An empirical analysis of the impacts of irrigation pricing reforms in China

Abstract

Water pricing constitutes a key component currently ongoing agricultural water policy reforms in China. It is used as a means to achieve two sets of goals: (a) improvements in irrigation efficiency and financial sustainability of irrigation systems and (b) enhancement of food self-sufficiency and rural farm income. Utilizing empirical data on the impacts of water pricing reforms in three large irrigation districts in China with diverse physical and socio-economic settings, this paper argues that water pricing, as a policy tool, is unlikely to succeed on its own in meeting these two sets of objectives. The reasons are related to a combination of infrastructure condition, farmers' lack of understanding of irrigation financing, and, more importantly, the perverse impacts that the price increases will have on agricultural output and farm income. The findings do indicate that pricing reform can improve water management when it is tailored to fit with the specific contexts of irrigation systems and is coupled with improvement in management transparency. However, for water pricing reform to contribute to the achievement of the broader national goals of food security, it needs to be packaged with additional policies and supported by rural investments.