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

Author

Listed:
  • 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.

Suggested Citation

  • Arthur Grimes & Andrew Aitken, 2008. "Water, Water Somewhere: The Value of Water in a Drought-Prone Farming Region," Working Papers 08_10, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:08_10
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    File URL: http://motu-www.motu.org.nz/wpapers/08_10.pdf
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    References listed on IDEAS

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    1. Le, Rene Prou, 2007. "The Administration of New Zealand Irrigation: History and Analysis," Working Paper Series 3954, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Raymond B. Palmquist & Leon E. Danielson, 1989. "A Hedonic Study of the Effects of Erosion Control and Drainage on Farmland Values," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(1), pages 55-62.
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    6. 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.
    7. Le Prou, Rene, 2007. "The Administration of New Zealand Irrigation: History and Analysis," Working Paper Series 4341, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    8. 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..
    9. 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.
    10. 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.
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    Citations

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    Cited by:

    1. Shan Ma & Scott M. Swinton, 2012. "Hedonic Valuation of Farmland Using Sale Prices versus Appraised Values," Land Economics, University of Wisconsin Press, vol. 88(1), pages 1-15.
    2. 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.
    3. 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.
    4. 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.
    5. Levente Tímár, 2011. "Rural Land Use and Land Tenure in New Zealand," Working Papers 11_13, Motu Economic and Public Policy Research.
    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.
    7. 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.
    8. Storm, Hugo & Heckelei, Thomas & Heidecke, Claudia, 2010. "Demand Estimation for Irrigation Water in the Moroccan Drâa Valley using Contingent Valuation," Discussion Papers 162895, University of Bonn, Institute for Food and Resource Economics.
    9. Julio Berbel & M. Mesa-Jurado & Juan Pistón, 2011. "Value of Irrigation Water in Guadalquivir Basin (Spain) by Residual Value Method," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(6), pages 1565-1579, April.

    More about this item

    Keywords

    irrigation; hedonics; water supply; New Zealand;

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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