZED IRRIGATIONSYSTEMSM.SVENDSEN

374

SUBJECT INDEX 384

i


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PREFACE

Water is often regarded as a naturally occurring, freely available commodity. However, its supplyespecially in an unpolluted state, is often limited compared to the demands placed upon it. Hence, water is aconstraint on economic activity and decisions are required with respect to its allocation between competinguses. Furthermore, considerable resources are committed to delivering required standards of water servicein terms of adequate quantities and qualities. In addition, water related environmental qualities, such athose associated with wetland regimes, are recognised as having a value to society. These characteristics owater imply that it can be regarded as an economic commodity—an economic good—whose use can bguided by economic principles.

Irrigation is a major player in the demand for water and already accounts for between 70–80% of the totaworld consumption. It is concerned with water management for crop production in conditions of water defici

which implies a high value for extra water. Drainage too is a key player but is concerned with managing awater surplus which implies negative values for water, whereby the removal of excess water by fieldrainage and flood defence generates extra benefit.

This is consistent with the Dublin Statement made in January 1992 and developed in the Agenda Item 21of the United Nations Conference of the Environment held in Rio de Janeiro in 1992 which addressed thneed for the integrated development, management and use of water resources. Furthermore the EuropeanMinisters of Environments’ conference held in Lucerne in 1993 emphasised the need for carefumanagement and protection of water resources.

The papers selected for presentation at this ICID conference focus primarily on the role of irrigation anddrainage in the debate on water use as an economic good. They highlight experiences in both developed anddeveloping countries in six key areas:

• the value of water for irrigation• the value of drainage and flood control• the social and environmental value of water • paying for services


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• management systems and• policy—legal and institutional issues.

Melvyn Kay, Tom Franks and Laurence SmithJune 1997

x


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SECTION A

THE VALUE OF WATER FOR IRRIGATION


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WATER AS AN ECONOMIC GOOD: A SOLUTION, OR A PROBLEM?

C.J.PERRY

International Irrigation Management Institute, Colombo, Sri Lanka

M.ROCK and D.SECKLER

Winrock International Institute for Agricultural Development, Arlington, USA

Abstract

There is wide interest in, and support for the idea of treating water as an economic good. However, the roleof water—as a basic need, a merit good, and a social, economic, financial and environmental resource— make the selection of an appropriate set of prices exceptionally difficult. Further, the application of price-

based instruments, once an appropriate value system has been agreed, is particularly difficult in the case ofwater, because the flow of water through a basin is complex, and provides wide scope for externalities,

market failure, and high transaction costs. While judiciously applied market tools can be expected to have benefits, in many cases the necessary and sufficient conditions, especially defined and enforced water rights

are not yet in place. In the absence of such preconditions, interventions that introduce market forces mayhave unpredictable, and possible very negative effects. Keywords: Water management, water as an

economic good, economic analysis

1Introduction

The now famous proclamation that water should be treated “as an economic good” originated in the DublinConference [1]. The proclamation was a compromise between those, mainly economists, who wanted totreat water in the same way as other private goods, subject to allocation through competitive market pricingand those who wanted to treat water as a basic human need that should be largely exempted fromcompetitive market pricing and allocation.

This distinction is further complicated by the distinction in economics between the “economic” value of good and its “financial” value. The two values rarely correspond, and as will be argued, for water thdivergences are exceptionally complex and important. Thus it does not follow from the declaration thawater is an economic good that it should be allocated by competitive market prices that reflect onlyfinancial, and not necessarily economic, social, or environmental, values.


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The question is not whether or not water is an economic good—as shown below, it certainly is an economicgood in most cases, like almost everything else we have to worry about. Rather the question is whether it isan essentially private good that can reasonably be left to free market forces, or a public good that requiresome degree of extra-market management to effectively and efficiently serve social objectives.

Water is far too important to its users to be the basis for socio-economic experiments. Much is alreadyknown about the nature of successful policies and procedures for allocating water: understanding anincorporating the implications of this knowledge will avoid some potentially enormous financial, economic

and social costs.

2Is water an economic good?

Robbins’ [2] defined economics as “the science which studies human behaviour as a relationship betweenends and scarce means which have alternative uses.” Water meets these requirements: it serves multiplicity of ends (drinking and bathing, irrigation and industrial uses, power generation; recreation andenvironmental use, waste disposal), and thus satisfies the condition of “alternative uses.” Increasingly toowater is scarce in the sense that it cannot fully satisfy all its alternative uses simultaneously.

In sum, there can be no doubt that water is an economic good—a fact with which every irrigator who ha

fought for water, stolen it, or had it stolen from him, every women who has walked or hours to fetchdrinking water from a well, and every irrigation official who been offered a bribe to divert water, is fullyconversant, in practice, if not in theory.

The important question is not whether or not water is an economic good, but what kind of economic goodit is.

In the following pages we address the question: What does it mean to treat water in irrigated agriculture aan economic good? We focus on irrigated agriculture for several reasons. First, it is the largest consumer owater virtually everywhere that irrigation is practiced. Second, policies governing water use in irrigateagriculture are fraught with disagreements over both values (should it be treated as a purely private good, a public good, or a basic human need) and facts (what is the most cost-effective allocation policy and methodif water is treated as a purely private good, or a public good, and in what instances should it be treated in

one way rather than the other way).The argument proceeds in three steps. Section 3 examines the economic analysis of different value

involved in treating water as a private and public good. Section 4 then examines the facts involved in thidebate in terms of the causes of both market failure and public failure. Section 5 summarises the presentstate of knowledge, and Section 6 suggests a practical plan of action.

3Values versus Prices

The proponents of water as a private good contend that water is just like any other good, that its productionallocation should be determined by the overriding value of consumer’s sovereignty —“The value of water to

a user is the maximum amount the user would be willing to pay for the use of the resource.” [3]. Using thi

Water: Economics, Management and Demand. Edited by Melvyn Kay, Tom Franks and Laurence SmithPublished in 1997 by E & FN Spon. ISBN 0 419 21840 8.

WATER AS AN ECONOMIC GOOD: A SOLUTION OR A PROBLEM?


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clear and simple criterion to allocate water totally ignores a number of alternative and arguably equallvalid value sets: If water is a basic need, its allocation should first meet that need for each member osociety; if water is a merit good, its allocation should be such as to ensure that its merit impact is achievedif water serves environmental purposes, its allocation should reflect national (or even international preferences for environmental protection and improvement; if certain uses of water today have significanimplications for future use, allocation mechanisms should reflect such issues; if individual incentives for water

use result in collective actions that damage society’s interest, then constraints must be placed on individua behavior.

Where market-determined prices are allowed to dominate the allocation of a resource, market (priceequilibrium results in a balance between supply and demand that maximizes consumer welfare; divergencefrom this price causes ‘deadweight’ losses (Figure 1). With the price held at P1, below the equilibrium

price, demand rises from X* to X1, and the increase in costs thus incurred exceeds the increase in benefits tosociety, measured at financial prices.

