Using Good Economic Principles to make Irrigators become True Partners of Water and Environmental Policies

Abstract

Water for irrigation is a production input that is used in farms jointly with other inputs — land, capital and managerial skills. Farmers respond to both market and policies incentives, but need time to adapt their production systems in response to policy changes. The literature shows that irrigators’ water demand is fairly inelastic in the short run and for moderate water price increases. Yet, large differences across regions and even irrigation schemes can be found in water productivity, technologies and resource use efficiency in general. This shows that water productivity could be enhanced significantly. Yet this paper argues that pricing water to meet full cost-recovery is a necessary but not sufficient condition to ensure more efficient and sustainable water use. Capital adjustments, both within and beyond the farm boundaries, are also required to help farmers be able to respond to innovative water management. In contexts where water is scarce, ensuring efficient resource allocation must be added to the equation. The same applies to the environmental damage and benefits functions. Water markets, or similar instruments, are essential to distribute resource scarcity signals. In sum, balanced policy mixes are required to deliver socially desirable objectives, none of which can be achieved making farmers less competitive or eroding their profitability. There are large social and environmental benefits that can be gained from more efficient water use for irrigation. Yet farmers will not deliver them following their own interest. It is the role of government policies to lead the transformation of millions of hectares of irrigated land, working closely with farmers in order to take advantage of all technological and scientific possibilities.