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Karina Schoengold and David Zilberman

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1 Karina Schoengold and David Zilberman
Water and Development: The Importance of Irrigation in Developing Countries Karina Schoengold and David Zilberman

2 The Importance of Water
80% of the human body is made up of water. Water is a crucial element of our food and environment. 75% of the earth’s surface is made up of water. Only 3% is fresh water. Only 1% of the water is suitable for human consumption. Much of this water contains chemicals that make it unsuitable for human consumption. We distinguish between quality of water and quantity of problems. On average, we have sufficient water to meet human needs. The problem is water distribution.

3 Many Do Not Have Access to Water
Percent of total population Absolute number without access to water of people without Region in access to water (in millions) Africa Latin America and the Caribbean Asia & the Pacific Western Asia Total ,115

4 Heterogeneity of Water
There are differences in water availability within regions. In Brazil, Mexico, California, Hawaii, and Russia, there are flood regions and deserts. Differences in water availability over time matter. During the same year you may have periods of flooding and shortages. Differences in water quality are crucial. Consumption, farming of various crops, and production require water above the appropriate minimum quality. Value and use of water are dependent on: Location Time Quality


6 Cumulative Value Cumulative Water Use

7 Different Uses of Water
Consumptive usage is diversion + consumption of water through: Transforming it into water vapor (where it is “lost” in the atmosphere), Letting it seep into the ground Significantly degrading its quality. Examples: Residential Industrial Agricultural Forestry Non-consumptive usage. Does not reduce water supply and, frequently, does not degrade water quality. Examples: Fisheries use water as a medium for growing fish. Hydroelectric users extract energy from the water. Some recreation uses water as a medium (example: swimming) and/or extracting energy from the water (examples: white-water rafting, surfing) Transportation is an especially important use of water in the tropics.

8 Agricultural Values of Water Vary
Agricultural value of water r varies between crops and locations. A relatively small fraction of the water (20%) generates much of the value (more than 70%). Crops such as flowers and strawberries can pay more than $500/AF of water, cotton can afford paying $40-$100/AF, and pasture $30/AF and less. Values of water vary by location and land quality and are determined by market conditions. Industries and residential users can afford to pay much more than agricultural field crops. Their demand is relatively small (33%) but is continually growing.

9 Overview of Irrigation
Irrigated land has increased from 50 mha (million hectares) in 1900 to 267 mha today. Between 1962 and 1996, the irrigated area in developing countries increased at 2% annually. Irrigation has been crucial in meeting the food demands of a doubling world population since WWII. Irrigation projects have been costly in terms of capital, environmental degradation, and human health. Design and management of water resources have been flawed. There is a growing perception of water supply crisis, but what we have is a water management crisis. As the population is likely to grow (double) again, we need to reform water institutions and policies. This presentation first assesses the water situation and then introduces directions for reform.

10 Benefits of Irrigation
Irrigation increases crop yield. The 17% of irrigated land produces 40% of the global food. The value of production of irrigated cropland is about $625/ha/year ($95/ha/year for rain-fed cropland and $17.50/ha/year for rangeland). Irrigation affects total factor productivity (TFP) beyond the input value of the water (Evenson, Pray, Rosegrant). Irrigation allows improved timing and spatial distribution of water. It allows double cropping and enables stabilization of supply and production of vegetables and fruits. Irrigation increases consumer well-being and employment as well as farm income (net income increase per family in Africa was $150 - $1000). The high productivity of agriculture slowed expansion of deforestation.

11 Productivity of Irrigation
Just et al. found the water share to be .21 using Israeli data. Tfp of water is These are, however, marginal effects. There is a significant fixed effect of water. There is significant heterogeneity within fields; 35% of yield variance is within fields. The high yields from irrigation may reflect climatic effects. Desert areas have higher sun energy and degree days that, with irrigation, lead to higher yields. Modern irrigation and pumping modify ranking and values of land. Irrigation technologies are water-quality augmenting.