Of course, if the good in question is basic food, and the price is held below the market-determined pricewe can translate the “deadweight loss” into numbers of poor people whose needs have been more fully me —a gain rather than a loss in the view of many. But these arguments are well known and documented; ou point more generally is that is no simple set of prices, especially in the case of water, is likely to provide th

basis for the introduction of economic incentives to ensure optimum water allocation and use.However, if, like good economists, we assume away the difficulties of defining the price set, there can b

still be important disagreements on potential impacts. There are several well-known conditions under whicheconomic instruments and markets fail to function effectively. We now review some of the main option being considered to move away from public sector allocation of water towards privatization.

4Facts: Public failure and market failure

Given the generally dismal record of the public sector in the field of water resources management, one mussympathize with anyone who is interested in alternative institutional arrangements for water management

Many have understandably turned to economic instruments, market systems, and prices as an alternative onthe persuasive grounds that the market works so spectacularly well in hosts of other areas of economiactivity. But even if one accepts the value of consumer’s sovereignty without qualification, water iunfortunately a field beset with the classic problems of market failure. In this section, we first examine thrationale for privatization, the approaches that can be followed, and their appropriateness. We then turn to

Fig. 1. Equilibrium Supply and Demand, and “Deadweight losses”

4 PERRY ET AL


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the question of market failure—a critical problem in the debate about the role of economic instruments inthe management of water resources.

4.1Privatizing irrigation systems

In the public sector truly, “the road to hell is paved with good intentions.” While there are some notabl

exceptions to the rule, the public sector has generally performed miserably in all forms of watemanagement—whether in irrigation, or in domestic and industrial water supplies, or in protecting resourcesand environmental quality.

Some of the well-known and interrelated ills of the public sector can be listed readily:

• Rent seeking, either economically, in the form of direct bribes and corruption, or socio-politically in thform of empire building, high costs, and excessive supplies [4 and 5]

• The divorce of incentives from performance—indeed, sometimes almost an inverse relationship.• Capture of public agencies and funds by politically powerful interests and their clients.• Administrative operations, “by the book,” rather than management in terms of objectives and results.

The problems with public sector management and allocation of water have created the movement toward privatizing irrigation systems [6]. Privatization can take several forms, from turnover of operation anmaintenance to farmer associations, to volumetric or quasi-volumetric pricing at the farm level, tdevelopment of water markets and tradable water rights1 that would allow water to flow to the highest-valuuses.

Which of these privatization options is best? A few aspects are clear.An important size problem—the small size of most farms in most irrigation command areas in developing

countries—virtually rules out volumetric metering at the farm level. In most instances, the incremental costof the infrastructure, , and administration required for volumetric metering at the farm level will exceemarginal benefits—especially where systems have not been designed and constructed to meet thesobjectives. Quasi-pricing schemes (such as a crop charge linked to evapotranspiration) can, to some degree

overcome these problems. An additional problem in existing irrigation systems is that the value of waterrights is capitalized in the value of agricultural land. When water is volumetrically priced by metering oquasi-priced, full marginal pricing amounts to the expropriation of those rights (with consequent capitalosses in irrigated land). Farmers who have purchased land on the basis of the accepted, if not legallspecified, water entitlement will strongly oppose this. It should also be noted that the levels of pricerequired to induce a significant demand response are high, indeed extremely high in relation to the level ocharges required simply to recover O&M costs (and that level is politically infeasible in many countries).

In principle, turnover is a desirable option. It can reduce an onerous financial burden of financiallstrapped public irrigation agencies. It can provide a locally negotiated basis to link services to user chargescontributing to an improvement in the quality of services. And it can simplify irrigation users’ involvemenin investment decisions: Two drawbacks characterize turnover. First, there is little evidence that turnove

increases productivity [7]. Second, there are serious questions regarding the long-term sustainability oturned-over systems, because farmers may not pay their dues and the dues do not include adequat provision for replacement of major facilities [16]. And often the withdrawal of the government agencyleaves important gaps in oversight areas—overexploitation of groundwater; pollution of canals, drains, andaquifers; dam safety; competition among urban and agricultural demands; and drought planning.



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This leaves water markets. At the local level of farmers trading small amounts of water on thwatercourse and buying and selling water from tube wells, water markets are already thriving in mosirrigation systems and should be encouraged. Water prices and markets can also serve a valuable function inlarger transfers, whether within or among sectors under the appropriate conditions, noted before, and withsuitable regulation, as discussed in the last section.

4.2Water resource management and market failure

In the following discussion, we shall examine three of the major causes of market failure in irrigation andwater resource management, “externalities,” “transaction costs,” and “property rights.”

Irrigation water and externalities

External effects may be defined as uncompensated costs or benefits incurred by one party by virtue of theactivities of another party. There are few, if any, economic activities that have as high an incidence oexternal effects, both costs and benefits, as water.

One of the most important, yet least appreciated, facts about water is that in a basin, a substantial amounof it is recycled. When water is diverted from a stream (or pumped from groundwater) for use in agricultur

or other activities, some of it is consumed—for example, through evaporation—and some, returns via drainor percolation to the stream or aquifer, thus becoming available for a further cycle of diversion at anothetime, another place, and at another quality. Eventually, as demand increases, the fresh water available in stream is fully utilized—all outflows are of sufficiently poor quality, or to places where the cost of recoveryis too high, to be justified for potential uses. Once this happens a water basin is “closed” and no usable watesupply is left.

The description set out above is highly simplified but indicates that if we wish to privatize the allocationof water, the first change that needs to be made is to base accounting not diverted water, but consumed waterwith additional adjustments for time, location, and quality.

The importance of accounting for water in terms of consumption is well understood in the western USThere, there is substantial resistance to transfers of water out of irrigation districts because it is realized tha

once trading starts all of the secondary effects of recharging aquifers and recycling are disturbed.Because of this problem, some states in the US now assign property rights on the basis of consumptiv

use rather than water diversions, for purposes of sale and transfer [9]. In some instances, state laws expandthis by requiring irrigation districts to document reductions in consumption at the local level before watecan be traded. While this is a step in the right direction, it does not completely solve the problem oexternalities. If farmers sell the consumptive use right, they will no longer irrigate. In this situation, losses incanals will tend to form a higher proportion of deliveries; the fixed operating costs of the system must be borne by fewer users; aquifer recharge is reduced, and other farmers, who depended on return flows will have toreduce their irrigation accordingly. Keeping these accounts in order presents a major challenge.

Privatization in water and transactions costs

The second efficiency problem associated with treating irrigation water as an economic good relates totransaction costs. In many irrigation projects, the irrigation infrastructure—both the physical andinfrastructure—required to allow delivery of water to serve market purposes—that is, to price water at itmarginal cost—is entirely absent. Perry [10] recently calculated the cost of introducing the infrastructurerequired to give farm-level measurements of water deliveries in Egypt. By his estimate, they were such as to

6 PERRY ET AL


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more than offset the benefits that would flow from being able to set prices closer to marginal cost. For themost part, in the real world, water is allocated first to municipal and domestic use, second to industrial andcommercial use, and third to agriculture. (Environmental allocations are also growing in volume and priority.) This sequence of priorities is generally consistent with social and economic objectives that manywould share; the question then is what would the incremental benefit be of fully liberating the allocation process (with agreed values structures!), and what would the infrastructural and transaction costs be.

Property rights

The third point that needs to be considered is that effective water markets and water pricing are utterlydependent on secure and effective property rights in water. Yet many would agree that the single greates problem in water resource management in the developing world is that property rights in water are veryinsecure and ineffective. Or said another way, a central problem of irrigation performance is the ability osome farmers to steal water from other farmers.

