Water use efficiency and influence of management policies, analysis for the small-scale irrigation sector in South Africa

Abstract

With the growing water scarcity, the need for more efficient water use has worldwide increased in importance. In addition, cost-recovery is now widely acknowledged as a cornerstone of sustainable water management. This research aims to contribute to improved water management in the small-scale irrigation sector in South Africa, which also faces these challenges. In a first analysis the economic production value of irrigation water was determined. Results show that without government subsidies on inputs, the profitability of many smallholders was low. Achieving full cost recovery therefore appears to be problematic for the current users. In the next part the concept of sub-vector efficiencies is introduced as a measure for water use efficiency. The analysis shows that smallholders fail to reach their overall technical efficiency levels when it concerns water use. Even using the current technologies the potential to reallocate irrigation water to other water demands is substantial. In a third part an innovative two-steps simulation model was developed to study the impact of water pricing. The model introduces a representation of the technology and smallholder efficiencies in a profit maximisation model. Farmers appear to be quite responsive to water charges and adjust their water use, even when the charge is relatively low. Pricing water can thus be used to provide incentives for efficiency improvement. However, the introduction of a water price is also shown to significantly decrease farm profit, particularly for smaller farms. The last part of the study investigates the impact of improving the water rights system in South Africa. Using a contingent ranking experiment the WTP of smallholders for specific interventions is estimated. The results show that farmers are prepared to pay considerably higher water prices if this is connected with advancements in the water rights system. This implies that such interventions would improve the efficiency of the small-scale irrigation sector. A higher WTP for water is also interesting in the light of the cost recovery, because it allows the government to increase water charges. In general, this research shows how economic analyses can be used to inform policy making to improve water management.