12 Water Productivity in Agriculture
About 70% of the consumptive use of water is in agriculture. Productivity is measured by net value generated (excluding environmental side effects) and depends on location, time, crop, and irrigation technology. Irrigation efficiency is the ratio of effective water (water consumed by crop) to applied water. Land quality and irrigation technology affect irrigation efficiency. It is low at steep hills & with flood irrigation. Sprinkle and drip irrigation improve efficiency. Higher efficiency reduces residue and slows waterlogging. It results in higher yield. Decisions whether or not to adopt depend on trade-off between gains in yield and water saving and extra cost on water management. Not all water conservation technologies require modern equipment. Terracing of steep hills is one example, and there are many more. Adoption of efficient irrigation technologies can be triggered by higher prices of water or penalty to residues.


14 Water as Complements to Other Factors
Species evolution (distribution and survival) depends on and adjusts to water conditions. Plants have shallower roots when water is abundant. Water abundance is key to tropical ecosystems. However, they are vulnerable to water shortages. Drought is a relative concept. In parts of Florida and Java, a week without rain can cause a drought. Water affects the state of other factors. Water movement causes soil erosion, drowns wildlife, and destroys property. It leads to migration of species and changes in biodiversity. Water productivity depends on other factors. For example, in agriculture it depends on: Climate (degree days). Soils. It may be worthwhile to export water to regions with warm and dry climate and good soil.

15 Capital Costs of Irrigation Projects Vary Significantly

16 Other Costs of Irrigation Projects
Relocation of population in flooded areas. Environmental cost. Habitat destruction. Blocking migration of native species. Increased emissions of greenhouse gases. Increased salinity levels in freshwater supplies. Decreased levels of sediment and nutrients in water (Nile River).

17 Waterlogging and Salinity
The downward movement of residue irrigation water below the root zone is restricted by a barrier. This leads to accumulation and rise of saline water that reduces productivity. This problem can be solved by drainage effort. Drainage canals are expensive. Waterlogging can be slowed by adoption of higher efficiency irrigation technologies. They can be induced by incentives. Waterlogging and salinity cost $11 billion annually. 20% of the irrigated land worldwide is affected by salinity. 1.5 million hectares are taken out of production each year as a result of high salinity levels in the soil.

18 Health Impacts of Water Quality

19 Social Concerns Waterborne diseases. Poor project planning resulted in spread of malaria and other waterborne diseases as vectors spread in canal and dams. Displacement of native populations. The development of water projects in the last century led to the displacement of 40 – 80 million people. Compensation for these forced changes has usually been minimal, if it occurs at all. International conflicts and water supply. There are 261 rivers that cross international boundaries. The division of water resources between countries can either be a source of conflict or a reason for required cooperation. 162 treaties were signed and implemented for cooperative water management. Some major disputes have not been settled.

20 Lessons of Water Resource Management
Water storage matters. The storage facilities enabled agricultural and other systems to survive severe droughts in many parts of the world. Groundwater aquifers are valuable reserves. Pumping new wells increased supply availability and reduced drought costs. Conservation makes a difference. Adoption of conservation technologies and more precise use of resources enabled water systems to survive variability and shortages. Crises trigger change. Drought or flood situations instigated some of the main water reforms in recent years. A mixed portfolio of policies is most desirable. Solutions to complex water problems involve combining structural changes with new technologies, education, and incentives.


22 Ground Water Use Benefits
Ground water is a complement and substitute to surface water. It may replace surface water during drought periods and be a permanent source of irrigation water. Conjunctive use. When ground water is used as a reserve, it is accumulated during wet years and pumped during dry years. Permanent pumping is sustainable if pumping is equal to replenishment. Ground water is a common pool resource and may be overused. Without regulation, we might have the tragedy of the commons. Users should be charged extra for the cost their pumping imposes on the inventory. Water and energy subsidies in India and other countries lead to depletion of ground water aquifers.

23 Overuse of Ground water Resources
India increased pumping by 300% between 1951 and 1986. Tube well use in India increased by more than 100-fold between 1960 and 1985. As much as 8 percent of food crops grow on farms that use ground water faster than the aquifers can be replenished. Ground water levels have been dropping at cm per year. At depths below 15 meters, tube wells will not function, and a well must be abandoned. The percentage of land where the water table is below 10 meters has increased from 3 percent to 46 percent between 1973 and 1994.