Since property rights in water are not, in this first instance, secure or effective, it is difficult to see how privatization will contribute to more efficient allocations of water use unless substantial efforts (and costs) armade in advance to establish and protect property rights.

5Summing Up

How might these considerations of water as an economic good affect water policies, particularly those inirrigated agriculture? There are two answers to this question. First, it is important to recognize that much othe discussion of irrigated agriculture is taking place under conditions of conflict—where there is intensdisagreement over values, and facts are unknown. This is what makes working in water so interesting andexciting. Second, we propose a conceptually simple solution to this problem: To designers, constructorsand managers (including farmers) of irrigation systems we say: consider water as a basic human need; besure to internalize externalities; take account of transaction costs and pay close attention to costeffectiveness and economic efficiency. Doing these things and doing them well lead to different policy

recommendations in different places.Finally, it is important to take advantage of opportunities to enhance efficiency by not letting the best b

the enemy of the good. This might require recognizing, for example, that user fees for operation andmaintenance costs and public sector management may be more efficient than turnover, even thoughturnover is attractive on other grounds. Or it might require recognizing the physical limits of deliverysystems, at least in the short run. This may mean, for example, that gains in economic efficiency from watetrades in supply-based irrigation systems that ration water allocations might be limited to those betweenfarmers within given watercourses.

If all of these things are done and done well, we stand a better chance of meeting our objectives. But ithey are not, or if the current fad or ideology (of getting prices right in water) replaces a search for moreunderstanding, we may find ourselves no better off, or worse off, a decade from now.



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6Conclusion: Toward improved water management

In our arguments above, we have concluded that the case for privatization and the introduction of economiforces into the allocation of water is a priori neither good nor bad. Those who argue the merits of suchinitiatives on the basis of economic dogma are probably wrong; those who reject the potentially beneficiarole of markets in the allocation of water among competing users will also often be wrong.

But our position can be stated more positively, and to do this we define a necessary and sequential set o preconditions for the beneficial introduction of market forces into the allocation of water, namely that:

• the entitlement of all users under all levels of resource availability are defined• infrastructure is in place to deliver the defined entitlements• measurement standards are acceptable to the delivering agency and users• effective recourse is available to those who do not receive their entitlements• effective recourse is available to third parties affected by changes in use• reallocations of water can be measured and delivered, and third-party impacts (in quality, time, quantity

and place) can be identified• users must be legally obligated to pay their user fees through effective legal and police procedures

• large-scale transfers of water with and between sectors must be subject to approval and relevant charge by regulatory agencies.

With these sequentially interdependent preconditions in place, we believe that the privatization of wateallocation would have significant benefits; in their absence impacts are uncertain. We also believe thimplications of running experiments with peoples’ livelihoods, especially where water is involved, to bunacceptable.

Our hypothesis is that development and the efficient use of water will be better served by the widespreadindeed universal introduction of the necessary underpinnings and prerequisites to good water managemen(assigned water rights, delivery of a defined service). With these extraordinarily difficult steps in placefurther pursuit of market forces in the allocation of water will be useful. Privatizing water, in the sense ogiving farmers a greater role in both the financing and management of irrigation, is a promisingdevelopment. Its major benefits are likely to be more in the long-run than in the short-run, by “inducintechnological and institutional innovations [11] in irrigation management. A common observation oscientists working with farmer-managed systems is that they really are interested in how to improve theisystems! For some of those scientists this is a unique and refreshing experience.

7References

1. International Conference on Water and the Environment, (1992) The Dublin Statement and Report of thConference, WMO, Geneva, Switzerland.

2. Robbins, L. (1935) An Essay on the Nature and Significance of Economic Science. London: MacMillan.

3. Briscoe, J. (1996) Water as an Economic Good: The Idea and What It Means in Practice. Paper presented tWorld Congress of ICID, Cairo, Egypt.

4. Wade, R. (1982) The System of Administrative and Political Corruption: Canal Irrigation in South India. Jn oDevelopment Studies. Vol.18. No.3. 287–325.

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5. Repetto, R. (1986) Skimming the Water: Rent-Seeking and the Performance of Public Irrigation SystemsWashington, D.C., USA: World Resources Institute.

6. Seckler, D. (1993) Privatizing Irrigation Systems. Discussion paper No. 12. Arlington, Va.: Center for EconomiPolicy Studies, Winrock International.

7. Vermillion, D. (1996) Impacts of Irrigation Management Turnover: A Review of the Evidence to Date. DrafPaper. Colombo, Sri Lanka: International Irrigation Management Institute.

8. Svendsen, M., and Vermillion, D. (1994) Irrigation Management Transfer in the Columbia Basin: Lessons and

International Implications. Colombo, Sri Lanka: International Irrigation Management Institute. (Research pape No. 12).9. Rosegrant, M. and Binswanger, H. (1994) Markets in Tradable Water Rights: Potential for Efficiency Gains in

Developing Country Water Allocation. World Development. Vol. 22. No. 22. 1613–1625.10. Perry, C.J. (1995) Alternative Approaches to Cost Sharing for Water Service to Agriculture in Egypt. Research

Report 2. Colombo, Sri Lanka: International Irrigation Management Institute11. Hayami, Y. and V. Ruttan. (1985) Agricultural Development: An International Perspective. Baltimore: John

Hopkins University Press

1We differentiate deliberately, though there are areas of overlap, between water markets and tradable water rights. Thlatter require both the formal definition of entitlements, and the specification of the conditions under which thentitlement may be traded. Water markets, on the other hand, have developed widely, for example in areas wher

private tube wells provide competitive services to numerous potential buyers, in the absence of the formal definition owater rights, tradable or otherwise.



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EXPOST ECONOMIC ANALYSIS OF IRRIGATION INTHE BAS-RHÔNE LANGUEDOC REGION

Expost analysis of an irrigation scheme

I.CARRIERE & F.Le LANDAISBRLingénierie, Nîmes, France

Abstract

The Bas-Rhône Languedoc region was primarily a vine-growing area until 1955, when the first Frenchregional development programme introduced irrigation. Forty years later, what conclusions can be drawnfrom an analysis of the qualitative and quantitative effects brought about as a result of this development programme, both on agriculture and on other induced activities? Keywords: Agricultural trends, expost

economic analysis, irrigation, Mediterranean region.

1

IntroductionThe second world war left the economy of the Bas-Rhône Languedoc region in the South of Francsuffering with agriculture as its dominant activity. The main trend was single crop-farming and 62% of thsurface area was planted with vineyards. Vine-growing was hit by a harsh economic crisis, which soonspread to agriculture in the entire region because of the lack of diversification.

In 1955, Philippe Lamour founded a regional development company: BRL. The French governmencharged it with the implementation of its first overall regional development programme. The mainorientation of this development programme was hydroagricultural development. Today, 130,000 hectarehave been equipped for irrigation and are run by BRL.

A first expost economic analysis on the induced effects of the oldest irrigation scheme (32,000 hectareswas carried out in 1980 [1]. The effects method was applied using the data from national accounts with a 90

branch input-output table. The results showed that the effects of the scheme were considerable with rapidconvergence.

