Irrigation in the Jordan Valley: Are water pricing policies overly optimistic?

Water is very scarce in the Hashemite Kingdom of Jordan. The development of both public irrigation in the Jordan Valley and private groundwater schemes in the highlands has diverted a large share of the country's water resources to agriculture. Many policy instruments have been used in the last 10 years to reallocate water to nonagricultural uses and encourage improvements in efficiency throughout the water sector. Demand management has been emphasized, with water pricing policies expected to instill conservation and motivate a shift toward higher-value crops. We examine the rationale for, and potential and current impact of, pricing policies in the Jordan Valley. We describe the likelihood of success of such policies in terms of operation and maintenance cost recovery, water savings and improved economic efficiency, and we explore some of the alternatives available for meeting these objectives. We show that while operation and maintenance (O&M) costs can be recovered higher water prices have limited potential for achieving gains in irrigation efficiency. The current system of quotas, the lack of storage, and technical difficulties experienced in the pressurized networks indicate that little water can be saved. More substantial increases in water prices can be expected to raise overall economic efficiency by motivating farmers to intensify cultivation, adopt higher-value crops, improve technology, or rent out their land to investors. Yet such strategies are constrained by lack of capital and credit, and pervasive risk, notably regarding marketing. Pricing policies, thus, are best implemented together with positive incentives that reduce capital and risk constraints, and offer attractive cropping alternatives or exit options with compensation.