202.3

I11

" ' > . . . • ' .

SAN

WATER POLICIES ANDAGRICULTURE

Edited extract from: The State of Food and Agriculture.1993. FAO/ESP. Rome. Italy.

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONSRome 1994

This paper is extracted from the Special Chapter onWater Policies and Agriculture, published in The Stateof Food and Agriculture, 1993. It is primarily intendedfor agricultural policy-makers, water managers,researchers, students, development planners andagricultural project donors. It is meant to help us reflecton the way water resources are managed at present; tocontribute to the discussion on sustainable water use;and to stimulate thinking, research and change.Decisions made in this decade regarding how water isused will have a profound effect on our future supplies.

The full text of the Special Chapter consists of foursections. The first section gives an overview of worldwater resources and briefly discusses the key issues:scarcity, quality and health.

The second section stresses the need to integrate thewater sector with the national economy and analyses thephysical, economic and social aspects of water. It thenprovides a conceptual foundation for understanding thecircumstances under which water policies either work orfail. Section II also assesses the advantages anddisadvantages of broad alternative approaches to publicwater policy.

Section III examines how policy analysis is applied towater resource planning, including both supply-side(physical and hydrological) and demand-sideconsiderations. It discusses the advantages anddisadvantages of various policy options for urgent waterpolicy issues related to surface water and groundwater.

The fourth and final section reviews three specificpolicy issues in irrigated agriculture: declining growthand investment trends; the difficulties imposed byirrigation-induced environmental degradation; andefforts to reform managerial/administrative systems.

Only extracts from Sections I and II are reproduced inthis document.

WATER POLICIES AND AGRICULTURE

I. Water resource issues and agriculture

INTRODUCTION AND OVERVIEW

An interesting observation arising from thepreparation of this year's special chapter onwater and agriculture is how difficult it isto generalize about water. Almost anystatement requires qualification. Forexample, while we can say that water isone of the most abundant resources onearth, we know that less than 1 percent ofthe total supply is reliably available forhuman consumption. Water is a liquid, forthe most part, but it can also be a solid anda vapour. Drinking-water is certainlyessential for human survival but water-related illnesses are the most commonhealth threat in the developing world. Anestimated 25 000 people die every day as aresult of water-related sicknesses.1

One statement, however, needs noqualification: human existence depends onwater. The geosphere, the atmosphere andthe biosphere are all linked to water. Waterinteracts with solar energy to determineclimate and it transforms and transports thephysical and chemical substances necessaryfor all life on earth.

In recent years, water issues have been thefocus of increasing international concernand debate. From 26 to 31 January 1992,the UN system sponsored the InternationalConference on Water and the Environment(ICWE) in Dublin, Ireland. The ICWEcalled for innovative approaches to theassessment, development and managementof freshwater resources. In addition, the

UNEP. 1991. Freshwater p}

GEMS Environment^ 1;;oNairobi. \

ollution.

• • ! • . • >

7 ,.

ICWE provided policy guidance for theUnited Nations Conference on Environmentand Development (UNCED) in Rio deJaneiro in June 1992. UNCED highlightedthe need for water sector reformsthroughout the world. In 1993, the WorldBank issued a comprehensive policy paperdefining its new objectives for the watersector. FAO recently established anInternational Action Programme on Waterand Sustainable Agricultural Development(ISA-WASAD). Likewise, the UNDP,WHO, UNICEF, WMO, Unesco andUNEP are all coordinating or participatingin special programmes related to waterresources.

Other international, national and localorganizations are becoming more active inwater issues. The 1990 Montreal meeting,"NGOs Working Together", focusedattention on drinking-water supply andsanitation. The Canadian InternationalDevelopment Agency, the French Ministryof Cooperation and Development, theGerman Agency for Technical Cooperation(GTZ), the United Kingdom's OverseasDevelopment Administration and the UnitedStates Agency for InternationalDevelopment (USAID) have recentlydeveloped water resource strategies forforeign assistance.