The objective of the present study [2] is to provide an overall economic appraisal of the effects oirrigation on the development of the region in qualitative and quantitative terms. The equipped area dealwith is that supplied by Philippe Lamour Canal, altogether 66,500 hectares. Using the effects metho


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adapted to regional conditions, this study is an attempt to assess how much direct and induced prosperity measured in terms of value added, employment and fiscal resources- is injected into the entire regionaeconomy.

The mechanism propagating the effects of irrigation comprises several stages: the introduction oirrigation modifies activity and agricultural production levels leading to variations in value added, inagricultural employment and in fiscal resources. These are the direct effects of irrigation. At a differenlevel, the use of the additional agricultural commodities produced is a source of indirect, downstream

effects, whilst the additional intermediate consumption (inputs) demand is a source of indirect, upstreameffects. All of these together constitute the overall induced effects.

The first part of the study deals with the analysis of the direct effects of irrigation. This paper reports onthe first results of this analysis. In a second stage of study, we shall proceed to examine the induced effectsThere are 89 communes either partially or totally located in the area involved in this study.

2Evolution of agriculture since 1955

Table 1 shows the evolution of crops throughout the period studied. These data are taken from officiaagricultural censuses.

In 1955, the surface area under development was 98,610 hectares and there were 17,640 farms, whichmeans that the average area per farm was 5.64 hectares.

The irrigation infrastructure on the scheme was built from 1959 onwards. By 1970, 50,000 hectares wereequipped for irrigation. Later on, another 16,000 hectares were also equipped.

Except for the vine, which is a special case, most of the evolution took place between 1955 and 1970.Since 1955, a 10% reduction in cropped land can be observed (approximately 10,000 hectares). Thi

reduction is only really significant after the 1979 census. The number of farms was divided by 2.4 durinthe same period. Simultaneously, the average cropped land per farm more than doubled (12.26 hectares in1988 against 5.64 hectares in 1955).

The main trends were:

• A reduction of more than one third in the area used as vineyards as a result of uprooting policy and th possibilities of diversification afforded by irrigation.

• A constant increase in fallow land since 1970 due to European agricultural policy.• A rise in industrial crops between 1979 and 1988, mainly sunflower, in relation with European incentive• A strong increase in the proportion of orchards (10%) and a transition as early as 1970 from extensiv

orchards (mainly olives, cherries and apples) to intensive, irrigated orchards producing peaches, apricotand apples.

• Fourfold multiplication of land used to grow market-garden crops since 1955, with notable developmenof specific regional crops such as asparagus, melons, tomatoes and lettuce.


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Table 1. Evolution of agricultural land (%)

Crop categories 1955 1970 1979 1988

Vineyard 62% 59% 52% 40%

Fruit trees 5% 12% 10% 10%

Vegetables, potatoes and flowers 2% 4% 5% 7%

Grassland 5% 4% 3% 3%

Cereals 13% 15% 15% 16%Industrial crops, legumes, annual fodder * 1% 1% 7%

Fallow land and domestic gardens 13% 5% 6% 8%

Loss in cropland - 0,1% 7% 10%*included in previous category

3Reference situation

To measure the effects caused by the introduction of irrigation, it is necessary to compare the presensituation with a reference situation to reflect how agriculture would have evolved if irrigation infrastructurehad not been built. This reference is based on observations of a neighbouring area (89 communes) where nocommunity irrigation facilities were built. The comparative evolution of the area with irrigation and thawithout irrigation is shown in table 2.

The share of land occupied by the different types of crops was analogous in 1955 in both zones. In thearea without community irrigation, cropped land diminished three times more than in the zone withirrigation.

In the zone with community irrigation facilities, the number of farms dropped more than in the othezone.

3.1

Comparison per type of cropVineyards: the reduction in surface area is greater in the zone with irrigation despite the vast areas of AOCvines (quality controlled appellation), which were on the rise during this period. The existence of variou possibilities of diversifying crops (or conversion to a different type of farming) thanks to irrigation is moscertainly the explanation of this trend.

• Fruit trees: the percentage of land used to grow fruit trees virtually doubled with irrigation, whilst ishrunk by 2% in the zone without community irrigation. Also the varieties used in each case differ to agreat extent.

• Vegetables: the proportion of land used for market-garden crops was multiplied by four with irrigationwhilst there is virtually no evolution without irrigation.

• Large crops: the land used for cereals, industrial crops and grassland underwent a strong rise in the zonwith irrigation, but fell by almost half in the area with no community irrigation equipment.

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Table 2. Comparison of the evolution of crops with and without irrigation (ZI = zone with irrigation; ZNI=zone whichis not irrigated)

Crop categories 1955 1970 1979 1988

ZI ZNI ZI ZNI ZI ZNI ZI ZNI

Vineyard 62% 62% 59% 57% 52% 52% 40% 45%

Fruit trees 5% 7% 12% 8% 10% 6% 10% 6%

Vegetables, potatoes and flowers 2% 2% 4% 2% 5% 2% 7% 3%Grassland 5% 5% 4% 2% 3% 2% 3% 1%

Cereals 13% 11% 15% 8% 15% 7% 16% 6%

Industrial crops, legumes, annual fodder * * 1% 0% 1% 1% 7% 2%

Fallow land and domestic gardens 13% 12% 5% 5% 6% 6% 8% 7%

Loss in cropland - - 0,1% 17% 7% 25% 10% 30%

*induded in previous category

Table 3. Surface area in 1988 for reference situation and net surfaces

Crop categories Surface area (hectares) % additional surface

Situation in 1988 Reference Situation Difference in surface

Vineyards 39515 46308 −6793 −15%

Fruit trees 10001 5665 4336 77%

Vegetables 6616 2616 4000 153%

Grassland 3442 1284 2 158 168%

Cereals 15431 9234 6197 67%

Industrial crops 6431 2267 4164 184%

Fallow land 7406 7361 45 1%

Total cropland 88842 74735 14 107 19%

The introduction of irrigation infrastructure plays a part in maintaining the extent of farm land anddiversifying the crops grown. Two stages can be identified:

• The equipment stage (1955–1970), with a considerable spread of fruit trees and market-garden crops onland not occupied by vineyards. Diversification began in parallel with vine-growing.

• After 1970, a relative stagnation of the agricultural surface area thanks to the possibility of usingirrigation to convert areas where vines had been pulled out. The existence of equipment made it easier toapply up-rooting policy and to sustain agricultural activity on the irrigation scheme.

According to this information, we were able to reconstitute the would be evolution in the study area had thcommunity irrigation infrastructure not been built. The figures obtained are given in table 3.

The introduction of irrigation facilities enables the preservation of 14,107 hectares, i.e. 19% of thadditional cropland. Irrigation changes the structure of crop shares and allows greater diversificationdespite the still dominant proportion of vineyards (see Fig. 1).



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4Calculation of direct effects

4.1

Production increase in volumeThe increase in the volume of commodities (sold) is determined by multiplying the various surface areas ofcrops in the additional cropland by the corresponding yield per hectare.

