S. Speelman, M. D'Haese, J. Buysse, A. Frija (Belgium), S. Farolfi (South Africa), and L. D'Haese (Belgium)
water pricing, agricultural water use, data envelopment analysis, South Africa
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.
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