Water As An Economic Good In Irrigated Agriculture: Theory And Practice

This report describes the results of the Water Valuation and Pricing project, which aims to provide insight into the relevance of economics to typical problems found in irrigated agriculture. It first considers the theoretical basis for the use of economic instruments, then considers their usefulness in the context of five case studies of irrigated areas - in Egypt, India, Indonesia, Morocco and Ukraine. The case studies confirm that competition for scarce water and shortage of funds are widespread. The study provides insight into the current price paid for water, the cost of service provision, and the value to irrigators of the water they receive. The analysis shows that volumetric pricing is unlikely to be relevant to demand management because the price of water at which demand and supply would be balanced is so high as to substantially reduce farm incomes. This socio-political problem, plus the technical and administrative complexity of measuring and accounting for water, and the crucial distinction between water applied to the field and water consumed by the crop make water pricing an unsuitable approach to balancing supply and demand.