The following overall results are obtained:

• 28,392 tonnes of cereals, i.e. 67% surplus.• 10,216 tonnes of industrial crops, i.e. 202% surplus.• 3,275 tonnes of various crops (fodder and legumes) i.e. 65% surplus.• 97,611 tonnes of vegetables, i.e. 195% surplus (+6.840 million lettuces, i.e. 60% surplus).• 124,275 tonnes of fruit, i.e. 122% surplus.• a reduction in wine production by 479,590 hectolitres, i.e. −15%, and a reduction by 450km in vin

nurseries, i.e. −14.5%.

The use of the extra volume of agricultural commodities produced gives rise to induced downstream effectsThese will be studied at a later stage.

4.2Gross product before tax

The gross product before tax corresponds to the total volume of production sold multiplied by the averagfactor sales price plus the amount of compensation incentive granted for large crops (cereals, industrial crops)

The extra gross product before tax for the scheme is FFr504.9m, i.e. 41% more gross product before tax

than in the reference situation (see Table 4 for results per crop category).The sharing of the gross product before tax is substantially affected by irrigation. There is a 30pts fall fo

vineyards, whilst fruit trees and market-garden crops mark a respective progression of 16pts and 9pts (sefig. 2).

Fig. 1. Comparison of the composition of cropped land in 1988 with the reference situation



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Table 4. Gross product before tax

Crop categories Situations Additional %

Situation in 1988 Reference Situation Difference

Cereals 151 878 89 045 62 833 71%

Industrial crops 64 408 23 493 40 915 174%Miscellaneous 9 340 5 770 3 570 62%

Vegetables 415 841 186 417 229 424 123%

Fruit trees 354 507 66 811 287 696 431%

Vineyards 731 109 850 635 −119 526 −14%

Total 1 727 083 1 222 171 504 912 41%

4.3Production factor balance for additional agricultural commodities

The production factor balance for each crop provides enlightenment as to:

• quantified intermediate consumption (inputs) used to cultivate one hectare of a given crop and the uni price of each product before tax. There are 377 different products falling into nine main categorie(miscellaneous products, fertilizers, chemicals, seeds and young plants, irrigation water, equipment…);

• the number of hours of skilled or unskilled labour required to cultivate one hectare of the given crop;• the number of hours of tractor use required to cultivate one hectare of the given crop (4 types of tractor)• the total amount of tax per hectare (11 types of tax).

The total production factor balance for the additional production in the irrigated area is obtained as follows:

• term by term total of the balance of all the production factor accounts multiplied by the surface areconcerned;

• application of V.A.T. at the rate of 5.5% of commodity value.

Fig. 2. Structure of gross product before tax in 1988 and in reference situation



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This gives the total production factor balance for the additional agricultural production from the scheme ashown in Table 5. The total additional intermediate consumption amounts to FFr190.8m. The production othese intermediate products is a source of induced upstream effects to be studied at a later stage.

Table 5. Additional production factor balance for agricultural commodities from the irrigated area

Amount (FFr103) Amount (FFr103)

Intermediate consumption before tax Gross product before taxMiscellaneous products 10 466 Value of production 471 474

Fertilizers 28 329 Compensation incentives 33 437

Chemicals 10 919

Seeds and young plants 31 531

Irrigation water 28 857

Specific equipment 22 840

Tractors 9 047

Servicing, fuel, lubricants, etc. 26 913

21 964

Sub-total 190 866 Sub-total 504 911VAT 25 931

Value added incl. VAT 339 976

Grand total 530 842 Grand total 530 842

4.4Value added

4.4.1Amount of additional value added

Irrigation earns an annual additional agricultural value added amounting to FFr340 million, i.e. 46.3% morthan if no development programme had been conducted. The following figure illustrates the contribution oeach type of crop to this supplement.

4.4.2Distribution of value added

The value added falls under various headings: salaries, social contributions, taxes, financial costsinsurance, structural and operating costs and farm income. Each heading corresponds to a particular agent inthe economy. Value added is said to be divided between the different agents.

1. Salaries and social contributionsThe total amount of salaries and social contributions (family labour and farmer included) is FFr229.million, i.e. 40.7% more than in the reference situation. The sharing of this amount between agriculturahouseholds and the State has not yet been determined.

2. Fiscal resources.



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Value added tax—The additional V.A.T. received by the State is FFr25.9 million per annum, i.e. 33.5%more than in the reference situation.

Tax on large crops—Tax levied on large crops scores an annual FFr1.1 million, i.e. 112% more than in threference situation.

Tax on non built-up land property—This tax is based on cadastral revenue of agricultural land. It icollected by the local authorities, Chambers of Agriculture and the State. We plan to determine the exacamounts involved.

4.5Agricultural employment

Using the production factor balance for the various crops and referring to Agricultural Labour Units (onALU is the equivalent of 2,200 hours of work per annum) as full-time employment for one person, th

irrigation scheme created a total of 1,973 full-time employment units (including 242 ALUs for skillelabourers), i.e. 41.2% more ALUs than in the reference situation.

5Conclusions

This preliminary work is yet to be completed before the end of the year 1997 with the calculation oupstream and downstream regional value added, fiscal resources and employment at regional scale ainduced by irrigation.

Decision-makers—mainly at regional level—will thus be able to use these criteria in comparison withinvestments to assess the interest of irrigation for the regional community at a time when strategic choice

are difficult.The interest of this work is principally the quality of the data used and the fact that they are a trureflection of regional economic reality and not a series of imperfect regional statistics improper for such practice.

Fig.3. Contribution of the various types of crops to the additional value added (FFr million)



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6References

1. Le Landais, F. (1980) The induced effects of irrigation on a Bas-Rhône Languedoc scheme.2. Carriere, I. (1996) Expost analysis of irrigation in the Bas-Rhône Languedoc Region, interim report.



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TO BE OR NOT TO BE? SOUTH AFRICANIRRIGATION AT THE CROSSROADS

A.H.CONLEY

Department of Water Affairs and Forestry, Pretoria, South Africa

Abstract

South Africa has become a water-stressed country which, after providing for basic human needs,environmental protection and international sharing, is replacing riparian water rights with a system of

dynamic, competitive water allocations of limited duration to achieve optimum economic growth and sociaequity. Under growing competition from other water users, a new policy for the irrigation sector, the largesuser of water, is being developed through public consultation. Keywords: South Africa, water scarcity, law

irrigation, economic optimisation, social equity, environmental protection.

1Introduction

South Africa (SA) has developed to the stage where its meagre water resources will in future have to bused for the most worthwhile purposes only. In a radical departure from riparian water rights, SA’s futuragricultural use of water will have to recognise not only the need to treat water as an economic good, bualso satisfy the requirements of social equity and ecological sustainability.

2South Africa’s difficult water situation

The greater part of SA is semi-arid and is noted for its hydrological extremes. The country’s average annua

rainfall of 500 mm is only about 60 per cent of the world average. Sixty-five per cent of the land receives anaverage annual rainfall of less that 500 mm, which is usually seen as the minimum for successful rain-feagriculture. Over most of the country, the average potential evaporation, which ranges from about 1 100 mmin the east to more than 3 000 mm in the west, is well in excess of the average rainfall. Surface runoff iSA’s main water source notwithstanding that on average only about nine per cent of the rain reaches th


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rivers. The economically usable portion of the runoff is estimated at 30 000 million cubic metres per year. Iis poorly distributed relative to areas showing economic growth and even more variable than the rainfall particularly in the west. In general, the region is characterised by long droughts interrupted by severfloods.

