Water Pricing Policy and Subsidies to Irrigation: a Review

Abstract

This paper aims to provide an international review of water pricing policy with an emphasis on the alignment of costs with prices. The paper raises questions around the mechanics of promoting policy changes for more sustainable irrigation management as well as environmental protection in the future. The information and data used for this review were extracted from available published studies but use was also made of information from research institutions and development organizations, country reports, working papers, conference proceedings, and some unpublished documents. My initial hypothesis was that developed countries are more likely to approach full cost recovery policy for irrigation while in developing countries subsidies were considered more likely. The concept of full cost pricing has been employment in shaping policy in a number of countries, including Europe. Although environmental externalities from irrigation are seen as an important part of irrigation costs, in practice these are seldom included as a component in charges for irrigation. While most developed nations have been promoting full supply cost recovery, subsidies are still dominated in irrigation in both developing and developed countries. Full cost for irrigation water consists of three components: supply cost, economic and resource cost, and environmental cost. Capturing the costs of each component into pricing policy arguably leads to more sustainable development and environmental protection in the water sector. The political will to reach full cost recovery seems beyond most governments.