The message highlighted by all these effortsis that water is an increasingly scarce andvaluable resource. Of principal concern isour failure to recognize and accept thatthere is a finite supply of water. TheconsensusJsjhajjtejjrpwing water scarcity

d i f f h i,andjs

pose seriousivelopment.

Competition among agriculture, industryand cities for limited water supplies isalready constraining development efforts inmany countries. As populations expand andeconomies grow, the competition forlimited supplies will intensify and so willconflicts among water users.

Despite water shortages, misuse of water iswidespread. Small communities and largecities, farmers and industries, developingcountries and industrialized economies areall mismanaging water resources. Surfacewater quality is deteriorating in key basinsfrom urban and industrial wastes.

Groundwater is polluted from surfacesources and irreversibly damaged by theintrusion of salt water. Overexploitedaquifers are losing their capacity to holdwater and lands are subsiding. Cities areunable to provide adequate drinking-waterand sanitation facilities. Waterlogging andsalinization are diminishing the productivityof irrigated lands. Decreasing water flowsare reducing hydroelectric powergeneration, pollution assimilation and fishand wildlife habitats.

At first glance, most of these waterproblems do not appear to be directlyrelated to the agricultural sector. Yet, byfar the largest demand for the world'swater comes from agriculture. More thantwo-thirds of the water withdrawn from theearth's rivers, lakes and aquifers is used forirrigation. As competition, conflicts,shortages, waste, overuse and degradationof water resources grow, policy-makerslook increasingly to agriculture as thesystem's safety valve.

Agriculture is not only the world's largestwater user in terms of volume, it is also arelatively low-value, low-efficiency andhighly subsidized water user. These factsare forcing governments and donors torethink the economic, social andenvironmental implications of large publiclyfunded and operated irrigation projects. Inthe past, domestic spending for irrigationdominated agricultural budgets in countriesthroughout the world. For instance, since

1940, 80 percent of Mexico's publicexpenditures in agriculture have been forirrigation projects. In China, Pakistan andIndonesia, irrigation has absorbed over halfof agricultural investment. In India, about30 percent of all public investment hasgone into irrigation.2

A significant portion of internationaldevelopment assistance has also been usedto establish irrigation systems. Irrigationreceived nearly 30 percent of World Bankagricultural lending during the 1980s.Spending commitments for irrigation by allaid agencies exceeded $2 billion per year inthe past decade.

Once established, irrigation projectsbecome some of the most heavilysubsidized economic activities in the world.In the mid-1980s, Repetto3 estimated thataverage subsidies to irrigation in six Asiancountries covered 90 percent of the totaloperating and maintenance costs. Case-studies indicate that irrigation fees are, onaverage, less than 8 percent of the value ofbenefits derived from irrigation.

Despite these huge investments andsubsidies, irrigation performance indicatorsare falling short of expectations for yieldincreases, area irrigated and technicalefficiency in water use. As much as 60percent of the water diverted or pumped forirrigation is wasted.4 Although some lossesare inevitable, in too many cases thisexcess water seeps back into the ground,causing waterlogging and salinity. As much

2 R. BhatiaandM.Falkenmark. 1992. Waterresource policies and the urban poor:innovative approaches and policyimperatives. Background paper for theICWE, Dublin, Ireland.

3 R. Repetto. 1986. Skimming the water: rent-seeking and the performance of publicirrigation systems. Research Report No. 4.Washington DC, WRI.

4 FAO. 1990. An International ActionProgramme on Water and SustainableAgricultural Development. Rome.

as one-quarter of all irrigated land indeveloping countries suffers from varyingdegrees of salinization.5 Moreover,stagnant water and poor irrigation drainageescalate the incidence of water-relateddiseases, resulting in human suffering andincreased health costs.

Today, agriculture is often unable tocompete economically for scarce water.Cities and industries can afford to pay morefor water and earn a higher economic rateof return from a unit of water than doesagriculture. (For economists, water flowsuphill to money.) For the first time inmany countries, agriculture is being obligedto give up water for higher-value uses incities and industries. Irrigators in someareas are now asked to pay for the waterthey receive, including the full cost ofwater delivery. In other areas, newregulations require farmers to pay forpolluting streams, lakes and aquifers.