As SA is underlain by hard rock formations, only about 5 400 million cubic metres of groundwater may be obtainable per year. In many areas it is saline.

SA’s major dams have a combined capacity of 50 per cent of the average runoff and intercept almost al

of the rivers in the interior part of the country. During droughts the water may have to be stored for verylong periods (even exceeding ten years) under high evaporation, which increases its salinity. In addition, aall effluent is required to be returned to the rivers, increasing urbanization, industrialization and irrigation icausing the quality of many sources of water to decline, mainly through salination, eutrophication an

pollution by trace-metals, micro-pollutants and bacterial contamination. Therefore, downstream users arvulnerable to diminished quality as well as to reductions in flow. Relative to growing demand, water iscarce in many areas of the country and is expected to become scarce almost everywhere. Ultimately, SA’water situation may worsen through global warming.

As the unit costs of water supply accelerate, the water that can be developed at costs that are affordable tomany classes of user, particularly for irrigation, is limited. If the present rate of growth in use is not checkedSA could reach the limits of its water availability by the year 2030. Accordingly determining the optimum

use of water in the public interest, on an informed basis from many possibly best solutions, has become major national aim which requires a sound approach to demand management with an appropriate emphasison the value of water as an economic good. It has therefore become essential to take account of the fuleconomic, social and environmental cost of using water, and not the financial cost only.

3Momentous changes to South Africa’s water law

After 1652, when Dutch settlers established a vegetable garden at the southern tip of Africa to supply theiships trading with the East, the Dutch continued to respect the dominus fluminus principle derived fromRoman-Dutch law, according to which the right to use public water could be exercised only on Stat

authority. This principle accords with African customary law. Having annexed the settlement in 1806Britain introduced riparian water rights by the mid 19th-century (when agriculture was still modestaccording to which landowners along a river had an exclusive right to use its water. Groundwater was seenas private water.

Early 20th-century water legislation entrenched the rights of riparian farmers and authorised the State to promote irrigation. However as towns and industries grew, the static riparian approach clashed with thdynamic water needs of diversifying development. Accordingly, in 1956 a new Water Act [1] wa promulgated to facilitate an equitable distribution of water for industrial and other competing uses. Whileacknowledging riparian use, it provided for the re-introduction of State control over water that exceededexisting users’ rights. Nevertheless, as its allocation mechanisms were still derived from a poor initiaappreciation of SA’s climatic conditions, over time the law became less and less suitable for equitable and

lasting solutions to the growing intricacy of SA’s problems.


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During the 20th-century most water schemes were built to support SA’s economically and politicallyinfluential entrepreneurial sector, which showed modest popula-tion growth, while the underdevelopedsector, which was largely rural, grew immensely, but had fewer services. After democratic elections in 1994the new government has accordingly undertaken to renew SA’s water law to comply with the needs of thcountry’s new Constitution [2] and to achieve equity and ongoing optimisation in the use of what ha become a scarce fundamental resource. This implies the resumption of full State control on behalf of 43million citizens and the demise of riparianism which favours certain land owners, particularly the fewer than

half of the 60 000 commercial farmers for whom irrigation is a major activity.After two years of public consultation [3], in November 1996 SA’s Cabinet approved a set of principle

and objectives for new water legislation [4,5]. Amongst others, they determine that the objective omanaging the quantity, quality and reliability of the nation’s water is to achieve optimum, long termenvironmentally sustainable social and economic benefit from its use as an indivisible national asset. To beable to exercise its duty as a public trust, the national government, as custodian, has ultimate authority ovewater resource management, the equitable allocation and usage of water and its transfer betweencatchments, and international water matters. There shall be no ownership of water, but only a right for basichuman needs and environmental sustainability (called the Reserve) and non-perpetual authorisations for alother uses. The location of the water resource in relation to land shall not confer preferential rights to usageAn authorisation to use water shall be timely, clear, secure and predictable in respect of assurance o

availability, extent and duration. The purpose for which it may be used shall not arbitrarily be restricted andthe conditions for authorisation shall consider the user’s investment in developing infrastructure to use thwater.

The adoption of the principles was followed in May 1997 by a government White Paper on a nationawater policy for SA [6], according to which all water occurring anywhere in the water cycle will be treatedas part of the common resource. The new system is to be phased in, beginning in water managementareawhich are under stress. Except for the reserve and international water-sharing priorities, it will use dynamiccompetitive limited term allocations and other administrative mechanisms, including water pricing, to bringsupply and demand into balance. To terminate the riparian system of allocation, transitional arrangementare to be put in place to ensure an orderly, efficient and gradual shift in water use allocations as and whennecessary. Future allocations will be granted for a reasonable period, which may be renewable, and it wil

be possible to transfer or possibly trade these rights with Ministerial consent.In addition to charging users the full costs of providing and operating waterworks, all water use will be

subject to a catchment management charge to cover actual costs (such as for removing invasive vegetation)as well as a resource conservation charge where beneficial uses compete or significantly impair other usesWaste disposal into watercourses will also be subject to appropriate management and resource conservationcharges.

All user-groups will need to continually re-evaluate their impact on the country’s water, and will have tomeet the real cost to society and the environment of their activities. In the case of irrigation, a smal percentage reallocation, by achieving a better yield per unit of water, could make a proportionately largecontribution to the needs of smaller user sectors, some of which can multiply the effect by recycling.

All major water user sectors will have to develop a water use, conservation and protection policy. Sinc

water ignores national and international political boundaries, it will be managed according to regional ocatchment management areas of which the boundaries will coincide with natural river catchments, groups ocatchments, sub-catchments or areas with linked supply systems having common socio-economic interestsProvision will be made to phase in the establishment of nationally authorised management agencies in theseareas.

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No claim to an existing right will be recognised if it limits the water which is available for basic humanneeds. Also, as allocations for irrigation already exceed the available water in many places, interventionmay be required to protect the resource base where the environmental reserve cannot be met. Where futureallocations to redress past racial discrimination result in the reduction of existing valid allocations, threallocations will be protected by constitutional provisions for corrective action which recognise thgovernment’s right to establish such legislative programmes.

Information in a register of allocations will enable the calibre of resource development, monitoring

assessment and catchment management to be improved. While this procedure can function as aadministrative system, it is compatible with the creation of a market in water use allocations, should tha become desirable.

4Growing competition for water and its future role as an economic good

The consideration of water as an economic good requires the value of the water itself to be taken intaccount, in addition to the financing of waterworks. The largest portion of SA’s runoff is consumed byirrigation, although the contribution of agriculture to the gross national product has declined during thicentury to about a third of its earlier value, while that of manufacturing has increased six-fold. Mining

manufacturing and power generation together use about a quarter of the water consumed under irrigationand add far more value and create more jobs per kilolitre of water than agriculture or forestry. The relativqualities and assurances of supply to user sectors is also a vital consideration. For instance, powegeneration would warrant a higher assurance than agriculture. Nevertheless, irrigation is important anmany people will continue to depend on the agricultural economy. The new government’s land reform programme also needs equitable access to water if resettled land is to be productive. In addition, the macroeconomic Growth, Employment and Redistribution Strategy adopted by SA in 1996 emphasises that iteconomy cannot continue to grow satisfactorily only through the continued exploitation of depletablnatural resources such as minerals. The strategy aims to boost growth by lowering protective barriers in number of industrial sectors, and to promote small and medium industries as well as greater integration withthe other countries of the Southern African Development Community.

