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Water, Water Somewhere: The Value of Water in a Drought-Prone Farming Region

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  • Arthur Grimes

    ()
    (Motu Economic and Public Policy Research)

  • Andrew Aitken

    ()
    (Motu Economic and Public Policy Research)

Abstract

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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Bibliographic Info

Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 08_10.

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Length: 47 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:mtu:wpaper:08_10

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Keywords: irrigation; hedonics; water supply; New Zealand;

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  1. Jan P. Crouter, 1987. "Hedonic Estimation Applied to a Water Rights Market," Land Economics, University of Wisconsin Press, vol. 63(3), pages 259-271.
  2. L. Allen Torell & James D. Libbin & Michael D. Miller, 1990. "The Market Value of Water in the Ogallala Aquifer," Land Economics, University of Wisconsin Press, vol. 66(2), pages 163-175.
  3. John Faux & Gregory M. Perry, 1999. "Estimating Irrigation Water Value Using Hedonic Price Analysis: A Case Study in Malheur County, Oregon," Land Economics, University of Wisconsin Press, vol. 75(3), pages 440-452.
  4. Raymond B. Palmquist, 1989. "Land as a Differentiated Factor of Production: A Hedonic Model and Its Implications for Welfare Measurement," Land Economics, University of Wisconsin Press, vol. 65(1), pages 23-28.
  5. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  6. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series 02/26, New Zealand Treasury.
  7. Feng Xu & Ron C. Mittelhammer & Paul W. Barkley, 1993. "Measuring the Contributions of Site Characteristics to the Value of Agricultural Land," Land Economics, University of Wisconsin Press, vol. 69(4), pages 356-369.
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Cited by:
  1. Yoo, James & Simonit, Silvio & Connors, John P. & Maliszewski, Paul J. & Kinzig, Ann P. & Perrings, Charles, 2013. "The value of agricultural water rights in agricultural properties in the path of development," Ecological Economics, Elsevier, vol. 91(C), pages 57-68.
  2. Hansen, Winslow D. & Naughton, Helen T., 2013. "The effects of a spruce bark beetle outbreak and wildfires on property values in the wildland–urban interface of south-central Alaska, USA," Ecological Economics, Elsevier, vol. 96(C), pages 141-154.
  3. Yoo, James & Perrings, Charles & Kinzig, Ann & Abbott, Joshua K. & Simonit, Silvio & Connors, John P. & Maliszewski, Paul J., 2012. "The Value of Water Rights in Agricultural Properties in the Phoenix Active Management Area," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124095, Agricultural and Applied Economics Association.
  4. Levente Tímár, 2011. "Rural Land Use and Land Tenure in New Zealand," Working Papers 11_13, Motu Economic and Public Policy Research.
  5. Kravchenko, Alexey, 2012. "Estimating Dairy Farms’ Demand for Water," 2012 Conference, August 31, 2012, Nelson, New Zealand 136048, New Zealand Agricultural and Resource Economics Society.
  6. Hellegers, Petra & Davidson, Brian, 2010. "Determining the disaggregated economic value of irrigation water in the Musi sub-basin in India," Agricultural Water Management, Elsevier, vol. 97(6), pages 933-938, June.

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