Modelling the marginal revenue of water in selected agricultural commodities: A panel data approach

2006

South Africa is a water-stressed country where water availability is an important constraint to economic and social development, and will become even more so in the future if this scarce resource is not managed effectively. In order to manage this scarce supply of water, we need to value it. This study focuses on the value of water in the agricultural sector, in particular the marginal revenue of water for six irrigation commodities namely avocados, bananas, grapefruit, mangoes, oranges and sugarcane. A quadratic production function was fitted with an SUR model specification in a panel data study from 1975 to 2002 to obtain marginal revenue functions for each of the six commodities. We found that mangoes are the most efficient commodity in its water use relative to revenue generated (marginal revenue of water equals R25.43/m³ in 2002) and sugarcane the least efficient (marginal revenue of water equals R1.67/m³ in 2002). The marginal revenue of water is not an indication of the true "market" price. Neither is it an indication what the administered price should be. The marginal revenue of water is rather a guideline for policy makers to determine which industries or commodities within an industry can generate the largest revenue per unit water applied JEL Classifications: C23, O13, Q25

Ecological Economics, 2008

A static computable general equilibrium model of South Africa is adapted to compare new taxes on water demand by two industries, namely forestry, and irrigated field crops. Comparisons are made with respect to both the short and the long run, in terms of three target variables, namely (i) the environment; (ii) the economy; and (iii) equity. Since the taxes on

Development Policy Review, 2008

Worldwide growing water scarcity has increased the call for economic instruments to stimulate rational water use in agriculture. In addition costrecovery 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

2008

The growing water scarcity worldwide puts pressure on irrigation systems as main consumptive user to improve performance. In developing countries, where today agricultural water use is often still heavily subsidised, a tendency exists of introducing water pricing policies to stimulate rational water use. The exact impact of water pricing policies in terms of water saving or its effect on the farmers' production systems remains unknown. This study introduces a new two-stage method that allows estimating at farm level the effects on the agricultural production process and water demand of introducing or raising a water price. In the first stage the technical efficiency frontier is constructed and the technical and allocative efficiency levels of each farm are calculated. This representation of the technology is used in the second stage in a profit maximization model. Applying the method to 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. Furthermore, introduction of a water price is found to significantly decrease farm profit, which is particularly problematic for poor farmers.

2008

The growing water scarcity worldwide puts pressure on irrigation systems as main consumptive user to improve performance. In developing countries, where today agricultural water use is often still heavily subsidised, a tendency exists of introducing water pricing policies to stimulate rational water use. The exact impact of water pricing policies in terms of water saving or its effect on the farmers' production systems remains unknown. This study introduces a new two-stage method that allows estimating at farm level the effects on the agricultural production process and water demand of introducing or raising a water price. In the first stage the technical efficiency frontier is constructed and the technical and allocative efficiency levels of each farm are calculated. This representation of the technology is used in the second stage in a profit maximization model. Applying the method to 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. Furthermore, introduction of a water price is found to significantly decrease farm profit, which is particularly problematic for poor farmers.

Irrigation and Drainage, 2011

Capturing the economic value of water use is an integral part in the design of economic incentives and institutional arrangements that can ensure sustainable, efficient and equitable allocation of water. Irrigation water values of small-scale irrigators are, however, seldom studied and too little attention is paid to the determinants of the variability of water values. In South Africa issues like the call for more efficient water allocation resulting from growing water scarcity, the approaching introduction of water charges for smallholders and the crucial role in rural development attributed to small-scale schemes, render this knowledge even more important. This study therefore first assesses irrigation water values at small-scale irrigation schemes in South Africa using the residual imputation method. Results reveal that, without input subsidies, smallholders have difficulties generating a profit from certain irrigated crops. This raises doubts about the capacity of smallholders to pay for water. The average economic value of irrigation water in this study is US$0.188 m À3 . The water values are, however, shown to be highly variable. The General Linear Model shows that this variability can be mainly attributed to the crop choice and to the irrigation scheme design and institutional setting.

Water Policy, 2011

The need for increased agricultural production to meet the growing demand for food, coupled with concerns for environmental sustainability, economic growth and poverty reduction has increased demand on the already scarce water in South Africa. At the same time, because of agriculture's minimal contribution, compared to the industrial and mining sectors, to South Africa's GDP and employment, the call to reallocate water from agriculture to non-agricultural use has been intensified. This study updates the 1998 Social Accounting Matrix (SAM) for South Africa and uses the computable general equilibrium model to analyze the impact of water reallocation from agriculture to the non-agricultural sectors on output growth, value added at factor cost, which captures the payments from the production sectors to the factors of production, and households' welfare. Using different water reallocation scenarios, the simulation results indicate that water reallocation from agriculture to n...

Agricultural Water Management, 2009

International Journal of Water Resources Development, 2008

Insight into the value of water is essential to support policy decision making about investments in the water sector, efficient allocation of water and water pricing. However, information on irrigation water values at small-scale schemes is scarce and in general little attention is paid to the determinants of these values. In this study values are calculated for small-scale irrigation schemes in the North West Province of South Africa, using the residual imputation method. An average water value of US$0.188/m 3 , in line with expectations for vegetable crops, was found. Furthermore, the crop choice and the irrigation scheme design and institutional setting were shown to significantly influence the water value, whilst individual characteristics of farmers proved to be less important.

Agrekon, 1997

The farm sector of the Western Cape is modelled using a sector mathematical programming model to determine the effect of different water policies on output, prices, welfare and employment. Two scenarios are analysed, namely the effect of a restriction of water available for irrigation, and an increase in water tariffs. Results show a relative shift away from (intensive) irrigated production, and a decrease in producer welfare, especially for irrigation farmers, under both scenarios. When water availability is decreased, the negative effect falls disproportionately on the poor as employment decreases. In the long run the negative effects are severe, as there is a relative shift out of industries where the Western Cape has a competitive advantage. DIE UITWERKINGS VAN WATERBELEIDE OP DIE PLAASSEKTOR IN DIE WES-KAAP Die plaassektor van die Wes-Kaap is gemodelleer met die gebruik van 'n wiskundige programmeringsmodel teneinde die effek van verskillende waterbeleide op produksie, welvaart en indiensneming te bepaal. Twee scenarios word ntleed, naamlik die effek van 'n beperking op die water beskikbaar vir besproeiing en 'n verhoging van watertariewe. Die resultate toon 'n beweging weg van (intensiewe) besproeide produksie en 'n afname in produsentewelvaart, veral vir besproeiingsboere, onder beide scenarios. Wanneer waterbeskikbaarheid verminder word tref die negatiewe effekte veral die armes met 'n afname in indiensname. Oor die langtermyn is die effekte ernstig aangesien daar 'n relatiewe verskuiwing is weg van bedrywe waarin die Wes-Kaap 'n mededingende voordeel het.