Despite its economic worth, much of the water used in SA is not paid for directly by landowners, such ariparian abstractions, groundwater and rain-fed cultivation. In addition, many users of the State’s wateinfrastructure do not even meet the operation and maintenance costs of waterworks, a White Paper of 1984[7] having determined that while the full financial costs of water schemes should be paid by industrial anddomestic users, irrigation farmers need only pay what was affordable, which has never been quantifiedAccordingly, in 1996 the new government determined that charges for all major users should be raise progressively to meet the full financial costs of making water available and to reflect its value to society as scarce resource, with only the quantity reserved for basic human needs being available without chargeWhile the concept of realistic pricing holds promise for a better allocation of water, it has to be introducein a manner that will not penalise communities whose opportunities were limited during the apartheid eraExamples of burdens placed on society by water uses which are not paid for arise from rainfall interception

and waste disposal. For instance, afforestation and dry-land farming reduce river flows downstream, whilewaste disposal into watercourses reduces their receiving capacity, a natural asset which can be dealt with aan economic good in association with its environmental management. Accordingly, water conservation anddemand management may be promoted through a water price that reflects its value, although how best toapply this concept in practice is under evaluation.

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Notwithstanding difficulties in determining prices administratively, the trading of water-use allocationsif allowed as an alternative, will require increasing degrees of control depending on whether trading i permitted within a user sector, or between sectors or water management areas. Serious problems and arduouadministrative requirements are associated with trading water between disparate locations which are subjecto climatic extremes, dissimilar river regimes, high infrastructure costs and social imbalances. Traded pricewill not necessarily reflect the resource’s full value under these conditions, and many South Africans wouldnot accept that landowners who had acquired rights to use water under SA’s historical land tenure system

could possibly gain profits. It could also be seen as improper to subject the available water to allocation bytender or auction if wealth is concentrated in minority hands.

Fiscal capital expenditure on water development will be restricted to providing for basic human needsassuring the environmental reserve and meeting commitments on internationally shared rivers. Ongovernment water schemes tariffs will be adjusted over a reasonable period to cover their full operationmaintenance, capital and resource management costs. Where water is not supplied from governmenschemes the price will reflect the resource management costs and an appropriate resource conservationcharge. Water prices will vary according to location, being derived on a locally appropriate sub-catchmentcatchment or system basis. Disadvantaged individuals and communities will be assisted by specifimeasures for beneficiaries of land restitution, land reform or other corrective action programmes, including periods when the full cost will not be charged in order to support new enterprises. Income will be shared

between operating agencies, water management authorities and the national government in accordance withtheir contributions and responsibilities. The principles for disposing of income need to be widely acceptedso as not to introduce new distortions or hidden taxes.

5The history and unsettled future of irrigation in South Africa

The golden age of irrigation development in SA gained momentum after about 1906. Inspired by tharchetype of Empire, with the population still small and not yet appreciating the hydrological extremes anddearth of suitable soil, Britain brought engineers from Egypt and India to SA to promote widespreairrigation schemes which today absorb more than half of SA’s usable river flow. But SA entered an

economic recession during the first world war and rural difficulties were intensified by drought andeconomic depression during the 1920s and 30s. Accordingly, the government built several labour-intensiveirrigation settlements to employ and settle destitute whites from drought-stricken areas. Blacks were barelyconsidered. In many areas, drought commissions recommended the writing-off of irrigation loans.

A negative consequence of the government’s provision of infrastructure and the cancellation of debts wathe entrenchment of a sense of entitlement to State assistance for irrigation water at charges which rarelycovered the operating costs. Also, the Director of Irrigation, when visiting Italy in 1927, was persuaded thasubsidies for irrigation were warranted by their “direct and indirect benefits”. This ringing phrase, whilesound in principle, was used in an unqualified manner for decades in White Papers to gain parliamentaryapproval for the fiscal financing of individual irrigation schemes. After the mid-1930s, when farmers werediscouraged by drought, salinity and pests, capital subsidies were introduced to speed up the construction o

irrigation schemes by individuals and statutory irrigation boards. So many farm dams were built that permit system had to be introduced in the 1970s to control their expansion. Owing to their presence, many othe country’s large dams now receive water only after very protracted rainfall.

Irrigation in SA is now approaching its limits to growth. Since 1979, irrigated areas have grown by 62 per cent from 800 000 ha to 1 300 000 ha. The scope for new irrigation development is now limited by a



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lack of water and the high cost of schemes to about 178 000 ha, which is only about 14 per cent above th present extent. Expansion will be possible in certain areas only, which require prioritisation.

Faced with increasing competition for water and the need to keep people at the centre of concern, in 1996the Ministers of Water Affairs and Forestry, and of Agriculture, began a process of public participation todevelop a new, sustainable, irrigation policy [8]. It is intended to enhance the country’s economic welfare awell as its social development by promoting efficiency, fairness and stability. The policy has to cater for a widerange of circumstances, ranging from specialised exports to community vegetable gardens. Beyon

prioritising the remaining possibilities for expansion, it must achieve the best use of water, for which threquirements are demanding not only in terms of infrastructure and equipment, but also for genetiengineering, management, training, counselling, research, and the use of indigenous knowledge on smal plots. The irrigation sector will have to find balanced solutions to water use both within agriculture as welas in competition with other users. For instance, large mechanised irrigation projects are not as effective increating jobs as some areas of commerce and industry for the same capital investment.

Many aspects of irrigation farming have now to be debated [8]. For instance, to what extent should SAimport water-intensive products rather than produce its own food, wood and power? How practical is it toupgrade to higher-value crops, considering climate, pests, diseases, varieties, fertilisation, transport anmarketing? Are there sufficient international markets for them? Would it be wise to reduce the third of thirrigated area which is under profitable, labour-intensive export fruit and wine? Does the constitutional righ

to water for basic human needs also encompass household food production and how could it best bimplemented? How important is the 14 per cent of the area under crop-rotated wheat in stabilising 30 pecent of SA’s production and the 6 per cent under cotton and oilseeds which cannot meet the demand? Is the9 per cent under maize which yields only 10 per cent of SA’s production justified, or the 5 per cent undesugar cane which is sold below domestic prices on the world market? Is it reasonable to have 25 per cenunder pastures for milk and meat production? How will the various changes affect processing, packagingtransport, marketing, equipment production, fuel, fertilisers, and biocides? How can schemes designed fonight work be kept going under growing trade union pressures and new labour legislation? How can skilledfarm employees be helped to acquire land and working capital? How can farmers eliminate the harmfueffects of salinity, agricultural chemicals and feedlots to assist in maintaining the ecological reserve fromreturn flows?

With tariffs moving towards full cost recovery, high-value users ought to be able to obtain the water theyneed at an economic price. However, particular attention will have to be paid to the efficiency of water usefor irrigation in terms of location, soil suitability, crop selection, cultivar development, transmission lossesscheduling, application techniques, mechanisation, fertilisation, salination, drainage, research and extensionsupport. Years of experimentation with varieties, rotations, fertilisation and pest and disease control arlikely to be needed to counter the risks of converting to higher value crops, particularly perennials requiringlarge investments. For formulating integrated catchment management plans, irrigation farmers will have todevelop the technical and administrative capacity to be well represented in water user associations ancatchment authorities.