The irony is that irrigated agriculture isexpected to produce much more in thefuture while using less water than it usestoday. At present, 2.4 billion peopledepend on irrigated agriculture for jobs,food and income (some 55 percent of allwheat and rice output is irrigated). Overthe next 30 years, an estimated 80 percentof the additional food supplies required tofeed the world will depend on irrigation.6

These developments are placing enormouspressure on agricultural policy-makers andfarmers. Throughout the world, govern-ments assume the prime responsibility forensuring food security and, because fooddepends increasingly on irrigation, foodsecurity is closely linked with watersecurity. Between 30 and 40 percent of theworld's food comes from the irrigated 16

5 Ibid.

6 International Irrigation Management Insti-tute. 1992. Developing environmentallysound and lasting improvements in irriga-tion management: the role of internationalresearch. Colombo, Sri Lanka, IIMI.

percent of the total cultivated land; aroundone-fifth of the total value of fishproduction comes from freshwateraquaculture; and current global livestockdrinking-water requirements are 60 billionlitres per day (forecasts estimate anincrease of 0.4 billion litres per year).Food security in the next century will beclosely allied to success in irrigation.

Irrigation can help make yield-increasinginnovations a more attractive investmentproposition but it does not guarantee cropyield increases. The overall performance ofmany irrigation projects has beendisappointing because of poor schemeconception, inadequate construction andimplementation or ineffective management.The mediocre performance of the irrigationsector is also contributing to many socio-economic and environmental problems, butthese problems are neither inherent in thetechnology nor inevitable, as is sometimesargued.

Irrigation projects can contribute greatly toincreased incomes and agriculturalproduction as compared with rain-fedagriculture. In addition, irrigation is morereliable and allows for a wider and morediversified choice of cropping patterns aswell as the production of higher-valuecrops. Irrigation's contribution to foodsecurity in China, Egypt, India, Moroccoand Pakistan is widely recognized. Forexample, in India, 55 percent of agri-cultural output is from irrigated land.Moreover, average farm incomes haveincreased from 80 to 100 percent as aresult of irrigation, while yields havedoubled compared with those achievedunder the former rain-fed conditions;incremental labour days used per hectarehave increased by 50 to 100 percent. InMexico, half the value of agricultureproduction and two-thirds of the value ofagricultural exports is from the one-third ofarable land that is irrigated.

Irrigation is a key component of thetechnical package needed to achieveproductivity gains. In the future, as highlevels of costly inputs are added to crop-

land to sustain yield increases, the securityand efficiency of irrigated production willbecome even more important to worldfarming. Water will no longer be plentifuland cheap. It will be scarce, expensive todevelop and maintain and valuable in use.The prospect of high-cost water may at firstseem to be another problem looming forlow-income economies. However, the highcost will be an incentive to use water moreefficiently. The single most importantfactor limiting the adoption of provenirrigation and drainage technology is thelow cost of water. Moreover, if farmershave opportunities for higher-value usesand can make profits, both governmentsand farmers will invest in irrigation.

This water dilemma - to produce more ina sustainable way with less water ~ pointsto the need for demand managementmechanisms to reallocate existing supplies,encourage more efficient use and promotemore equitable access. Policy-makers needto establish a structure of incentives,regulations, permits, restrictions andpenalties that will help guide, influence andcoordinate how people use water whileencouraging innovations in water-savingtechnologies.

In the past, supply-side approachesdominated water resource managementpractices. Water itself was physicallymanaged through technical and engineeringmeans that captured, stored, delivered andtreated water. However, the era of meetinggrowing demand by developing newsupplies is ending. In our present-day watereconomy, resource management is shiftingaway from the goal of capturing morewater towards that of designing demand-and user-focused approaches that influencebehaviour.

WORLD WATER RESOURCES

Every day the hydrological cycle renewsthe world's freshwater resources throughevaporation and precipitation. The averageannual rainfall over land is 110 000 km3,but some 70 000 km3 evaporate before

reaching the sea. The remaining 40 000km3 are potentially available for humanuse. Global freshwater consumption iscurrently around 4 000 km3, only 10percent of the annual renewable supply.

