The Effect of Sequencing Trade and Water Market Reform on Interest Groups in Irrigated Agriculture: An Intertemporal Economy-Wide Analysis of the Moroccan Case

Many of the import competing sectors in Moroccan agriculture are protected while water in irrigated agriculture is priced below its marginal value product. Establishing a water market in this pre-trade reform environment can be welfare decreasing. Further, as the shadow price of water is sensitive to the crops protected by trade policy, farmers growing crops protected pre-trade reform can be made worse off post reform. The resulting decline in rents to sector resources is a source of interest group conflict that can slow the overall reform process. Using an intertemporal general equilibrium model, the paper analyzes the economy-wide effects of the linkages between trade reform and the reform of water markets in irrigated agriculture. We find a strong investment and growth response to the trade reform, and a reallocation of resources to the production of fruit and vegetable crops, for which Morocco has a strong comparative advantage. Trade reform is found to actually create an opportunity to introduce water pricing reforms. Creating a water user-rights market post trade reform not only compensates partially for the decline in rents to protected crops, but also raises the efficiency of water allocation and hence benefits the economy as a whole.