A diversity of farm sizes is considered desirable for SA, with the achievement of success by small farmermanaged schemes being seen as having great potential to stimulate rural development, as large schemes hav

rarely achieved the anticipated level of development. In areas where maintenance facilities are poor, improvedtraditional methods have proven to be more profitable than sophisticated installations. Accordinglyactivities at ex-homeland, communal, subsistence, food-plot, employee and market-garden level will focuon the rehabilitation or improvement of schemes and the encouragement of self-sufficiency andentrepreneurship. To achieve these aims the role of irrigation is important to land resettlement projects. In

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comprising about half of the farmers and most of the labourers in small-scale rural irrigation, women wilneed to play an active role in planning gender-specific schemes. Some projects have been unsuitablerequiring heavy pipes to be moved in the mud at times when household chores are at a peak. Many ruralwomen also need training.

Fortunately the positive spirit in which the irrigation policy process has commenced has gained the cooperation of government departments, NGO’s, CBO’s, organised agriculture, irrigation boards, industryresearch institutions, active and aspiring small-scale farmers and process facilitators. Grass-root

consultations have been held with stakeholder groupings and irrigation action committees in SA’s nin provinces. The SA National Committee on Irrigation and Drainage (SANCID) is arranging for commoditystudies on SA’s main irrigated crops, covering facets such as location, area cultivated, water use, productiontype of farming, investment, employment, input and crop processing industries, economic multiplier effectand foreign exchange earnings. Specialist workshops are to consider the economic and social value oirrigation, the improvement of efficiency, effective catchment administration, the development of smalfarmers and the role of women.

5Conclusion

The various activities are to culminate in a national irrigation policy conference to seek clarity on itunsettled future. Although much international thought, policy and practice can be recast for SA, the nation’success in handling other complex problems peaceably provides a promising backdrop for SA to find itsown solutions to addressing its water management in a principled and structured manner. The law review process has shown that policy formulation, institutional reform and capacity building are as important acapital projects and that securing SA’s water future will require special emphasis on the handling oconflicts. As the transformation will take many years, time alone will tell how well SA was able to surmounits difficulties.

The views expressed are those of the author, and not necessarily of the South African Department oWater Affairs and Forestry or of SANCID.

7References

1. Statutes of the Republic of South Africa. Water Act No 54 of 1956, as amended.2. RSA Government Gazette No 17678 (1996) Act 108 of 1996, Constitution of the Republic of South Africa.3. RSA Department of Water Affairs and Forestry. (1995) You and your water rights—a call for public response

ISBN 0–621–16752–54. RSA Department of Water Affairs and Forestry. (1996) Water law principles. ISBN 0–621–17399–15. RSA Department of Water Affairs and Forestry. (1997) Fundamental principles and objectives for a new wate

law in South Africa.

6. RSA Department of Water Affairs and Forestry. (1997) White Paper on a national water policy for South AfricaISBN 0–621–17707–5

7. RSA White Paper N’-84 (1984) Policy on water tariffs and related matters.8. RSA Department of Water Affairs and Forestry and Department of Agriculture. Towards an irrigation policy fo

South Africa. ISBN 0 7970 3505 2



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ECONOMIC CONSIDERATIONS FOR WATER USED INIRRIGATION IN ISRAEL

Pricing of water for irrigation

Y.SHEVAHTAHAL Consulting Eng. Ltd. Tel-Aviv, Israel

G.KOHEN

Water Commission, Tel-Aviv, Israel

Abstract

Water as a scarce economic input has become a major decisive factor in water pricing for the competitivesectors and especially for irrigation for which water is normally allocated on administrative and historic

water rights. In Israel, agriculture is the major water consumer using about 65% of available water resources. A water quality factor and an Increasing Block Rate system related to the quality of water at

source and the level of water used are applied for payment for the first 50, 80 and 100% of the allocation.The introduction of a progressive pricing system together with other efficiency measures have reduced

government subsidy for water used in irrigation which was reduced from 40% in 1994 to 26% in 1996 andto a projected 19% in 1997. The new pricing system, although still subsidized has influenced water consumption pattern by making irrigation water a major expenditure (8–9%) of the total purchased

agricultural production inputs. Further reform is being discussed in which the existing block rate and the non —tradable allocations are to be changed into a market negotiating systems. The Government is to further

reduce direct involvement in water supply by privatization of the national water company and the creation oregional water systems which will operate as private corporations under government control. Shares

allocation attracting dividends and voting rights will replace existing water rights. Some of the changesalready experienced and those planned for the Israeli water Sector are discussed in this presentation.

Keywords: Israel, water, irrigation, prices, subsidies, water economics, agriculture

Water: Economics, Management and Demand. Edited by Melvyn Kay, Tom Franks and Laurence Smith.Published in 1997 by E & FN Spon. ISBN 0 419 21840 8.


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1Introduction

Water is a scarce commodity and as such there is a strong need for a sustainable use and economic pricingWater prices do not normally reflect marginal economic values because they are largely determined by theGovernment rather than by the operation of free market. Governments’ preferred policies include incentiveand regulations that motivate adoption of best management practices, taxes or subsidies on inputs tha

generate or reduce pollutants and restriction on the use of selected inputs including water. In Israel, wateconservation is pursued by a wide scale adoption of low volume irrigation systems (e.g., drip, microsprinklers) which increase the average efficiency to 90% as compared to 64% for furrow irrigation [1] [2]From 1975 to 1982 the use of low volume irrigation equipment increased over 700 percent [3]. Generallywater savings were mentioned as the primary reason for adoption despite the substantial fixed costassociated with purchasing the modern systems and Government assisted programs encouraging theiadoption. Nevertheless, empirical studies concluded that profitability was also the major motive [4]. In parallel, a large scale wastewater renovation programme was also introduced leading to the current reuse oabout 60% of the generated domestic wastewater [5].

A continuous growth of the population and a competitive demand for water by the urban sector havgreatly increased the pressure on available water resources making it necessary to divert water from

irrigation to industry and domestic use. Adding water by desalination at a cost of about one US C 80/cum inot economical as compare to the marginal economic return of 55 US cents in agriculture and thereformeasures to increase the price of water are put in place ahead of water using interest groups. Initially, anincrease in the flat rate price of irrigation water was adopted. This system has been modified to thadjustment of the price in discrete steps or blocks as the volume of the applied water increases. A singletiering level is imposed on all crops, although this could distort farm level cropping pattern decisions infavor of crops with relatively low water requirements, but sensible when the ultimate goal is wateconservation.

The current measures are fully exploited and Israeli water economy is on the verge of a major reform inwhich the existing block rate and the non-tradable allocation are to be changed into a market negotiatingsystems. Israel has already embarked on the political process of positioning agriculture in the proper place visa vis national water allocation and use and the various issues have been fully debated by a public hearingcommittee [6].

2Water resources and water supply and demand

2.1Water supply

Water is al

[t. franks, m. kay, smith l. e. d.] water economi(booksee.org)

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