These numbers suggest that plenty of wateris available for human use but a closer lookreveals a more complicated situation. The40 000 km3 of available water aredistributed very unevenly and two-thirds ofit runs off in floods. That leaves around 14000 km3 as a relatively stable supply. Asubstantial share of this supply should beleft to follow its natural course in order tosafeguard wetlands, deltas, lakes andrivers.7 For example, 6 000 km3 of wateris needed to dilute and transport theestimated 450 km3 of waste water nowentering the world's rivers each year.8

Without substantial investment in wastewater treatment and more effectiveregulation, even more water will have to bediverted to dilute and transport wastes.

Precipitation, withdrawals and availabilityof water vary widely around the world.Table 1 demonstrates regional changes inper caput water availability since 1950 andshows forecasts for 2000. Per caputavailability is highest in Latin America andlowest in North Africa and the Near Eastwhile withdrawals are highest in NorthAmerica and lowest in Africa. Per caputwater availability in Europe and NorthAmerica is not expected to change greatlyby 2000 while Asians, Africans and LatinAmericans will face less per caput wateravailability as their populations continue togrow.

At present, Asia accounts for over one-halfof the world's water withdrawals. Figure 1illustrates regional water consumptionduring the past century. Forecasts to theyear 2000 suggest that Asia will consume60 percent of the world's water, followed

7 S. Postel. 1992. Last oasis: facing waterscarcity. New York, Norton.

8 See footnote 1, p. 1.

TABLE 1

iiillllli: tt&sa

Region 1950 1960 1970 1980 2000

Africa

Asia

Latin America

Europe

North America

20.6

9.6

105.0

5.9

37.2

16.5

7.9

80.2

5.4

30.2

— '000 m3

12.7 9.4

6.1 5.1

61.7 48.8

4.9 4.4

25.2 21.3

5.1

3.3

28.3

4.1

17.5

Source: N.B. Ayibotolo. 1992. The world's water: assessing the resource. Keynote paper at the ICWE, Dublin, Ireland.

FIGURE 1Water consumption by region, 1900-2000

(D

6000-1-

5000-

4000-

3000-

2000-'

1000-'

1900 1940 1950 1960 1970 1980 1990 2000

by 15 percent in North America, 13percent in Europe and less than 7 percentin Africa. Latin America's share of worldwater consumption is forecast to be lessthan 5 percent in 2000, although theregion's consumption has nearly quadrupledsince 1950.

Water scarcity

Human actions bring about water scarcityin three ways: through population growth,misuse and inequitable access.9 Population

growth contributes to scarcity simplybecause the available water supply must bedivided among more and more people.Every country has a more or less fixedamount of internal water resources, definedas the average annual flow of rivers andaquifers generated from precipitation. Over

T.F. Homer-Dixon, J.H. Boutwell andG.W. Rathjens. 1993. Environmentalchange and violent conflict. Sci. Am.(February).

TABLE 2

^'•'•K&inBlMriBS-'-DpBf]

Country1

EgyptSaudi ArabiaLibyan ArabJamahiriya

United ArabEmirates

JordanMauritaniaYemenIsraelTunisiaSyrian ArabRepublic

KenyaBurundiAlgeriaHungaryRwandaBotswanaMalawiOmanSudanMoroccoSomalia

$

Populationin 2000

Mi SiSlSSSSBSiBB

IliiiilllilWater availability

Internalrenewable

r

(millions)

62.421.3

6.5

2.04.62.6

16.26.49.8

17.734.07.4

33.110.110.41.6

11.82.3

33.131.810.6

wateresources

Waterresourcesincluding

riverflowsfromother

countries

(~n^ per capul—)

29103

108

152153154155260384

430436487570591604622760880905943

1086

934103

108

152240

2 843155335445

2 008436487576

11326604

11187760880

3 923943

1086

' A number of other countries with smaller populations, e.g.Barbados, Cape Verde, Djibouti, Malta, Qatar and Singapore, arealso included in the water-scarce category.

