Irrig Sci (1993) 14:47-52 Irrigation clence

�9 Springer-Vedag 1993

Economic factors and opportunities as determinants of water use efficiency in agriculture Ariel Dinar

Institute for Desert Research and Department of Economics, Ben-Gurion University of the Negev, P.O. Box 653, Beer Sheva 84105, Israel

Received: 2 September 1992

Abstract. A consequence of water scarcity is that it has enhanced research and development aimed at increasing water use efficiency in irrigated agriculture. Although biological, genetic, and technological achievements may induce potential high levels of water use efficiency, actual observed values may be much smaller. This paper distin- guishes between potential and actual water use efficiency measures, and discusses factors and opportunities that may affect actual water use efficiency in irrigated agricul- ture. These include economic forces, environmental ef- fects, and institutional arrangements, each of which may affect water use decisions at field, farm, regional, and national levels. The paper develops a scheme to generally address differences between private and social consider- ations that determine water use efficiency decisions. Us- ing this scheme, several examples from California and Israel are provided to support the arguments. The paper concludes that the concept of water use efficiency is much broader than its definition: yield per water applied or transpired. Moreover, determination of water use effi- ciency levels in irrigated agriculture is a complex issue that requires interdisciplinary considerations.

Water scarcity has been one of the limiting factors of regional development in many parts of the world. As agri- culture is the major consumer of fresh water resources it may play a major role in water savings. For many years now the agricultural sector has launched many research and development activities aimed at improving water use efficiency in irrigation.

The Water Use Efficiency (WUE) concept is used to measure how water is used in agriculture. Scientists usu- ally define WUE as "yield per unit of water applied or transpired" at the individual plant or field levels. For example, Stanhill (1991) argues that, using the ratio of transpired water to applied water, an efficiency of 0.9 is a commonly achieved level in Israel. Knowing that water is just as scarce in other locations, one would then ask why actual WUE values found elsewhere are much lower.

What are the factors that prevent agricultural water users from reaching this potential level of efficiency? Are these technical limitations, lack of knowledge, or are these edu- cated decisions that take into account physical and ec- nomic conditions?

A large body of scientific literature, not reviewed here, documents the remarkable efforts of soil and plant scien- tists to improve WUE in irrigated agriculture. It indicates improved potential WUE values at individual plant and field levels (see for example Rapaport (1986) and Dooren- bos and Kassam (1979). Although it is natural for scien- tists to consider the potential WUE at individual plant or field levels, economists tend to expand the analysis to include additional sectors and factors. Based on these premises it is argued that the actual value of WUE, given the relevant scope and constraints, will always be less or equal to the potential WUE. So, we question whether it would be socially optimal to invest in R and D to increase potential WUE from 0.9 to 0.95 or if it is better to invest in extension activities to educate agricultural users that will close gaps between potential and actual WUE values.

To answer some of these questions, we revise the WUE definition to mean "net value of output related to unit of water supplied." There are several advantages for using this definition as compared to the one previously used. First, it permits a wider analysis that includes more deci- sion units to be involved in the irrigation process e.g., the water conveyance system, a farm, a region. Second, it incorporates in the analysis more than only the physical yield component associated with the output of the deci- sion unit, and enables an analysis of private and social costs and values, and their effect on actual WUE.

The purpose of this paper is to demonstrate the effects of economic factors and opportunities as determinants of actual WUE in agriculture. Several perspectives of eco- nomic efficiency of water use will be addressed, such as private versus social considerations, institutions and mar- kets, and externalities.

The paper develops as follows. The next section pre- sents a conceptual framework aimed at determining opti- mal WUE levels both from private and public perspec-

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tives, and explains the differences in actual WUE values. In the third section, the case of externalities in irrigation is presented, using the example of the San Joaquin valley. Here again the economic factors affecting WUE are dis- cussed and demonstrated. The fifth section provides ex- amples showing how institutions, market structures and prices affect actual WUE.

Private versus public economic considerations in determining WUE

Improved WUE in agriculture may achieve several goals such as stimulating agricultural production, and allowing economic growth in certain sectors. However, because individual irrigators usually do not take into account social considerations such as third party effects, or be- cause they do not pay the real cost of the water they use, the WUE value when considered from private and social viewpoints may differ. The aim of this section is to point out the nature of these differences.

