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Irrigation Water Pricing Policy in China

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  • Huang, Qiuqiong
  • Rozelle, Scott
  • Howitt, Richard E.
  • Wang, Jinxia
  • Huang, Jikun

Abstract

As water becomes scarcer in northern China, designing policies that can induce water users to save water has become one of the most important tasks facing China's leader. Past water policies may not be a solution for the water scarcity problem in the long run. This paper looks at a new water policy: increasing water prices so as to provide water users with direct incentives to save water. Using a methodology that allows us to incorporate the resource constraints, we are able to recover the true price of water with a set of plot level data. Our results show that farmers are quite responsive if the correct price signal is used, unlike estimates of price elasticities that are based on traditional methods. Our estimation results show that water is severely under priced in our sample areas in China. As a result, water users are not likely to respond to increases in water prices. Thus as the first step to establishing an effective water pricing policy, policy makers must increase water price to the level of VMP so that water price reflects the true value of water, the correct price signal. Increases in water prices once they are set at the level of VMP, however, can lead to significant water savings. However, our analysis also shows that higher water prices also affect other aspects of the rural sector. Higher irrigation costs will lower the production of all crops, in general, and that of grain crops, in particular. Furthermore, when facing higher irrigation costs, households suffer income losses. Crop income distribution also worsens with increases in water prices. In summary, our paper provides both good news and bad news to policy makers. On the one hand, water pricing policies obviously have great potential for curbing demand and helping policy makers address the emerging water crisis. On the other hand, dealing with the negative production and income impacts of higher irrigation cost will pose a number of challenges to policy makers. In other words, if China's leaders plan to increase water prices to address the nation's water crisis, an integrated package of policies will be needed to achieve water savings without hurting rural incomes or national food security.

Suggested Citation

  • Huang, Qiuqiong & Rozelle, Scott & Howitt, Richard E. & Wang, Jinxia & Huang, Jikun, 2006. "Irrigation Water Pricing Policy in China," 2006 Annual meeting, July 23-26, Long Beach, CA 21241, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea06:21241
    DOI: 10.22004/ag.econ.21241
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    File URL: http://ageconsearch.umn.edu/record/21241/files/sp06hu21.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christian Franco-Crespo & Jose Maria Sumpsi Viñas, 2017. "The Impact of Pricing Policies on Irrigation Water for Agro-Food Farms in Ecuador," Sustainability, MDPI, Open Access Journal, vol. 9(9), pages 1-18, August.
    2. Lohmar, Bryan & Hansen, James M., 2007. "Interactions between Resource Scarcity and Trade Policy: The Potential Effects of Water Scarcity on China’s Agricultural Economy under the Current TRQ Regime," 2007: China's Agricultural Trade: Issues and Prospects Symposium, July 2007, Beijing, China 55031, International Agricultural Trade Research Consortium.
    3. Rozelle, Scott & Sumner, Daniel A & Paggi, Machel & Huang, Jikun, 2006. "Rising Demand, Trade Prospects, and the Rise of China's Horticultural Industry," 2006 NAAMIC Workshop III: Achieving NAFTA Plus 163885, North American Agrifood Market Integration Consortium (NAAMIC).
    4. Li, Hongmei & Li, Mingxian, 2010. "Sub-group formation and the adoption of the alternate wetting and drying irrigation method for rice in China," Agricultural Water Management, Elsevier, vol. 97(5), pages 700-706, May.
    5. Tahamipour, Morteza & Kalashami, Mohammad Kavoosi & Chizari, Amirhossein, 2015. "Irrigation Water Pricing in Iran: The Gap between Theory and Practice," International Journal of Agricultural Management and Development (IJAMAD), Iranian Association of Agricultural Economics, vol. 5(2), June.
    6. Huang, Qiuqiong & Rozelle, Scott & Wang, Jinxia & Huang, Jikun, 2009. "Water management institutional reform: A representative look at northern China," Agricultural Water Management, Elsevier, vol. 96(2), pages 215-225, February.
    7. Lohmar, B. & Huang, Q. & Lei, B. & Gao, Z., 2007. "Water pricing policies and recent reforms in China: the conflict between conservation and other policy goals," IWMI Books, Reports H040610, International Water Management Institute.
    8. Simla Tokgoz & Danielle Alencar Parente Torres & David Laborde & Jikun Huang, 2014. "The role of U.S., China, Brazil's agricultural and trade policies on global food supply and demand," FOODSECURE Working papers 19, LEI Wageningen UR.
    9. Jian Xie, 2009. "Addressing China's Water Scarcity : Recommendations for Selected Water Resource Management Issues," World Bank Publications, The World Bank, number 2585.

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    Resource /Energy Economics and Policy;

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