Source; FAO calculations based on World Bank/WRI data.

time, this internal renewable supply mustbe divided among an increasing number ofpeople, eventually resulting in waterscarcity.

When annual internal renewable waterresources are less than 1 000 m3 per caput,water availability is considered a severeconstraint on socio-economic developmentand environmental protection. Table 2 liststhe countries where per caput internalrenewable water availability will fall below1 000 m3 by the end of this decade. Mostcountries facing chronic water scarcityproblems are in North Africa, the NearEast and sub-Saharan Africa. Countrieswith less than 2 000 m3 per caput face aserious marginal water scarcity situation,

with major problems occurring in droughtyears. By the end of the 1990s, wateravailability is expected to fall below2 000 m3 per caput in more than 40countries.

In many countries, while scarcity is less ofa problem at a national level, serious watershortages are causing difficulties in specificregions and watersheds. Notable examplesinclude northern China, western andsouthern India and parts of Mexico.

People also bring about water scarcity bypolluting and overusing existing supplies.Box 1 describes some of the pressing waterpollution issues. This type of scarcity canbe regarded as the consumption of theresource's "capital". For instance, anaquifer represents resource capital,providing what is generally a renewablesource of water ("income") that can betapped for human consumption. Sustainableuse of the aquifer leaves the capital intactso that future generations can continuouslyuse the renewable portion or income. Ifpumping is greater than recharge, theaquifer is depleted and the capital isconsumed.

Overuse of groundwater has become amajor problem in China, India, Indonesia,Mexico, the Near East, North Africa,Thailand, the western United States andmany island countries where seawaterintrusion results. The overpumping ofaquifers not only results in a water sourcethat is too depleted to serve as a supply, itmay also cause the land above the aquiferto settle or subside, resulting in widespreadstructural damage in extreme cases.Bangkok and Mexico City are well-knownexamples.

Finally, a shift in access or distributionpatterns may concentrate water resourcesamong one group and subject others toextreme scarcity. In many cities of thedeveloping world, large numbers of peopledepend on water vendors and may pay 100times as much as the rate of public utilities(see Table 3). Numerous recent studiesdocument that large numbers of urban poor

TABLE 3

Countty City Ratio

BangladeshColombiaCote d'lvolreEcuadorHaitiHondurasIndonesia

KenyaMauritaniaNigeria

PakistanPeruTogoTurkeyUganda

DaccaCallAbidjanGuayaquilPort-au-PrinceTegucigalpaJakartaSurabajaNairobiNouakchottLagosOnitshaKarachiLimaLorn*IstanbulKampala

12-25105

2017-10016-344-60

20-607-11100

4-106-38

28-8317

7-1010

4-9

Source: R. Bhatiaand M. Falkenmark. 1992. Water resource policiesand the urban poor: innovative approaches and policy imperatives.Background paper for the ICWE, Dublin, Ireland.

pay much higher prices and a much largershare of their income for water thanfamilies with access to a city watersystem.10 The poorest families in somelarge cities spend up to 20 percent of theirincome on water. When the cost is so high,these families use little water for washingand bathing, which results in serious healthproblems.

World water use

The early civilizations of Asia, Africa andLatin America organized cooperativeefforts to develop river valleys for irrigatedagriculture. Through irrigation technology,societies controlled and manipulated naturalwater supplies to improve crop production.The result was often reliable and amplefood supplies which led to the creation ofstable agricultural villages, the division oflabour and economic surpluses.

Many scholars still argue whether irrigationtechnology facilitated political control anddevelopment of the state or whetherpolitical developments led to advancementof the technology. No matter the directionof cause and effect, no one disputes the

TABLE 4

Country income

group

Annualwithdrawals

per caput

Withdrawals by sector

Agric. Ind. Dom.

(..m3..)

Low-incomeMiddle-incomeHigh-income

386453

1 167

916939

51847

41314

association of development with controlover water use.

In today's world, agriculture still accountsfor the majority of human water use.Globally, around 70 percent of waterwithdrawals are for agriculture. Domesticand industrial uses consume the remaining30 percent.11 Water uses differ greatlydepending on access, quantity, quality andsocio-economic conditions. For example,Table 4 illustrates that agricultural wateruse is higher as a proportion of total wateruse in the low-income countries (91percent) than in the high-income group (39percent). Nevertheless, on a per caputbasis, the high-income countries use morewater for agricultural purposes than thelow-income countries.

