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Water markets in the Lower Orange River catchment of South Africa

Author

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  • Gillitt, C.G.
  • Nieuwoudt, W. Lieb
  • Backeberg, G.R.

Abstract

Irrigation farmers in the Lower Orange River were surveyed during October 2003 in order to study whether water marketing has promoted efficiency and to identify factors that affect future investment in irrigation farming. Econometric procedures (principal component and logit model) indicate that purchasers of water rights produce lucrative export grapes and horticultural crops with relatively less raisin, wine or juice grapes and less field crops; are more specialised in production; have more livestock (probably liquidity factor) and have a less negative view of the five-year review period. The water market has facilitated a transfer of water use from relatively lower value crops to relatively higher value crops, and also promoted the use of more advanced irrigation. An investment model using Ridge Regression indicates that the following variables are associated with future investment in irrigation farming; expected profitability, risk perception and risk aversion (Arrow/Pratt). Results confirm that farmers who are more risk averse invest less in the future as can be expected from theory. Policies that increase risk in agriculture will have a significant negative effect on future investment in irrigation. What is significant from the results is that irrigation farmers are highly risk averse (down side). Results also show that farmers who feel that water licenses are not secure expect to invest less in the future. The latter effect is thus amplified as farmers appear to be highly risk averse. This has important policy implications, and measures should be taken to improve the perceived security of water licenses. This could be achieved by keeping farmers more informed about the practical implications of the National Water Act (NWA) and specifically water licenses.

Suggested Citation

  • Gillitt, C.G. & Nieuwoudt, W. Lieb & Backeberg, G.R., 2005. "Water markets in the Lower Orange River catchment of South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 44(3), September.
  • Handle: RePEc:ags:agreko:31726
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    Cited by:

    1. R. Quentin Grafton & Clay Landry & Gary D. Libecap & Sam McGlennon & Robert O'Brien, 2010. "An Integrated Assessment of Water Markets: Australia, Chile, China, South Africa and the USA," NBER Working Papers 16203, National Bureau of Economic Research, Inc.
    2. Manjunatha, A.V. & Speelman, Stijn & Van Huylenbroeck, Guido & Chandrakanth, Mysore G., 2009. "Impact of groundwater markets in peninsular India on water use efficiency: A Data Envelopment Analysis approach," 2009 Conference, August 16-22, 2009, Beijing, China 50624, International Association of Agricultural Economists.
    3. Grove, Bennie & Oosthuizen, Lukas Klopper, 2010. "Stochastic efficiency analysis of deficit irrigation with standard risk aversion," Agricultural Water Management, Elsevier, vol. 97(6), pages 792-800, June.
    4. Muchara, B. & Ortmann, G. & Mudhara, M. & Wale, E., 2016. "Irrigation water value for potato farmers in the Mooi River Irrigation Scheme of KwaZulu-Natal, South Africa: A residual value approach," Agricultural Water Management, Elsevier, vol. 164(P2), pages 243-252.

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    Keywords

    Resource /Energy Economics and Policy;

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