Irrigation pricing policies and its impact on agricultural inputs demand in Tunisia: a DEA-based methodology

This paper estimates farmers' individual irrigation water demand functions employing the information hidden in individual farmers' technical efficiency. This information is extracted through the development of a new deductive methodology based on inverse Data Envelopment Analysis (DEA) models. The empirical results for Tunisia show that farmers who are more technically efficient have less elastic irrigation water demand functions; these farmers would adjust demand only to a limited extent and they can afford the water price. In contrast, water pricing significantly affects those that are less efficient. These farmers shift towards a different cropping pattern using significantly less water and more land when the price of water increases. Thus, higher water prices would threaten this category's livelihood if their efficiency is not improved. However, if the technical efficiency of these farmers were to improve, then it would be more difficult to reach water saving objectives since their demand will also become highly inelastic. The findings have important implications in view of the objectives of Tunisia water policy which include:full cost recovery, continuity of the irrigation activity, and water saving at the national level.     

PRICING IRRIGATION WATER IN DEVELOPING COUNTRIES1

ABSTRACT Alternative combinations of water pricing and regulations are possible in allocating irrigation water. The best combination will depend on the value of water, ability to control deliveries, desire to subsidize agriculture, ownership traditions, crops grown, return flows, drainage problems, staff training, ability to collect fees, the number of farmers involved, etc. Marginal cost pricing is just one possible alternative and it is more a way of thinking about prices rather than a set system. The possibilities for achieving an equitable and efficient distribution of water are improved if some form of marginal cost pricing is included in the system of water charges.     

EFFICIENCY IN THE USE OF WATER FOR IRRIGATION: THE ROLE OF PRICES AND REGULATIONS

Efficiency in the use of water for irrigation is normally defined in a physical sense - engineering and agronomic; and it is often assumed that higher efficiency is desirable. However, in an economic sense, there is an optimum range in the level of physical efficiency. Normally it can be said that as water prices increase, it becomes more rational to increase physical efficiency by selecting and adopting improved methods of controlling, measuring and applying water, and to design systems of pricing and regulations that will promote optimal allocation and efficient use. However, the value of water is often extremely low, in which case there may be little economic incentive to improve physical efficiency unless forced by physical factors that affect production and productivity such as soil characteristics, waterlogging or nutrient leaching.
The combination of regulations and prices that are used to allocate irrigation water reflect the conflicting goals of redistribution of income in favor of agriculture and needs to encourage efficient use of water. Regulations and pricing systems also depend on the value of water, the dependability of supplies, systems of delivery and the extent to which flows can be regulated.
Using examples and case studies, this paper discusses physical and economic efficiencies and their interrelationships. It emphasizes the role of pricing and regulations and provides general guidelines.     

Incentive pricing and cost recovery at the basin scale

Incentive pricing programs have potential to promote economically efficient water use patterns and provide a revenue source to compensate for environmental damages. However, incentive pricing may impose disproportionate costs and aggravate poverty where high prices are levied for basic human needs. This paper presents an analysis of a two-tiered water pricing system that sets a low price for subsistence needs, while charging a price equal to marginal cost, including environmental cost, for discretionary uses. This pricing arrangement can promote efficient and sustainable water use patterns, goals set by the European Water Framework Directive, while meeting subsistence needs of poor households. Using data from the Rio Grande Basin of North America, a dynamic nonlinear program, maximizes the basin's total net economic and environmental benefits subject to several hydrological and institutional constraints. Supply costs, environmental costs, and resource costs are integrated in a model of a river basin's hydrology, economics, and institutions. Three programs are compared: (1) Law of the River, in which water allocations and prices are determined by rules governing water transfers; (2) marginal cost pricing, in which households pay the full marginal cost of supplying treated water; (3) two-tiered pricing, in which households' subsistence water needs are priced cheaply, while discretionary uses are priced at efficient levels. Compared to the Law of the River and marginal cost pricing, two-tiered pricing performs well for efficiency and adequately for sustainability and equity. Findings provide a general framework for formulating water pricing programs that promote economically and environmentally efficient water use programs while also addressing other policy goals.     