The trends in world water use during thiscentury are presented in Figure 2. Overall,global water consumption has increasedalmost tenfold. Agriculture's share, whichwas 90 percent in 1900, will have droppedto an estimated 62 percent by 2000. Duringthis same period, industrial consumptionwill have grown from 6 percent to 25percent, while consumption by cities willhave increased from 2 percent to nearly 9percent. By the year 2000, around 35percent of available water supplies will bein use, compared with less than 5 percentat the beginning of the century.

10 See footnote 2, p. 2.

11 Domestic uses include drinking-watersupplies, private homes, commercial esta-blishments, public services and municipalsupplies.

BOX 1 The quality of water fromWATER AND different sources variesPOLLUTION widely. Precipitation absorbs

gases from the atmosphereand removes particles fromthe air. When the precipita-tion strikes the ground itbecomes surface waterrunoff or enters the ground.The surface water flows intolarger and larger channels.ponds, lakes and rivers untilsome of it reaches the sea.Along its course, surfacewater picks up both organicand mineral particles.bacteria and other organismsas well as salts and othersoluble substances. Thewater in lakes and swampssometimes acquires odours.tastes and colours fromalgae and other organismsand from decayingvegetation.

Since ancient times, heavymetals from mining andpathogens from cities havecaused serious, althoughlocalized, contamination.Since the industrialrevolution, water pollutionproblems have become firstregional, then continentaland now global in nature.Much water is pollutedwhen it is used in industryand agriculture or fordomestic purposes. Miningis the major cause of metalcontamination, whereasother industries contribute toacidification. Theintensification of agriculturalactivities has led to thecontamination of ground-water by fertilizers and otherchemicals. Moreover, irriga-tion projects often cause arapid rise in the level ofgroundwater, which leads towaterlogging and soilsalinity.

Since 1977, UNEP's andWHO'S Global EnvironmentalMonitoring System (GEMS)has been working withUnesco and WMO to

develop a global waterquality monitoring network.More than 50 water variablesare monitored to provideinformation on the suitabilityof water for human con-sumption and for agricultural.commercial and industrialuse. Recent assessmentshave found that the mainwater pollutants are:sewage, nutrients, toxicmetals and industrial as wellas agricultural chemicals.

Conclusions drawn from theGEMS assessment include:the nature and level offreshwater pollution stronglydepends on socio-economicdevelopment; the mostcommon water pollutant isorganic material fromdomestic sewage, municipalwaste and agro-industrialeffluent; and the high waternitrate levels found inwestern Europe and theUnited States are a result ofthe nitrogen fertilizers andmanure used for intensiveagriculture. The GEMSassessment also noted adramatic increase in the useof fertilizers in developingcountries, particularly whereintensive irrigation allows fordouble or triple cropping.

Other conditions highlightedin the GEMS report includedeforestation, eutrophication.suspended particulate matter(SM) and salinity.

Deforestation, i.e. theclearing of land foragriculture and urbandevelopment, often leads towater contamination. Whenthe soil is stripped of itsprotective vegetativecovering, it becomes proneto erosion. This in turn leadsto higher water turbidity.because of the increasedamounts of suspendedmatter, to nutrient leachingand to a decreased water-retention capacity of the soil.

There is also concern aboutthe destruction of wetlands.which destroys the habitatof many species andremoves natural filtermechanisms, permittingmany common pollutants toreach water supplies.

Eutrophication is theenrichment of waters withnutrients, especiallyphosphorus and nitrogen. Itcan lead to enhanced plantgrowth and depletedoxygen levels as this plantmaterial decays. It is notalways a human-inducedproblem, but is often linkedto organic waste andagricultural runoff. Today30 to 40 percent of theworld's lakes and reservoirsare eutrophic. Not all inter-vention has been success-ful, but eutrophication canbe reversible if mid- andlong-term strategies areenacted. Laws andmeasures introduced toreduce tripolyphosphates(used mostly in detergents)and to remove phosphorusfrom waste water have hadpositive effects.

