Estimating the impacts of water pricing on smallholder irrigators in North West Province, South Africa
Introduction
Irrigation is one of the main consumptive uses of water at world level. Due to the growing water scarcity, irrigators experience increasing pressure to release water for other uses and to find ways to improve water productivity (Perry, 2007, Malano et al., 2004). Efficient use of water resources is therefore considered as a fundamental target for farmers and water management (Ortega et al., 2004, Tsur, 2004). In this respect, the apparent misuse and waste of irrigation water, in the context of low and subsidised water prices, induces many authors (Liao et al., 2007, Russell et al., 2007, Bar-Shira et al., 2006, Becker and Lavee, 2002, Perry, 2001) to advocate a more prominent role of economic incentives in encouraging efficient water use. Irrigation water pricing is often regarded as a good tool to achieve efficient use (Singh, 2007). Moreover, this strategy also fits into the picture of cost-recovery, which is now generally considered as a basic requirement for sustainability (Molle et al., 2008, Massarutto, 2007).
In terms of efficiency, increasing the price of irrigation water or simply introducing a price is believed to have two important positive effects. Firstly, it will make consumers aware of the resource scarcity, creating a new respect for water, which should improve management efficiency and secondly it provides incentives to farmers to rethink crop choices, stimulating the shift to more profitable crops (Easter and Liu, 2007, He et al., 2006, Becker and Lavee, 2002). However, according to Tardieu and Préfol (2002) and Liao et al. (2007) rises in water prices are not without risk: they could lead to an overall reduction in a country's agricultural production, endangering the goal of securing food self-sufficiency; they could lead to higher prices for urban consumers resulting in increased import and loss of market share for local irrigating farmers; finally they could lower agricultural income with negative effects on rural development. Abu-Zeid (2001) adds that in many parts of the world increasing or introducing water charges is a sensitive issue, involving historical, social and even religious dimensions. Furthermore, the effect of irrigation charges on agricultural water use efficiency might be insignificant if irrigation water costs represent too small a proportion of the total production costs. Finally the low elasticity of demand for irrigation water reported by Albiac et al. (2007), Gómez-Limón and Riesgo (2004) and Berbel and Gómez-Limón (2000) is still another reason to expect limited water saving effects. Taking into consideration the possible disadvantages and the limited effect water pricing policies might have on water saving, it is clear that methodologies allowing to estimate as accurately as possible, the effects of water prices both on water demand and the agricultural production process are very important (Ortega et al., 2004).
South Africa is one of the countries currently in the process of introducing water charges, imposing a new challenge on the small-scale irrigation sector. Apart from increasing the cost-recovery rate for water supply, an expected benefit of this policy change is that water use efficiency will rise. However, the exact impact on the irrigation water use or on the farmers’ production system remains unclear. Assessment of these effects is important in South Africa, since small-scale irrigation is identified as a key sector for rural development. This study proposes a novel two-step method, which is applied to a sample of 60 small-scale irrigators in North West Province, South Africa. First technical and economic efficiency levels are calculated, then these are used as a representation of the production technology in a mathematical programming model to estimate the impact of changes in the water price. This method allows estimating the effect of water pricing at farm level and offers insight in the water saving effect of the introduction of water charges. In addition, the environmental effects (use of fertilizers and pesticides) and socio-economic effects (labour use, effect on farm profit and total agricultural output) can be assessed.
Section snippets
Methodology
Several authors (Albiac et al., 2007, Manos et al., 2006, Gómez-Limón and Riesgo, 2004, Doppler et al., 2002, Berbel and Gómez-Limón, 2000, Gómez-Limón and Berbel, 2000) have used linear programming models to estimate the effect of water pricing on water demand. A disadvantage of these models is that they use predetermined theoretical ratios between inputs and outputs that are not based on empirical data from actual farms. As a consequence, substitutions between different inputs are not
Water pricing in South Africa
Water pricing was introduced in South Africa by the National Water Act (1998). The Act foresees three types of water use charges (DWAF, 2004): The first type is introduced to fund water resource management. This involves activities such as information gathering, monitoring water resources and controlling their use, water resource protection and water conservation. Unit charges (cents per cubic metre) are determined for each user sector and water management area. However for billing purposes
Conclusions
Water pricing is often seen as an important tool to improve efficiency of water use. Several authors however have warned for the limited effect in terms of water saving and the even negative economic and social side effects of this policy. Given the increasing pressure to release water for other uses and to find ways in which to improve irrigation performance, there is an urgent need for methodologies that allow estimating the effects of different water pricing scenarios. This study proposes a
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