Problems and Prospects for Water Reallocation in Australia

The misallocation of water supplies and the pressures for reallocation in Australia are well-recognized. Suggestions to achieve more efficient use of the very limited water supplies of the nation through pricing or through water markets have been raised. However, such approaches appear to have little chance of implementation because of established legal practice and political reality. If more efficient use of limited water supplies is a pressing social priority, a more practical approach to achieving such ends may be to consider reallocative mechanisms which will operate within the existing institutional structure. One approach which fits these criteria is the irrigation land buy-back.     

Residential Demand for Water in the Chicago Metropolitan Area1

Mieno, Taro and John B. Braden, 2011. Residential Demand for Water in the Chicago Metropolitan Area. Journal of the American Water Resources Association (JAWRA) 47(4):713‐723. DOI: 10.1111/j.1752‐1688.2011.00536.x Abstract: This paper provides the first contemporary analysis of residential water demand in humid Northeastern Illinois, in the vicinity of Chicago, and explores seasonal and income‐based differentials in the responsiveness of water use to water prices. Using a panel of system‐level data for eight water systems and controlling for seasons, weather, incomes, and community characteristics, the analysis yields low estimates of price elasticity of demand for water in line with other studies. Furthermore, price response is greater in summer and less in higher income communities. We suggest that use of seasonal pricing can help mitigate equity issues arising from differential income elasticities while taking advantage of the greater price responsiveness of summertime water use.     

EVALUATING INTERDEPENDENT WATERSHED CONSERVATION AND GROUND WATER MANAGEMENT REFORMS1

Abstract: Conserving the watershed can help to preserve ground water recharge. Preventing overuse of available water through pricing reforms can also substantially increase the value of an aquifer. Inasmuch as users are accustomed to low prices, efficiency pricing may be politically infeasible, and watershed conservation may be considered as an alternative. We estimate and compare welfare gains from pricing reform and watershed conservation for a water management district in Oahu that obtains its water supply from the Pearl Harbor aquifer. We find that pricing reform is welfare superior to watershed conservation unless the latter is able to prevent very large recharge losses. Watershed conservation that yields net gains in combination with pricing reform may cause net losses without the pricing reform. If adoption of watershed conservation delays the implementation of pricing reform, the benefits of the latter are significantly reduced.     

Improving food security in Swaziland: The transition from subsistence to communally managed cash cropping

The Komati Downstream Development Project (KDDP), based upon the Maguga Dam has enabled 6,000 hectares of semi‐arid lowveld, in a region with low and highly variable rainfall to be converted from subsistence to irrigated commercial farming, mainly of sugar cane. This has transformed the Swazi sugar industry from one dominated by a small number of large‐scale commercial estates to one where more than 1,500 previously impoverished small‐scale Swazi farmers have been able to enter the industry by joining farmers’ associations and creating communally managed farms. Recent changes to the EU's Sugar Protocol have undermined the financial viability of the KDDP farms and undermined food security, especially for the poorest, due to the cut in sugar prices. However, some farmers’ associations have opted to keep some of their land as irrigated home gardens, rather than convert all their land to sugar cane. This model has improved food security at a time of low sugar prices and points to a more sustainable way of using water from large scale dams than the conventional model. It is argued that the EU should target support to members of the KDDP who have taken out large‐scale loans to pay for the in‐field infrastructure and encourage all farmers’ associations to adopt the food garden model. This would enable them to continue to benefit from the irrigation through improved production of subsistence crops, whilst they diversify their commercial production into novel markets.     

CHANGES IN WATER POLICY IN THE PEOPLE'S REPUBLIC OF CHINA1

ABSTRACT: Ideology has predisposed the People's Republic of China against the use of prices to allocate water. Prolonged drought in north China has made the Chinese more aware of their unfavorable water resource inventory and the expense of expanding supply. Therefore, as part of the economic liberalization commenced since the death of Mao Zedong, China has started to make more active use of pricing to regulate demand and reduce the need for supply expansion.     

