The Willingness to Pay by Industrial Sectors for Agricultural Water Transfer During Drought Periods in Taiwan

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With continuous climatic change, droughts have begun to occur more frequently. In order for industrial sectors to secure a stable supply of water during the time of droughts, or to maintain the normal functions of industrial production lines, transfer of agricultural water has often been utilized. This will happen more frequently as the climates continue to change. There is a high possibility that continuous climatic change will affect the current water management operations. The IPCC (Intergovernmental Panel on Climate Change) thinks that developing the water market by targeting reasonable distribution of scarce water resources is one of the strategies for water resource management under continuous climatic change (IPCC, 2008). Past studies have often discussed the amount of compensation given in exchange for agricultural water transfer, or the costs lost resulting from water transfer. However, few studies have discussed the industrial sector’s willingness to pay for agricultural water transfer from the viewpoint of managing water shortage risks. In general, if the amount of compensation is established based on farmers’ WTA information, there might be situations where the amount of compensation established is inclined to become an exploitation of the surplus from transferring agricultural water. Or, the benefits of the agricultural sectors might be sacrificed or exploited. It could also be that the transaction cost would become higher for agricultural water transfers during droughts when the information of the provider and those in need are asymmetrical, which in turn would affect the benefits of the agricultural sectors and the efficiency of water resource distribution. This study uses the Contingent Valuation Method (CVM) to evaluate the amount of money industrial sectors are willing to pay under climatic change to avoid the risk of water shortage in Taiwan. We target the larger industrial areas and science parks as the objects of investigation. Interviews about the amount of willingness to pay (WTP) for transferring agricultural water are conducted in factories in the above mentioned areas, which include the Hsinchu Industrial Park, Chung-Li Industrial Park, Taichung Industrial Park, Lin-Yuan Industrial Park, Hsinchu Science Park, Central Taiwan Science Park, and Tainan Science Park. The results of this study show that the WTP for agricultural water transfer of the abovementioned industrial/science parks are $28NT/ton during drought periods.