Can Irrigation Water Use Be Guided by Market Forces? Theory and Practice

Abstract

This paper provides insight into the relevance of market forces to typical problems found in irrigated agriculture. It first considers the theoretical basis for the use of economic instruments, such as volumetric water charges and tradable water rights, 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. To assess the suitability of economic instruments to achieve water management objectives, insight is provided into the current price paid for irrigation water, the cost of service provision and the value to irrigators. It becomes clear that there is a big gap between the price and value of irrigation water. This means that a considerable increase in the price of water is needed to balance supply and demand, which would reduce farm economic welfare substantially. This socio-political problem, plus the technical and administrative complexity of measuring water, make water pricing an unsuitable approach to balance supply and demand.