Irrigation Water Pricing

Irrigation Water Pricing

Why Increasing Water Price May Not Lead to Conservation

A 2007 paper concluded:

"Some empirical studies show that water demand is inelastic at low price ranges. Only beyond a certain threshold does irrigation water demand become responsive to increased water charges. Because prevailing water prices are generally low, this implies that only considerable increases can induce expected water saving behavior, which in turn will greatly reduce farmer income. Consequently, pricing may not be a politically feasible option to curtail water demand in places where farmers make up large part of the population."

Conservation Pricing Initiatives in the 1990s

In the wake of the Reclamation Reform Act of 1992 and the Central Valley Project Improvement Act of 1992, irrigation districts that receive Bureau of Reclamation (BOR) water are required to have conservation plans. In 1996, the BOR began encourage (and in some cases require) districts to offer conservation price incentives as a voluntary method to achieve water conservation. However, "relatively little is known about preexisting irrigation district rate structures, the adoption and design of price incentive programs, or district objectives of price incentive programs." Although conservation plans were due by 1987, only 28% of California districts had done so by early 1996.

Irrigation districts are not-for-profit intermediaries between the BOR and irrigators. The water costs to the water districts are based on project construction, operation, and maintenance costs. This, then, becomes the basis for water pricing to irrigators. The BOR does not report or compile data on irrigation district rate structures.

In 1986, a joint USDA/ERS and BOR unpublished survey on rate structure was answered by districts representing 70% of BOR acreage. At that time, "essentially prior to conservation pricing adopted in response to RRA and CVPIA regulations" 86% of districts "assessed a fixed service charge per acre that was independent of the amount of water delivered." For 48% of districts, this was the only charge; 38% assessed a quantity based rate (decreasing, constant, or increasing) in addition to the fixed charge. In 80% of this latter group, the quantity-based rate was uniform (constant). The remaining 14% of districts assessed only a quantity-based rate (no fixed charge) and 96% of these had a constant unit water price.

Altogether, the average price per acre-foot was $12.01 with a low of $0.50 and a high of $90 (p. 227). The lowest prices per acre-foot (AF) are found in the districts with a fixed rate only. The average rate is less than half that of the other pricing structures, and the low and high prices are significantly less as well. Excluding 3 districts in Arizona with allocations of 10 AF/acre, the fixed assessment districts show the highest average water allocations per acre and the highest maximum use per acre (3.44 AF/acre and 10 AF/acre, respectively). The average for the fixed + quantity pricing is 3.12 AF/acre and the average for quantity only is 3.16 AF/acre.

The study concludes, "one explanation for the lack of significant variation observed in rate structure quantity allocations is that allocations are often independently established based on legal rights or contractual water duties set on the basis of crop requirements and assumed application efficiency (independent of economic value)." Actual water deliveries might differ from the allocations.

A small number of districts that adopted conservation pricing by 1997 were detailed in the study. Typically, those with increasing prices for amounts of water delivered above a certain amount set prices so that the typical coverage can meet his or her needs at the lowest price. Prices are set only to penalize only unreasonably high quantities of water use. The study concludes that rate structures examined are "unlikely to result in major changes in water use."

Articles and resources

Related SourceWatch articles

• Central Valley Project Improvement Act
• State Water Project
• Irrigation
• Agricultural Water Conservation

External articles

2013:

• Rossi, J. V., Verceles, N. K., Underwood, M. M., & Mercardante, M. S. (2013). Potential Political Impacts in Southern California of Drought-Related Water Availability and Rate Increases. In K. Schwabe, J. Albiac, J. D. Connor, R. M. Hassan, & L. M. González (Eds.), Drought in Arid and Semi-Arid Regions (pp. 437–450). Springer Netherlands.

2012:

• Medellín-Azuara, J., Howitt, R. E., & Harou, J. J. (2012). Predicting farmer responses to water pricing, rationing and subsidies assuming profit maximizing investment in irrigation technology. Agricultural Water Management, 108, 73–82.
• Renzetti, S. (2012). The Economics of Water Demands. Springer Science & Business Media.

2010:

• Medellin-Azuara, J., Harou, J. J., & Howitt, R. E. (2010). Estimating economic value of agricultural water under changing conditions and the effects of spatial aggregation. Science of the Total Environment, 408(23), 5639–5648.
• Sağlam, Y. (2010). Water scarcity and optimal pricing of water. Theses and Dissertations.

