Water is critical for agriculture, yet surprisingly few studies internationally have analysed the value placed on water in specific farming contexts. We do so using a rich longitudinal dataset for the Mackenzie District (Canterbury, New Zealand) over nineteen years, enabling us to extract the value placed by farmers on long-term access to irrigated water. New Zealand has a system of water consents under the Resource Management Act (RMA) that enables farmers with consents to extract specified quantities of water for agricultural purposes. Some water is extracted through large-scale irrigation infrastructure and other flows by more localised means; the RMA and the water consents themselves are a critical legal infrastructure underpinning farming. Using panel methods, we estimate property sale price and assessed value as a function of the size of the farm's water right (if it has one), farm characteristics, and the water right interacted with farm characteristics to determine how the value of a water consent varies according to local conditions. We find that flatter areas and areas with poorly draining soils benefit most from irrigation, possibly because the water is retained for longer on these properties. Drier areas appear to benefit more from irrigation than do areas with higher rainfall. Farms that are situated close to towns derive especially strong benefits from irrigation since these properties are most likely to have potential water-intensive land uses such as dairying and cropping that require access to processing facilities and/or an urban labour pool.
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Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number
08_10.
Find related papers by JEL classification: Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
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