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A new methodology for assessing the impact of water-pricing scenarios: case study of small-scale irrigation schemes in South Africa

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  • Speelman, Stijn
  • Frija, Aymen
  • Farolfi, Stefano
  • Buysse, Jeroen
  • D'Haese, Marijke F.C.
  • D'Haese, Luc

Abstract

Worldwide growing water scarcity has increased the call for economic instruments to stimulate rational water use in agriculture. In addition cost-recovery is now widely accepted as a cornerstone of sustainable water management. As a consequence now in developing countries, where currently agricultural water use is often still heavily subsidized, a tendency exists of introducing water-pricing as a policy to achieve more sustainable water use. The exact impact of water pricing policies on irrigation water use or on the farmers’ production system is however mostly unknown. A new two-stage methodology that allows estimating at the farm level the effects of introducing or raising a water price on the agricultural production process and water demand is introduced in this study. The first stage comprises the construction of a technical efficiency frontier and the calculation of the technical and allocative efficiency levels of each farm. This representation of the technology is used in the second stage in a profit maximization model. As an example the method is applied to the case of small-scale irrigators in South Africa. It is shown that water demand of farmers is quite responsive even to small changes in the water price. Moreover, the introduction of a water price is shown to significantly decrease farm profit. This appears to be mainly a problem for the poorer farmers.

Suggested Citation

  • Speelman, Stijn & Frija, Aymen & Farolfi, Stefano & Buysse, Jeroen & D'Haese, Marijke F.C. & D'Haese, Luc, 2008. "A new methodology for assessing the impact of water-pricing scenarios: case study of small-scale irrigation schemes in South Africa," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43836, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae08:43836
    DOI: 10.22004/ag.econ.43836
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