This paper provides an overview of the issues in and approaches to measuring and enhancing the value of agricultural water in large irrigated river basins. It develops a framework and a set of indicators for valuing agricultural water by looking into various dimensions and underlying key factors that influence the value of water at micro, meso and macro levels. The indicators are applied to recent, primary- and secondary-level empirical data from the Indus basin Irrigation system of Pakistan. In addition, the paper compiles recent estimates of the value of agricultural water from 40 settings in 23 countries. Finally, the paper outlines measures for enhancing the value of agricultural water. The paper makes four main points: (1) The popular productivity indicators based on crop output do not capture the full range of benefits and costs associated with agricultural water use. (2) The value of agricultural water may not be as low as it is generally perceived or estimated when all major uses and direct and indirect benefits of water at various levels are properly accounted for. (3) The value of water varies across time and space, and the value to stakeholders at various scales (farmer, system manager, basin planner and national policy maker) could be quite different. For example, the estimate of agricultural water value in the upper Indus basin in Pakistan varies from US$0.04/m3 at the farm scale to US$0.22/m3 at the national scale. The farm-scale value is more relevant, e.g., for agricultural water charging policies, but for water-sector investments and allocation decisions, the national-scale value is important. The decision-making processes related to water sector investments, allocations, management, and charging/cost recovery schemes could be potentially misguided if key dimensions of water value that are related to water availability and use, benefits/costs, and temporal and spatial aspects are not properly accounted for in valuation. (4) Efforts should be directed not only at increasing the productivity of water in terms of mass of output per unit of water, but also the overall benefits or value of water at various levels for larger growth and poverty alleviation impacts, considering the sustainability of the systems.
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As Young (1996) concludes, “water valuation presents the economic analyst with a wide range of challenging issues and problems. Because water values tend to be quite site specific, each case confronts its own unique issues and typically requires its own original evaluation. Effective measuring of water values demands skill and rigor in application of all the tools of the applied economist’s trade. These tools include data collection, statistical analysis, optimization models and research reporting.”
In the short run, some of the resources and the associated costs at the farm level are fixed and do not change with the level of output (generally regarded as sunk costs). In the long run, all resources and associated costs become variable and can be changed with the level of output. At the farm level, short-run values could be higher (as some fixed/sunk costs can be ignored in estimating values) than the long-term values. However, at the higher level (basin, macro level), many costs can be considered variable even in the short run and, therefore, short-run values at the higher level may be higher than the short-run values at the farm level.
The term “externality” is generally defined as an effect or outcome when production or consumption of one party affects the production or consumption of another party and no compensation is made by either party for the effect. Externality may be positive or negative. Groundwater recharge from canal water is an example of a positive externality, where there is no deterioration in water quality. Costs imposed on downstream users of irrigation water polluted by upstream users provide an example of negative externality.
It is useful to remember that: if the marginal value is lower than the average value, the average value will fall when the amount of water supplied (used) is increased; if the marginal value is higher than the average value, the average value will rise when the amount of water supplied (or used) is increased; and if the marginal value is equal to the average value, the average value will remain constant when the amount of water supplied (or used) is increased.
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Communicated by R. Evans.
The calculations in Table 6 are based on primary data from the Chaj sub-basin collected during 2001–2002, and secondary data from national agricultural statistics of Pakistan. The data on multiplier values, distribution of multiplier benefits at various scales, and distribution of benefits from indirect uses at various scales are not available. We use assumed values of these parameters based on our estimates from other similar settings. We define various terms as follows:
Farm value refers to direct and indirect benefits of crop outputs at various levels. Direct benefits include benefits from crop production. Indirect benefits are based on assumed multiplier value of 2 at the national level (i.e., 1 rupee of agricultural GVP will generate another 1 rupee worth of output/services in the overall economy. Several studies report multiplier values in developing countries closer to 2. We assume one third of multiplier benefits are generated at the local system level, another one third at the basin level and the remaining one third beyond the basin (while we have assumed equal distribution of secondary benefits at three levels, this distribution may vary significantly across settings depending on the nature and intensity of activities at various levels. In settings where there are processing/value adding opportunities, a large part of the secondary benefits may be generated at this level).
Agricultural value refers to both direct and indirect benefits of farm multi-enterprises (crops, orchards, trees, and livestock) and indirect benefits at various levels as described above.
Rural economic value refers to both direct and indirect benefits of farm multi-enterprises and other uses of water including non-consumptive uses (i.e., assumed to be 5% of all benefits from farm multi-enterprises, again this is more on the lower side).
Macro economic value refers to both direct and indirect benefits of farm multi-enterprises and other uses of water including non-consumptive uses (that are assumed to generate about 20% of all benefits derived from farm multi-enterprises). It should be noted that some benefits such as those from hydro-electricity generation from agricultural water may be much more than the 20% assumed here). Other minor benefits derived from water uses such as washing of vehicles etc. are not included here.
Denominator for all value estimates is amount of water applied per hectare.
Value estimates are based on gross benefits rather than net benefits (due to unavailability of cost data for some of the enterprises/activities).
Exchange rate: 1 US$ = 62.67 Pak Rupees (during April 2001 to May 2002).
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Hussain, I., Turral, H., Molden, D. et al. Measuring and enhancing the value of agricultural water in irrigated river basins. Irrig Sci 25, 263–282 (2007). https://doi.org/10.1007/s00271-007-0061-4
- Return Flow
- Agricultural Water
- Farm Level
- Canal Water
- Indirect Benefit