For simplicity, assume that private cost of improving WUE becomes increasingly expensive. Total Private Costs (TPC) include all direct and opportunity private cost. Private benefits from improving WUE may include the water that is saved. For example, the water that is saved can be used to irrigate other land plots (if land is not constrained) or to be transferred to other irrigators (if water transfer it allowed). Total Private Benefits (TPB) are assumed to be linearly related to WUE and include all private benefits. The linear relationship is considered only for simplification. A monotonic shape of the TPB func- tion is a better description of these relationships. The qualitative results, however, should be similar. Marginal Private Benefits (MPB) are therefore constant, and Mar- ginal Private Cost (MPC) increases as WUE increases.

Figure 1 depicts these relationships: an optimal value (actual WUE) is found when MPB = MPC. For the case indexed by 0, the optimal private solution is at point "a" with WUE (0). If marginal private costs associated with improving WUE decrease and marginal private benefits increase, the optimal private solution is at "b", providing WUE (1)> WUE (0). If instead, only the marginal private benefit increases, the optimal private solution will be at "c", with a WUE value between WUE (0) and WUE (1). These shifts are commonly caused by increased market output prices, or reduced water or other water related input prices.

To incorporate the social costs associated with in- creased WUE values in the analysis, refer to Fig. 2. Here total private costs are convexly, and total social costs and total private benefits are linearly related to WUE. For the same reason as given above for Total Private Benefits (TPB). A convex shape for total social cost will describe better the relationship between WUE and total social cost. Total costs are a vertical summation over total pri- vate costs and the total social costs. Social costs may be the costs to society resulting from increased use of irriga- tion water in agricultural production (if increased WUE is associated with an increased irrigated area) that have not been taken into account by individual irrigators. So-

TPB - Total Private Benefit (0)

TPC(0)-TPB(0)

Water Use Efficiency

Marginal Private Cosl (0) Marginal Private Cost (1)

/ MadlnalPrivateBenefit (1)

inal Private Benefit (0)

1 UE(O) WUE(I)

Water Use Efficiency

Fig. 1. Private benefits and costs of improving water use efficiency (modified from Danielson and Leitch, 1986)

cial costs may also include the lost value of water taken from an alternative use. For example, a river that pro- duces environmental recreation to visitors, or they may result from damage caused by pollution related to agri- cultural activity e.g., nitrates or pesticides that penetrate groundwater aquifers. Social cost may also reflect a third party effect of water saved by not being infiltrated to recharge a groundwater aquifer to be used by another region.

Using the same argumentation as in Fig. 1, the optimal value of actual WUE for a private irrigator is different from that which is optimal for society. In the example used in Fig. 2, private WUE is larger than social WUE.

From an economic standpoint, optimal private and social WUE values should coincide at the preferable so- cial value. Incentive programs could help achieving the target WUE social WUE value. Private irrigators should be offered monetary incentives to move from their private WUE value to the social WUE value. The incentive in Fig. 2 is equal to the area "bcd." The reduction in social cost as a result of reducing the WUE is the area "efgh". that equals the area "abdc", and the net social gain is the area "abe".

These simple models were aimed at showing that the use of water by different individuals under varying cir- cumstances may result in diverse "optimal" values of WUE. In addition, WUE values based on field level deci-

|Maximum Social ~ , ~ /

Tolal Private Cost

Private Benefit

Private Gain

Total Social Cost

4 Water Use Elli," ry

b r

Min. Incentive to .~ ,A Improve Efflclenc~ ~ /

Marginal Cost

i Marginal Privat Cost

Net Sot. Gain Margim Private Benefit

Margin: Social Cost

in Social Cost g ; ~ ' - - - - Reducti

4 Water Use Efficiency

Fig. 2. Private and social benefits and costs of improving water use efficiency (modified from Danielson and Leitch, 1986)

sions may differ from those based on farm or regional level decisions.

WUE and environmental degradation

Irrigated agriculture does not only compete for water resources, but, in some cases, may contribute to major water quality degradation. For example, soil on thou- sands of acres on the west side of the San Joaquin valley in California have high inherent levels of selenium, molybdenum and other potentially harmful chemicals. Water flowing through the soil dissolves and renders these elements mobile. Water applied in excess of crop ET percolates below the root zone and causes the water table to rise, which requires the installation of a drainage sys- tem. The drainage water which must be disposed of on the land surface frequently contains elevated concentrations of selenium and other elements which are detrimental to the environment. Under these conditions, the subsurface return flows do not serve as a resource to a third party, but impose a cost for their disposal. The social cost may be either in the form of regional drainage disposal system and environmental degradation, or a monetary cost to some segment of society for appropriate disposal of the drainage water.

Irrigation water have been made available to the San Joaquin valley by federal water projects which construct-

49

ed a series of dams and canals to store and deliver water to farms. Long-term contracts were signed between the federal government and water districts which provided an allotment of water at a fixed nominal price. Current con- tract water prices, therefore, do not reflect the real cost of this water and obviously ignore the additional social cost associated with disposal of the irrigation drainage water.