Managing Drought Through Water Markets: Farmer Preferences in the Rio Grande Basin1

Abstract: Managing drought in agriculture has taken on growing importance as population growth and environmental concerns place increasing pressures on agricultural water use. One alternative for agricultural water resource management in areas of recurrent drought is allocation through market mechanisms. While past research has aimed to explain why farmers are reluctant to participate in already established water markets, this research seeks to identify the appropriate market mechanism given farmers’ preexisting attitudes toward water markets. Statistical analysis of survey data from 166 farmer interviews in the Rio Grande Basin indicate that farmers are significantly more likely to participate in short‐term water mechanisms, such as spot water markets and water banks than in permanent transfer mechanisms, particularly those that fully separate water rights from land. In sharp contrast to expectations, the choice of market mechanism did not differ significantly between farmers based on their a priori intention to buy, sell or both buy and sell in these markets. Choice of market mechanism also did not differ among farmer types although small, lifestyle or hobby farmers clearly preferred spot water markets to other types of short‐term mechanisms. Evaluating these attitudes a priori may help to design more suitable water market mechanisms for the basin.     

AN OPTIMIZATION MODEL FOR EFFICIENT MANAGEMENT OF URBAN WATER RESOURCES1

ABSTRACT: A mathematical programming model is proposed to determine economically efficient urban water resource allocation and pricing policy by maximizing the sum of the consumer and producer surplus. The optimization of this nonlinear problem is accomplished by the use of linear programming algorithm. The feasibility of using recycled water for municipal purposes is examined in a planning context. The impact of higher water quality discharge standards on pricing and allocation of water is analyzed and the attractiveness of water reuse option is demonstrated.     

EXTERNALITIES,WATER PRICES,AND WATER TRANSFERS1

Discussing, estimating or analyzing the value of water is a difficult task. In addressing the value of water as reflected in its price — either as charged by a water utility, as the price of a water transfer, or a water sale in some market — this paper will examine three propositions regarding water pricing. The paper will consider the marginal scarcity rent of water, estimates of externalities, the full cost pricing of water and the consequences of these considerations on water prices, transfers and the efficiency of water use.     

PRICE BEHAVIOR IN THE WATER MARKET OF NORTHEASTERN COLORADO1

ABSTRACT Past prices of Colorado-Big Thompson water shares were analyzed using an asset pricing model which incorporated the growth rate in real returns to irrigation water and the value of potential urban water uses. A real growth rate in the returns to irrigation water was estimated at 5.3 percent. Nevertheless, market values for water shares have exceeded capitalized agricultural values since 1969. Historically, urban use potential was heavily discounted, but the implicit discount rate fell rapidly in the last decade. The expectation that water shares will eventually be sold to municipal or industrial consumers now appears to be reflected fully in water prices.     

A “RATIONAL” POLICY FOR THE ENERGY AND ENVIRONMENTAL CRISES1

ABSTRACT: The present energy and environmental crises are due to increasing per capita demands as well as increasing populations. The role that traditional pricing policies have played in promoting these demands is discussed. The reduction or stabilizing of per capita demands is advocated through the use of Conservational Pricing mechanisms which charge higher average prices for high consumption. An example of the effect of Conservational Pricing in the water supply industry is given.     

Water supply policies and issues in developing countries

The significant progress made during the UN International Water Decade is reviewed, eight years after its inception in 1981. Major issues remain, especially in rural areas. The advantages of an integrated water resource planning framework (IWRP) are explained, including the use of this process to develop a flexible strategy for the water and sewerage sector to meet national policy objectives. Economic efficiency in supply implies optimal service quality and least cost planning, while efficient pricing policy requires the implementation of long-run marginal cost based tariffs. Better sector organization, management, accountability, options for decentralization and innovative financing methods are also discussed.     

Re-examining the water affordability: A comparison of alternative measures

Water affordability is determined by the percentage of income households that must allocate to municipal water services, while factoring in essential or basic needs water use. With the rise in water prices reported in most areas of the country along with somewhat stagnant income growth—a combination that suggests ceteris paribus—more of a household's disposable income is being spent on water services. This paper adds to the discussion in three ways. First, given the lack of a consistent definition for “affordability” and the subjective connotation associated with such a term, we develop and compare five different water expenditure ratios, including two different measures of water for essential needs, as well as measures for indoor, efficient, and actual water use. Second, because of the granularity of our data, we illustrate how such “affordability” measures can vary significantly within a water district and thus highlight how using district- or county-level income measures can mask the degree to which affordability is an issue for households living in low-income block groups. Our results indicate that the choice of income measure and type of water service use can influence affordability measures substantially.     