24 Improved Ground Water Management
Farmers should pay user fees and not be subsidized. Tiered pricing may affect the poor. Subsidies on ground water and energy for pumping should be reduced. They have to be treated as renewable (or nonrenewable) resources and be priced accordingly. Over pumping may occur because aquifers are a common pool resource. Regional ground water authorities may be needed to monitor and price ground water. Depletion of ground water may lead to water projects. Thus, efficient use of ground water may prevent the need for new diversions.

25 Water Projects Projects modify bodies of water to enhance some aspects of productivity. These projects may include: Navigation Storage Flood protection Hydroelectric Projects may have negative environmental and social effects. A correct analysis of net discounted benefits is a useful guide for project selection. It should account for nonmarket impacts and uncertainties. Project design should consider institutional and nonstructural solutions. Redesign of incentives may lead to water savings, preventing a need for a new dam.

26 Water Variability and Projects in the Tropics
Water conditions in the tropics vary. There are deserts in Brazil and Africa, and desertification is a constant concern in both continents. Land and water management projects can slow these processes. The challenge is cost effective, and an environmentally sensitive design leads to efficient and equitable outcomes. Projects to improve water flow and reduce water stagnation are also important for improving transportation and public health. A major priority is to eliminate waterborne diseases using structural solutions (drainage, sanitation), management activities (pest control), and medical treatment. Flood control projects used for storage and hydroelectric power generation may be very valuable in the Himalayan foothills and other regions.

27 Costs of Variability Are Reduced Through Storage and Trading
The uncertainty and variability of water conditions are major sources of concern. The cost of adjustment to random climatic and water conditions can be reduced by institutional changes such as increase in water trading, structural changes, expansion of storage facilities, and schemes such as conjunctive use. The optimal strategy choice depends on cost vs. benefits. The gain from trade can increase as trading possibilities expand. Expanding water trading may entail: Investment in expanded conveyance facilities. Reduced constraints on trading. BUT trading may cause third-party effects that have to be taken into account when designing trading systems.

28 Virtual Water This concept is used by noneconomists to deal with water use heterogeneity and to justify trading. Value of water varies by location. Defining a water shortage as a situation where water per capita is below a certain level is not always useful when a region with minimal water can use it productively and generate resources to buy cheap water-intensive crops. For example, an acre foot of water used in flower production is equivalent in the value of productivity to acre feet used in wheat. Measure of water shortages should combine water availability and productivity. Water constraints are less binding as trade opportunities expand.

29 Water Rights and Water Markets
When population is scarce and water is abundant, there is open access to water. Riparian rights emerge in regions bordering bodies of water. Users are entitled to water that adjoins their land but cannot divert water. Prior appropriation (PA) is a queuing system that allows diversion of water when diversion rights are determined according to First in time, first in line Use it or lose it PA was designed to induce investment in diversion. However, PA does not provide incentives for water conservation. Transferable rights in water lead to trading and investment in conservation. The trading design has to be adjusted to mitigate negative third-party effects. Transition to trading may not be worthwhile if gains are smaller than the transition costs.

30 Transition from Queuing to Markets
Surplus queuing ABCD. Surplus market ABCE. Gain from trade DEA. Price under trade BF. Trade enables junior rights to consume NC and pay NSEC Senior right owners gain ESD. A Total supply E S F D Total demand (AS) Demand senior right owner (AM) M S B C N Water

31 Scarcity, Government Power, Preferences, and the Emergence of Water Institutions
Water abundance + financially weak government + desire for growth lead to water rights (prior appropriation). Water abundance + financial resources availability + desire for growth lead to public supply projects + subsidies. Water scarcity leads to water trading. Financial crunch leads to privatization of supplies. Environmental concerns lead to water quality regulations + environmental purchasing funds. Equity concerns leads to regulated pricing + subsidies.

32 The Tricky Transitions
Biggest challenge for economists is understanding and designing transitions that Introduce trading. Regulate environmental quality . Change water project design and finance mechanisms. Causes of transitions Population and income growth that leads to scarcity. Changing attitude about the environment. Changes in governance and government finance. New institutions (World Bank).