Various studies demonstrate the negative effects on social returns of institutional water system as well as the disincentives to improve WUE in agriculture. Shah et al. (1993) have shown the opportunities to improve WUE following an institutional change from a system of appro- priative rights to one having a flexible market. Dinar and Letey (1991) included in their analysis of water opportu- nities also the externalities via drainage disposal costs, Values in Table 1 demonstrate water market and incentive system effects on individual irrigator decisions and private and social returns to 1 ha of cotton. The condition ana- lyzed in the table is for a water quota equal to 90 cm and the environmental costs associated with drainage water are US $12/ha cm. When the drainage costs are not internal- ized, the farmer behaves as if there were no drainage costs. The drainage volumes are multiplied by the environmental costs (US $12/ha cm) to determine the social costs associat- ed with environmental degradation. The net social benefit is the difference between the returns to the farmer and the social costs associated with drainage water pollution. When the drainage costs are internalized (the irrigator bears that cost) the social benefits are identical to the re- turns to the farmer. The social benefits are always higher when drainage costs are internalized than when they are not internalized. However, notice that the difference in so- cial benefits for the internalized and non-internalized cases become smaller with the presence of a water market and decrease successively with increasing water market prices.

WUE values from private and social points of view can be calculated from Table 1 by dividing private profit by applied water (for private WUE) and social net benefit (with internalization) by applied water (for the case of social WUE). Except for the case of a no water market or low prices for water, social WUE values are always higher then private values when an incentive program is in place.

Increasing potential WUE and the actual WUE-several case studies

Potential WUE values in agriculture may be improved by several means. At the plant level, breeding or genetic engi- neering efforts may be directed toward decreased crop transpiration without a corresponding decrease in yield. Several promising possibilities are presented in other pa- pers in this symposium (e.g., Richards, 1993). They in- clude genetic improvement of early canopy development, different growing seasons, and short-duration crop sea- son all of which may improve potential WUE. In order to make actual WUE as close as possible to potential WUE, improvements at field, farm, and national levels should also be taken into account.

Finally, at the field level, management practices such as controlled environment, substitution between water

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Table 1. Private returns and social cost and net benefits, for different water market prices when environmental costs are internalized and not internalized

Actual market Drainage costs not internalized Drainage costs internalized price

S/ha cm

Applied Profit Drainage Social cost Social net Applied Social net water benefits water benefits ha-cm/ha S/ha cm S/ha S/ha ha-cm/ha S/ha

0 90 1158 24 288 870 85 1052 3 90 1158 24 288 870 84 1071 5 86 1158 18 216 942 82 l l l l 8 70 1201 3 36 1165 68 1178

12 68 1242 2 24 1218 66 1226

Source: Dinar and Letey (1991)

and nutrients and their application practices, further in- novations in irrigation technologies to save water, and in double cropping to utilize water remaining in the soil from previous crops, should be attempted. At the farm level, a better control of the water distribution system may improve WUE, and at the regional or national level, an improved management of the water storage and main distribution systems might be attempted in order to im- prove WUE.

In addition, changes in quotas, water rights systems (Shah et al. 1993), and in incentives such as prices and subsidies, and in water markets opportunities (Bay Area Economic Forum 1991), may increase the level of actual WUE. Several examples of institutional and economic effects on actual WUE in irrigation at various levels are presented next.

All-american canal lining project and cross border WUE

Water is a scarce resource in the expanding urban and agricultural sectors in southern California. The expan- sion in population of the Los Angeles and San Diego metropolitans is limited by water availability. Almost all current water resources used originate from outside the region. One of the major sources of water is the Colorado River which provides southern California with 5434 mil- lion m 3 per year. Agricultural users in the Imperial valley import 3396 million m 3 per year to an agricultural area of about 6 854 400 ha with a production value of$1 016.811 million (in 1990 values). Water is conveyed from the Col- orado River to the Imperial region using the All Ameri- can Canal which is an unlined canal having a branch of 126 km along the Mexican border. Because the Canal is unlined, it is estimated that about 123 500 000 m3/year of water seeps and is unvailable for use in irrigation (Hayens 1991).

Water agencies and irrigation districts in southern California and the US Federal Government have come to an agreement in their efforts to solve water scarcity prob- lems in that region. Southern California water agencies will contribute to the cost of lining portions of the All American Canal to prevent seepage of water. In ex- change, they will have a fight to the water saved (123 500 000 m3/year) for 55 years. Lining costs are ex- pected to be $150 to $200 million, which makes this agreement most profitable to all sides to the agreement.

