Can market forces guide the use of irrigation water?

Some people argue that water is a basic human need that should remain free from market controls. But others believe that market forces are the best way to meet all the competing demands on this resource.

Access to water, particularly for irrigation, can reduce food costs, support economic development in rural areas and provide jobs. However, uneven water allocation can lead to income inequality and food shortages. Research from LEI-Wageningen UR, in the Netherlands, uses case studies from Egypt, Morocco, India, Indonesia and Ukraine to examine the different policies for managing scarce water and a shortage of funds for irrigation.

There are several policies for managing irrigation, including rationing quotas, charging by water volume, tradable water rights, and crop-based or area-based charges. Some policies are better for resource management, while other policies are better for financial management. The choice of policy depends on certain conditions being in place.

The most common method for managing scarce water is through quotas. In India and Morocco, surface water is successfully allocated through quotas, although both countries suffer from excessive groundwater use. However, quotas limit the ability of market forces to set a price for water. The research shows:

• The value of water to farmers is often higher than the amount they pay in charges.
• A large increase in the price of water is usually needed to balance supply and demand. This can affect the livelihoods of farmers.
• The technology and administration needed for measuring water is often complex.
• Water rationing encourages farmers to seek the most productive use of water. Tradable water rights can also improve the efficiency of water reallocation.
• Simple crop- or area-based charging systems with low costs and a high degree of transparency are best for recovering the costs of water for agriculture.

Market-pricing and tradable water rights can allocate water efficiently, but in reality this rarely happens. The market often fails to meet other environmental and social concerns, such as waterlogging or the exploitation of aquifers. No single policy meets all irrigation needs, so a combination of policies will usually be required. The case studies suggest that policymakers should:

• Charge for the service to provide water for irrigation, but not for the water itself.
• Avoid using market-pricing to balance supply and demand where it affects the welfare of farmers and their families.
• Define rights for groundwater use in India and Morocco.
• Intervene when cost is the only factor blocking the introduction of market-pricing or tradable water rights.

Source(s):
‘Can Irrigation Water Use Be Guided by Market Forces? Theory and Practice’, Water Resources Development, Vol. 22, No. 1, by Petra Hellegers and Chris Perry, March 2006

Funded by: Government of The Netherlands ‘Partners for Water’ Programme

id21 Research Highlight: 6 June 2006

Further Information:
Petra J G J Hellegers
LEI-Wageningen UR
PO Box 29703
2502 LS The Hague
The Netherlands

Tel: +31 (0)317 484788
Fax: +31 (0)317 484490
Contact the contributor: petra.hellegers@wur.nl

LEI-Wageningen UR, Netherlands

Other related links:
'Managing the business costs of water scarcity'

'Tackling water scarcity in India: farmer participation in irrigation management'

'Do water policies reflect the priorities of poor people?'

'Managing groundwater for dry season irrigation'

'Counting the cost of clean water'

See id21's links for water