2005-2009:

• Bar-Shira, Z., Finkelshtain, I., & Simhon, A. (2005, March 17). Regulating Irrigation via Block-Rate Pricing: An Econometric Analysis.
• Bar-Shira, Z., Finkelshtain, I., & Simhon, A. (2006). Block-Rate versus Uniform Water Pricing in Agriculture: An Empirical Analysis. American Journal of Agricultural Economics, 88(4), 986–999.
• Iglesias, E., & Blanco, M. (2008). New directions in water resources management: The role of water pricing policies. Water Resources Research, 44(6), W06417.
• Molle, F., & Berkoff, J. (2007). Irrigation Water Pricing: The Gap Between Theory and Practice. CABI.
• De Fraiture, C., & Perry, C. (2007). Why is irrigation water demand inelastic at low price ranges? In F. Molle & J. Berkoff (Eds.), Irrigation Water Pricing: The Gap Between Theory and Practice (pp. 94–107). Oxfordshire, UK: CABI Publishers.

2000-2004:

• Bar-Shira, Z., & Finkelshtain, I. (2000). The Long-Run Inefficiency of Block-Rate Pricing. Natural Resource Modeling, 13(4), 471–492.
• Calatrava, J., & Garrido, A. (2001). Agricultural Subsidies, Water Pricing and Farmers’ Responses: Implications for Water Policy and CAP Reform. In C. Dosi (Ed.), Agricultural Use of Groundwater (pp. 241–257). Springer Netherlands.
• Johansson, R. (2000). Pricing Irrigation Water: A Literature Survey (SSRN Scholarly Paper No. ID 632520). Rochester, NY: Social Science Research Network.
• Scheierling, S. M., Young, R. A., & Cardon, G. E. (2003, July 11). Price-Responsiveness of Demand for Irrigation Water Withdrawals vs. Consumptive Use: Estimates and Policy Implications.
• Scheierling, S. M., Young, R. A., & Cardon, G. E. (2004). Determining the Price-Responsiveness of Demands for Irrigation Water Deliveries versus Consumptive Use. Journal of Agricultural and Resource Economics, 29(2), 328–345.
• Schuck, E. C., & Green, G. P. (2002, July 28).The Importance of Tariff Structure in Conservation Pricing.
• Schuck, E. C., Green, G. P., & Sunding, D. L. (2000, July 29). Irrigation Water Rate Reform and Endogenous Technological Change.
• Schuck, E., & Green, G. P. (2003). Conserving One Water Source at the Expense of Another: The Role of Surface Water Price in Adoption of Wells in a Conjunctive Use System. International Journal of Water Resources Development, 19(1), 55–66.
• Yang, H., Zhang, X., & Zehnder, A. J. B. (2003). Water scarcity, pricing mechanism and institutional reform in northern China irrigated agriculture. Agricultural Water Management, 61(2), 143–161.

1995-1999:

• Griffin, R. C. (1998). Evaluating the Effectiveness of Conservation Water-Pricing Programs: Comment. Journal of Agricultural and Resource Economics, 23(2), 568–570.
• Huffaker, R., Whittlesey, N., Michelsen, A., Taylor, R., & McGuckin, T. (1998). Evaluating the Effectiveness of Conservation Water-Pricing Programs. Journal of Agricultural and Resource Economics, 23(1), 12–19.
• Michelsen, A. M., McGuckin, J. T., Taylor, R. G., & Huffaker, R. G. (1998, May 20). Irrigation District Adoption of Water Conserving Rate Structures.
• Michelsen, A. M., Taylor, R. G., Huffaker, R. G., & McGuckin, J. T. (1999). Emerging Agricultural Water Conservation Price Incentives. Journal of Agricultural and Resource Economics, 24(1), 222–238.
• Moore, M. R., & Dinar, A. (1995). Water and Land as Quantity-Rationed Inputs in California Agriculture: Empirical Tests and Water Policy Implications. Land Economics, 71(4), 445–461. http://doi.org/10.2307/3146710

1990-1994:

• Moore, M. R., Gollehon, N. R., & Carey, M. B. (1994). Multicrop Production Decisions in Western Irrigated Agriculture: The Role of Water Price. American Journal of Agricultural Economics, 76(4), 859–874.