From the point of view of WUE, this is a significant improvement which allows the production of the same amount of agricultural output with almost 5 % less water supplied. Moreover, additional services will be provided

b y the water, which was saved, for residential uses (which in $ values are far higher compared to the product value in agriculture). All economic requirements are met, and all societal segments are benefited, which makes this ar- rangement to be an optimal solution.

But there is an additional aspect that has been ignored. The proposed lining of the All American Canal is of profound concern to Mexico. The quantity of water that was supposed to seep from the Canal and be "lost" (be- fore the lining), had been in fact recharged to an under- ground aquifer on the Mexican side and provides about 60% of the annual recharge to that aquifer. This aquifer is the only irrigation water source to the Mexicali Valley, which is an agricultural area of 13 500 ha, serving 675 users via 121 wells. The damages in the Mexicali Valley resulting from reduced recharge to the aquifer will be substantial, and has been calculated to be approximately $ 80 million per year (Calleros 1991). These estimates do not include the effects on production of increased salinity in the aquifer (expected to reach 1150 ppm Total Dis- solved Solids (TDS) in 2010) as a result of reduced recharge of fresh water from the Canal.

This example demonstrated the role of relevant con- siderations and the scope of the analysis as determinants in the calculations of water use efficiency. One should realize that partial analysis may, under certain condi- tions, lead to opposite results. While WUE based on US factors has been improved by at least 5%, the consider- ation of Mexico's parameters with regard to these water, may lead to opposite results. Moreover, international pressure may prevent this project from being completed.

A proposed water market in California

Figure 3 shows changes in water consumption in agricul- tural and non-agricultural uses with and without the presence of water markets in California. Until recently, the water system in California assigned water rights to individual contractors on a priority schedule. The rule governing water use by these individuals was "use it or loose it". The release of the institutional barrier to allow transfer of water between agricultural and urban regions

20000-

"~ 15000- == 0

¢J

0 1 2

[ ] W/O Market

[ ] With Market

3 5 Regions and Use 4

(l=North Ag; 2=South Ag; 3=imperial Valley; 4=North Non-Ag; 5=South Non-Ag)

Fig. 3. Water consumption without and with water markets (source: Bay Area Economic Forum, 1991)

was modeled by Vaux and Howitt (1984) and updated in Bay Area Economic Forum (1991) and elsewhere. With a water market, several agricultural regions use less water; part of the water is saved and part is transferred to non- agricultural uses.

Total water consumption with and without water mar- ket was estimated at 34 802 and 36 741 million ma/year, respectively. Notice that total water consumption with a water market is lower than without. Total additional an- nual benefits from water markets (in millions of US $) was estimated at 239.87. Following our definition of ac- tual WUE, it can be shown that WUE improves as a result of water reduction and increased production value. In this case, institutional changes - the move from a priority right to a market based water system-improves WUE in agriculture and other sectors.

Drought and cotton

In recent years cotton has become a "national threat", both in Israel and California as a result of an on going drought in both states. Although, cotton is considered to be a highly efficient water use crop in both states, water experts suggested that cotton acreage be reduced and better use be made of the water released. Some econ- omists suggest also appropriating agricultural water sup- plies to high-tech industries, to recreation, and to urban areas for use as drinking water, where their value is claimed to be higher than in their current use.

In California, long term government programs protect cotton growers, thus reduced cotton production has oc- curred only in farms that do not participate in govern- mental programs. As a result, cotton acreage has been reduced by 50% (in 1992), and the water released (in addition to the amount unavailable due to the drought) has been used for high value crops (such as fruit crops and vegetables). No major irrigation technology changes have been observed in the case of cotton (Zilberman et al. 1992).

In Israel, the water crisis of 1991 launched a restriction on cotton in which growers could only irrigate cotton with treated wastewater. As a result, several events have occurred. First, cotton acreage has been reduced from about 40 000 ha in 1990 and 1991 to about 10 000 ha in

51

1992. Second, since 1992 cotton is irrigated only by drip systems whereas it has been partially irrigated by sprin- klers in previous years. And third, Accala the traditional variety has totally replaced by Pima a higher value variety.

In both states, water conditions and various institu- tional changes have induced management and structural changes that have improved actual WUE values that are directly related to the growing process. Whether or not WUE in other sectors has been improved remains to be evaluated.