33 Transitions Are Not Alike
Timing, history, transaction cost, political economy, and preferences affect transitions. Transitions may be gradual; a transition towards water trading in most locations takes years. Yet, crises trigger transitions Depletion of ground water leads to surface water projects. San Fernando Valley flood led to construction of dams upstream. Long periods of droughts led to migrations (American Indians), storage (Joseph and Pharoh). Systems are rigid. A threshold has to be crossed (Dixit and Pindyck) to overcome political-economic constraints (Rausser and Zusman) and transition costs (Shah and Zilberman) to introduce change.

34 Example: California’s Trading During the Drought
During the drought, California (which shunned water trading) introduced a trading scheme— the water bank. The water bank demonstrated the power of trading to reduce adjustment to shortages. Productivity of water in California varies across locations. Trading allowed water to be used wherever they have the highest value. Buyers and sellers gain from trading. The water bank sustains many of the perennial crops and provided water right owners who engage in relatively low return activity to earn higher incomes from water sale. The gains from trading is greater in periods of higher scarcities. Climatic and storage variability cause the value of water to fluctuate, and the value of water in the west side may vary from $5 to $200 per AF. Trading was introduced in Chile, India, China, and other regions.

35 Lessons from California’s Response to the 1988-1992 Drought-II
Water storage matters. The storage facilities enabled California to survive the 3 early years of the drought with minimal impacts or changes, and the later years with mild effects. Multiple responses to reduced water supply. 1/3 from ground water pumping, 1/3 from conservation (adoption of drip, etc), 1/3 from land fallow. Conservation makes a difference. After 1992, More than 50% of tree crops in the state used drip. Sprinkler in cotton and alfalfa exceeded 40% in major areas. Trading was introduced through water banks.

36 Design Issues of Water Trading
Before reform, senior right owners owned water rights but could not sell. Who should own water rights after reform? If there are transferable rights, senior right owners will not oppose introduction of trading. They will oppose it if the government assumes ownership. Does water markets always increase efficiency? Transition to markets requires transaction cost. It is justified only under sufficient scarcity. What other effects will introduction of trading have? Transition from queuing to markets tends to increase output, reduce output prices, and make consumers better off.

37 Water Trading Issues-II
Transferable rights. Should rights be sold annually or permanently? Should trading between basins be allowed? More flexibility increases growth but may negatively affect the environment.. Should traders be able to sell effective or applied water? Should third parties affected by trades be compensated? How? Should all users trade with one another directly (active) or should they buy from and sell to water districts (passive trading)? Should there be an option market? We have it in California. Water users may buy an option to buy water in case of a drought.

38 Simulation Details The region has 3 million acre feet of water, two land base scenarios, and low and high water scarcity (900 & 1050k AF) Four irrigation technologies, 1 furrow and 4 drip. Two demand elastic ties high & low (50 &1). Two cases of transaction cost from queuing to market: high($50/acre) and low ($5/acre) Comparing transferable rights with water ownership by government. Solving for water price, output price, technology choice, welfare of senior right owners, and society.


40 Summary of Results Higher water scarcity (lower water/acre) leads to greater gains from trade and more adoption of modern technology. When transaction costs are high, there may not be gains from trade. Transition to trading will reduce output price, and that may lead to losses to senior right owners even when there is transferable rights If the government assumes water rights, senior right owners will always lose from reform. They gain from transferable rights if demand is not very inelastic.



43 A Two-Sector Situation: Agriculture Initially Has Senior Rights, But Then a Market Is Introduced
Urban water price before reform OL after reform OM. Urban use before OC after OD. Ag use OA before OS after reform. T Urban demand L Regional supply (BT) Ag demand Joint demand M O S A B C D


45 Water Quality: Point and Nonpoint Pollution
Agricultural and municipal activities contaminate bodies of water. Water quality policies distinguish between: Source point pollution. The pollution can be attributed to a source and incentives can be assigned based on the pollution level. Nonpoint sources. Exact source of pollution cannot be identified (example: animal waste of a region with many farms).

