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The Potential Impact of Increased Irrigation Water Tariffs in South Africa

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  • Gill, Tania
  • Punt, Cecilia

Abstract

In South Africa, a water scarce country, conflict between water users is mounting, while there are few remaining bulk water augmentation options. Water demand management is thus increasingly taking centre stage in water management debates. Water pricing is regarded as an important component of managing the demand for water resources. This article traces the efficacy of increasing irrigation water tariffs to save water and the impact thereof on the national economy and the Western Cape economy using the Computable General Equilibrium (CGE) model and Social Accounting Matrix (SAM) constructed by Hassan et al (2008). Two scenarios are investigated in which the water tariff is increased by 50 percent from a base of 2c/m³. In the first scenario water demand is fixed in agriculture; thus, water needs to be fully utilized in agriculture. In the second scenario it is assumed that all water does not have to be utilized. The study finds that, for both scenarios, increasing water tariffs by 50% raises the risk profile of agriculture, threatens food security, decreases national welfare, increases imports of staple foods, increases the prices of staple foods, decreases household welfare and decreases employment in agriculture. These adverse effects are more severe in the second scenario than in the first scenario. The introduction of irrigation water pricing shocks should thus be approached with due caution and alternative demand management approaches should be investigated.

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Bibliographic Info

Paper provided by African Association of Agricultural Economists (AAAE) & Agricultural Economics Association of South Africa (AEASA) in its series 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa with number 96425.

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Date of creation: Sep 2010
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Handle: RePEc:ags:aaae10:96425

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Keywords: Resource /Energy Economics and Policy;

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References

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  1. James Blignaut & Jan van Heerden, 2009. "Is Water Shedding Next?," Working Papers 141, Economic Research Southern Africa.
  2. C.S. Kim & Glenn Schaible, 2000. "Economic Benefits Resulting From Irrigation Water Use: Theory and an Application to Groundwater Use," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(1), pages 73-87, September.
  3. Phoebe Koundouri & Panos Pashardes & Timothy Swanson & Anastasios Xepapadeas, . "The Economics of Water Management in Developing Countries Problems, Principles and Policies," DEOS Working Papers 0303, Athens University of Economics and Business.
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  5. Mateos-Planas, Xavier, 2004. "Technology adoption with finite horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2129-2154, October.
  6. Hassan, R. & Thurlow, J. & Roe, T. & Diao, X. & Chumi., S. & Tsur, Y., 2008. "Macro-micro feedback links of water management in South Africa : CGE analyses of selected policy regimes," Policy Research Working Paper Series 4768, The World Bank.
  7. Ada Jansen & Carl-erik Schulz, 2006. "Water Demand And The Urban Poor: A Study Of The Factors Influencing Water Consumption Among Housholds In Cape Town, South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 74(3), pages 593-609, 09.
  8. Olmstead, Sheila M. & Michael Hanemann, W. & Stavins, Robert N., 2007. "Water demand under alternative price structures," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 181-198, September.
  9. Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
  10. van Heerden, Jan H. & Blignaut, James & Horridge, Mark, 2008. "Integrated water and economic modelling of the impacts of water market instruments on the South African economy," Ecological Economics, Elsevier, vol. 66(1), pages 105-116, May.
  11. Dalton, Timothy J. & Porter, Gregory A. & Winslow, Noah G., 2004. "Risk Management Strategies in Humid Production Regions: A Comparison of Supplemental Irrigation and Crop Insurance," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(2), October.
  12. Dinar, Ariel & Rosegrant, Mark W. & Meinzen-Dick, Ruth, 1997. "Water allocation mechanisms : principles and examples," Policy Research Working Paper Series 1779, The World Bank.
  13. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-98, January.
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Cited by:
  1. Dinar, Ariel, 2012. "Economy-wide implications of direct and indirect policy interventions in the water sector: lessons from recent work and future research needs," Policy Research Working Paper Series 6068, The World Bank.

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