Irrigation technologies and environmental conditions

Improved water application as a result of modern tech- nologies and management are believed to be positively related to higher WUE values. Policy makers often con- sider incentives that will improve irrigation performance, conserve irrigation water, and reduce drainage volume. Modern technologies provide better irrigation uniformity and, therefore, promote reductions in total applied water and less deep percolation. For example, according to Meyer (1990), a long-term regional citrus irrigation ex- periment at the McKellar Project in Tulare County, Cali- fornia, showed that irrigation requirements varied signif- icantly between drip, sprinklers, and furrow, with recom- mended values for water application of 8128, 8890, and 9906 m3/ha, respectively. A transition from furrow to drip may save 18% of the water consumed by citrus and further reduces the amount of drainage water.

Field data for citrus groves from the southern San Joaquin valley, California for the period 1977-1981 (Vaux et al. 1990) show average water applications of 7051, 7475, 7943 and 8171 m3/ha for drip, furrow with tail water reuse (TWR), sprinklers, and furrow without TWR, respectively.

These results suggest savings from 5.6% to 13.7% with drip versus furrow with and without TWR, respec- tively. These values for water savings may provide an incentive for a transition from old to modem technolo- gies, although savings can be higher or lower, depending on site and local conditions.

Technology improvements may have several possible effects (Dinar and Zilberman, 1991) such as water saving, pollution reduction, and yield increase; all are assumed to increase WUE at field levels.

Although a transition from old to modem irrigation technologies may be economically profitable for growers, and society, additional factors will affect the feasibility of a policy to encourage this transition. Estimated coeffi- cients from a study on citrus groves in Israel (Dinar and Yaron 1990) are used to illustrate the tradeoffs between policy variables and input quality variables which affect the choice of modern irrigation technologies. Results, not presented here, show that modem irrigation technologies tend to be adopted sooner and to a greater extent (a) on groves located on relatively low quality land, (b) in re- gions with high evaporation rates, (c) on groves planted with sensitive rootstock, and (d) on groves grown under conditions of restricted water allotments and higher wa- ter prices. Management, human capital, and scale of op- eration also affect the level and speed of adoption.

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In a different study Dinar et al. (1992) applied an economic model of technology selection that provides a general framework for analyzing irrigation technologies choice under various environmental conditions. Data from the San Joaquin valley of California were used to verify the theoretical relationships. Results suggest what key variables should be considered by policy makers in respect to water saving by means of adoption of modem irrigation technologies. These variables include crop prices, water and technology costs, farm organization characteristics, and environmental conditions.

The results of this study point out what is involved in the adoption of improved irrigation and drainage reduc- tion technologies under limiting environmental condi- tions, such as high soil salinity levels and high water tables. Information on adoption coefficients may assist policy markers concerned with on-farm source control strategies by (a) identifying characteristics and necessary conditions-including the relationship of irrigation prac- tices to crop patterns, field characteristics (size, shape, and soil type), organizational type, presence of full time irrigators, pricing strategies, and water supply; (b) allow- ing policy makers and extension agencies to delimit incentive programs according to the above items.

Policy agencies should be concerned with conditions such as the cost of surface and groundwater, cost of mod- ern technologies, surface water quotas, and attenuating conditions of crop choice and crop price. Price support, grants, loan programs, quotas, etc. may manipulate con- ditions which favor the use of modern technologies.

Educational agencies, on the other hand, may be more concerned with the characteristics of farms as a means of identifying target populations. Farms's organizational structure and crop production patterns, ownership, and physical characteristics of farms and fields, are all factors which anticipate a favorable response to educational pro- gram geared towards the adoption of modern technolo- gies.

Conclusions

Water resources are dwindling both in terms of quantity and quality. The competition over water to satisfy agri- cultural, urban and environmental needs has induced dis- cussions regarding better utilization of water. Naturally the focus is on the agricultural sector which, in spite of great achievements, still seeks out and evaluates addition- al possibilities.

Agricultural research so far has substantially in- creased potential WUE values, measured in terms of a single plant and field level. Additional increase will entail considerable effort and high research costs. Agricultural water users practicing under different economic, institu- tional and evironmental conditions may not always achieve these high levels. While the challenge to further increase WUE is big, greater emphasis on educational and extension activities, as well as incentive and price policies may also improve actual WUE levels.

In selecting the appropriate measures to enhance a better use of water in agriculture, policy makers must take into account the diversity of agricultural conditions, which play a major role in decision making. Growers facing significantly different conditions can not be ex- pected to respond similarly. Policies and their program- matic counterparts must therefore be responsive to a range of locational factors, such as production costs, wa- ter quotas, and environmental conditions, which them- selves may vary over time.

Acknowledgements. The work leading to this paper was conducted while the author was at the Dept. of Ag. Econ. Univ. of California, Davis, and USDA-ERS, USA.

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