Investigations on the Impacts of China's Rural Water Policies: From Efficiency and Equity Perspectives

China’s water resources are scarce. Given its limited water resource, policies in China have been traditionally focused on meeting sectoral demands for water by increasing the supply rather than managing demand. However, effective water resource policies that focus on demand management and encourage efficient water use remain the main weakness of China’s water policy. Main potential for efficiency gain is the agricultural sector, which accounts for 65 percent of the nation’s total water withdrawals. Due to major inefficiencies in irrigation water systems only about 45 percent of water withdrawals for agriculture are actually used by farmers to irrigate their crops. In addition to inefficiencies, the equity of the agricultural water policies is questionable, That is, existing policies lead to an inequitable allocation across different parts of the basin and within a given irrigation system. Designing policies that are both efficient and equitable is a challenge that has yet to be met. In this paper we explore the potential for an improvement in policies that address water use efficiency and equity in one of China’s rural regions. A spatial water allocation model is employed to maximize water use efficiency at both public water conveyance system and private on-farm water use in one of the irrigation districts in Northwest China’s Shaanxi Province. First-hand data which were collected from our field survey will be used in the water allocation model. Water is provided by a government authority via a public canal to farmers. Water use efficiency is modeled along with efficient and optimal cropping patterns to be endogenously determined by the decision makers in the region. The public water conveyance system has a given efficiency that can be improved with investment to reduce deep percolation. This can be done either by farmers or through cost sharing arrangements between farmers and the government. Pumping water from the canal is not regulated and sequencing of the farmers along the canal dictates the amount of water to be used by each farmer. Under the unregulated case equity may be the lowest, where the upstream users may pump unrestricted amounts and the downstream users may use the remainder. Increased efficiency of the public canal may lead to more available water to the upstream users. In a parallel venue, when on-farm efficiency is improved, less water is returned to the aquifer, leaving less water as a return flow to be available to the downstream users. Hence equity is always an issue whenever efficiency is improved. Specifically in our study area farmers’ lands are covered by one irrigation authority and situated along a canal. All farmers have access to public canal water and groundwater. For those situated at plain area, where winter wheat is grown, they have better access to abundant and cheap public canal water. For those farmers living at hilly, higher elevation area, where apple production is dominating, they get water from public canal with a higher price of about 40% compared with the price their counterparts at the plain area due to an additional (stage 1 station) lift-height pumping cost. At last, water will be delivered to mountainous area where corn is grown. A stage 2 lift-height pumping station lifts the water again to irrigate the corn’s fields. Consequently the water price is doubled as compared to the original water price at the plain area. Corn needs less water than wheat and apple. Farmers may reduce their water costs either by reducing canal water application, and groundwater pumping, or by dry land farming. A canal controller or examiner will be introduced to the canal management. By doing so, the policy impacts of regulated and unregulated cases are analyzed. Our framework includes water use efficiency, water pricing and various policy interventions that are aimed at both increasing total welfare and improve income distribution along the canal. We show how important it is for the public agency and the private users to cooperate in order to achieve water use efficiency and equity within the irrigation network. Policies include various water pricing schemes, the unregulated case, increased monitoring and enforcement of various water allocation methods, cost sharing arrangements, side payments, and trade in water rights (that will be allocated by the government). A General Algebraic Modelling System (GAMS) is employed to achieve the optimization process under the water system constraints and other policy regulation constraints.