46 Management of Nonpoint Sources
The government may: Ban certain waste management practices. Establish, require, or subsidize best management practices. Producers may be penalized or subsidized not based on their pollution but on activities correlated with pollution. Monitoring and enforcement of environmental regulations are difficult. In many cases the parties affected are very powerful, or very poor, and political will to implement water quality rules Collective punishment or reward based on aggregate water quality measures may be established. They may lead to collective action and self-enforcement of clean practices

47 Water Governance Institutions
There are economies of scale in implementing water diversion and mining projects. Some are executed and financed by government agencies. There is also a large scope of collective action among private parties to manage and develop water resources. Water user associations (or water districts) are being established to gain better cooperation and local representation in developing water and other natural resources. These organizations are collectively raising the funds to establish and enforce rules that lead to socially beneficial water and resource management. Such organizations may be responsible for water distribution and control of nonpoint source pollution.

48 Actions to Improve Efficiency of Irrigation
Efficient investment in irrigation projects Capital subsidies and under-pricing the environment lead to oversized projects. Full capacity is not needed to start the project. Over capacity is needed to deal with uncertainty. Learning is crucial; delay is worthwhile. Invest when it is optimal not at first moment when NPV is positive Project design should include institutions for allocation. Consider waterlogging cost and drainage in project design. Trade and the concept of “virtual water.” Forget self- reliance. Use water for best outcome build storage and trade.

49 Use of Non-Traditional Water Sources
The world’s 7,500 desalting plants can produce 0.1% of the world’s water use. Price of desalinated water is between $.70-$1.00 per M3. Reclaimed water may be produced at a cost of 30 to 40 cents per cubic meter. Partially reclaimed water is used in production of industrial crops such as cotton. For cotton and certain vegetables, yield levels can be maintained if high quality water is used early in the life of a plant and more saline water is applied towards the end of the season.

50 Improved Conveyance and the Allocation of Water
Poor management of irrigation systems leads to conveyance losses of up to 50 percent. The social benefit of canal maintenance is greater than the private benefit. Ignoring these leads to under investment in canal maintenance, resulting in Shorter-than-optimal canal systems Overapplication of water upstream Water systems run by a Water User Association are more efficient and better maintained (Madagascar, India, China). WUA tax members and improve distribution and pricing.

51 Improved Water Pricing Systems
Most countries do not have the capacity to recover the initial capital cost and fall short in collecting revenues for payment of water. Recovery of operation and maintenance costs ranges from a low of percent in India and Pakistan to a high of close to 75 percent in Madagascar. The most common pricing systems are per-hectare fees. Per acre fees may vary by season and crop. Brazil combines hook-up fees with volumetric fees. Volumetric fees are inaccurate. Subsidies of 25%-50% are common.

52 Inefficiencies in Micro-Level Water Management
Farmer selection of crops and irrigation technologies affect water use. Conservation technologies increase water use efficiency but require higher per acre cost. There is 6% adoption of sprinkler and 1% adoption of drip. There are low tech “drip”-like technologies. Low pricing of water does not justify adoption. Efficient pricing of water and drainage will lead to adoption.

53 Conclusions More impact assessment of irrigation and more econometric studies of performance are needed. Irrigation is crucial to productivity. Some systems are not sustainable because of overpumping. There is much potential to increase water productivity through incentives. One priority is to increase trading within regions and to improve maintenance through institutional changes. Irrigation technologies and improvement in varieties are other sources of improved water productivity in agriculture. Water management is a major challenge. Cost benefits are needed to improve investment choices and to integrate agricultural and environmental and urban water uses. The main challenge is efficient irrigation at the regional level.

54 References Zilberman, David, Ujjayant Chakravorty, and Farhed Shah. “Efficient Management of Water in Agriculture,” Decentralization and Coordination of Water Resource Management, ed., Douglas D. Parker and Yacov Tsur (Boston: Kluwer Academic Publishers), 1997, Chapter 22. As part of the book series, Natural Resource Management and Policy, Ariel Diner and David Zilberman, editors. International Water Management Institute, Easter, K. William, Mark W. Rosegrant, and Ariel Diner. "Formal and Informal Markets for Water: Institutions, Performance, and Constraints," The World Bank Research Observer, 14:1 (year?), pp Richards, Alan. “Coping with Water Scarcity: The Governance Challenge,” Center for Global, International and Regional Studies Working Paper. University of California, Santa Cruz,

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