Urban Streamflow Response to Imported Water and Water Conservation Policies in Los Angeles,California

Los Angeles has a long history of importing water; however, drought, climate change, and environmental mitigation have forced the City to focus on developing more local water sources (target of 50% local supply by 2035). This study aims to improve understanding of water cycling in Los Angeles, including the impacts of imported water and water conservation policies. We evaluate the influence of local water restrictions on discharge records for 12 years in the Ballona Creek (urban) and Topanga Creek (natural) watersheds. Results show imported water has significantly altered the timing and volume of streamflow in the urban Ballona watershed, resulting in runoff ratios above one (more streamflow than precipitation). Further analysis comparing pre‐ vs. during‐mandatory water conservation periods shows there is a significant decrease in dry season streamflow during‐conservation in Ballona, indicating that prior to conservation efforts, heavy irrigation and other outdoor water use practices were contributing to streamflow. The difference between summer streamflow pre‐ vs. during‐conservation is enough to serve 160,000 customers in Los Angeles. If Los Angeles returns to more watering days, educating the public on proper irrigation rates is critical for ensuring efficient irrigation and conserving water; however, if water restrictions remain in place, the City must take the new flow volumes into account for complying with water quality standards in the region.     

The acceptability, personal outcome expectations, and expected effects of transport pricing policies

Acceptability and personal outcome expectations (i.e., the extent to which one expects to be better or worse off) of transport pricing policies were examined in relation to the expected effects of these policies on one’s own car use, congestion and environmental problems. Car users who commuted frequently by car and experienced congestion on a regular basis evaluated two pricing measures, which were mainly aimed at either decreasing congestion (by tolling at congested areas) or environmental problems (by a differential kilometre charge based on car mass). For the policy mainly aimed to reduce congestion, acceptability was higher and personal outcome expectations were more positive when respondents expected reductions in congestion when the policy was implemented. The policy aimed to reduce environmental problems was more acceptable and respondents expected to be better off in general when they expected reductions in environmental problems after its implementation. Expectations, both about a decrease in congestion and environmental problems were related to respondents’ personal outcome expectations of the policy mainly aimed to decrease environmental problems. We conclude that the acceptability of transport pricing policies are not necessarily low because car users expect negative effects on their car use, but rather because they are not be convinced that transport pricing policies will reduce congestion and environmental problems.     

SOIL EROSION AWARENESS AND USE OF CONSERVATION TILLAGE FOR WATER QUALITY CONTROL1

Water pollution through loss of topsoil from farmland continues to be a major problem, despite nearly 50 years of providing farmers technical and financial assistance for soil and water conservation. The technology for controlling erosion and water pollution is available, but farmers have been slow in implementing control practices. Past research has shown that farmers tend to be unaware of the seriousness of the erosion problem on their own operations. Using a random sample of farmers from central Iowa, the relationship is examined between awareness of a soil erosion problem and the use of conservation tillage. Results indicate that awareness of a soil erosion problem effects the use of conservation tillage, and that awareness can be enhanced by experiential educational strategies such as the development and implementation of a soil and water conservation plan.     

Agricultural practices,ecology, and ethics in the third world

The increasing demand for horticultural products for nutritional and economic purposes by lesser developed countries (LDC's) is well-documented. Technological demands of the LDC's producing horticultural products is also increasing. Pesticide use is an integral component of most agricultural production, yet chemicals are often supplied without supplemental information vital for their safe and efficient implementation. Illiteracy rates in developing countries are high, making pesticide education even more challenging. For women, who perform a significant share of agricultural tasks, illiteracy rates are even higher than for men. The dilemma exists of how a developing country can improve its nutritional and economic situation without giving consideration to social and environmental consequences.