SM consists of materialsthat float in suspension inwater. There are three mainsources of SM: natural soilerosion, matter formedorganically within a waterbody and material producedas a by-product of humanactivity. SM settles on thesediment bed and formsdeposits in rivers, lakes,deltas and estuaries.Evidence of human-inducedSM from Roman and Mayantimes has been discoveredin lake beds, implying thatthis was one of the firsttypes of water pollution.River damming affects theamount of SM flowing fromrivers to the oceansbecause reservoirs act aseffective sinks for SM. Anestimated 10 percent of the

global SM discharge to thesea is trapped in reservoirs.Approximately 25 percentof the water currentlyflowing to the oceans hasbeen previously stored in areservoir. Damming can alsogreatly modify waterquality; waters flowing outof reservoirs not only havereduced SM quantities, theyare also depleted ofnutrients and are oftenmore saline, whichconsequently hasdetrimental effects ondownstream agriculture andfisheries.

Salinity is a significant andwidespread form of fresh-water pollution, particularlyin arid, semi-arid and somecoastal regions. The primarycause of salinization is acombination of poor drain-age and high evaporation.rates which concentratesalts on irrigated land.Salinity can adversely affectthe productivity of irrigatedcrops and is also detri-mental to industrial andhousehold water users. It isnot a new phenomenon;salinization of soil and waterin the flood plain of theTigris and Euphrates Riverscontributed to the decline ofthe Mesopotamian civiliza-tion some 6 000 years ago.The estimated global grossarea of irrigated land is 270million ha. About 20 to 30million ha are severelyaffected by salinity while anadditional 60 to 80 millionha are affected to somedegree. Waterlogged soil.which aggravates theproblem of salinity, isusually caused by over-watering and a lack ofproper drainage systems.Runoff from agriculturalareas fertilized with manureand chemicals polluteswatercourses and ground-water by increasing levelsof nutrients.

The present level of waterpollution warrants thatsteps be taken to controlfurther contamination ofwater resources. Moreserious action needs to betaken in water resourcemanagement, waste watertreatment and the provisionof safe public watersupplies. In developed anddeveloping countries thereshould be controls andregulations regarding thetreatment and recycling ofindustrial effluents, whileefforts must be made toreplace harmful productsand ban dangerouspesticides.

There is compellingevidence that at least 20 to30 percent of the watercurrently used in householdsand industries can be savedby adopting appropriateregulatory and policyinstruments (tariffs, quotas.groundwater extractioncharges). The twin benefitsof clean water and reduceddemand can be obtained ifthe recycling or reuse ofwater is encouraged inindustries through pollutioncontrol legislation andeconomic incentives (watertariffs based on economiccosts, effluent charges andlow-interest loans foreffluent/sewage treatmentplants). Similar savings maybe possible in irrigatedagriculture by investmentsin canal lining, byencouraging less water-intensive crops (throughrelative output prices) andby raising irrigation rates.

Source: UNEP. 1991. Fresh waterPollution. UNEP/GEMSEnvironmental Library. No. 6,Nairobi.

FIGURE 2World water consumption according to use (Note: Consumption by reservoirs is throughevaporation.)

6000

5000

Reservoirs

Municipal supply

Industry

Agriculture

1950 1960 1970 1980 1990 2000

Source: LA. Shiklomanov. 1990. Global water resources. Nat. Resour. 26:34-43.

Water quantity and quality requirementsalso differ widely depending on the type ofuse. Net agricultural requirements areespecially large in relation to other uses.For instance, around 15 000 m3 of waterare normally sufficient to irrigate 1 ha ofrice. This same amount of water cansupply: 100 nomads and 450 head of stockfor three years; or 100 rural familiesthrough house connections for four years;or 100 urban families for two years; or 100luxury hotel guests for 55 days.12

Industry requires large amounts of water,but most of it is recycled back into thewater system. The major problem is thatmuch of this water is returned polluted withwastes, chemicals and heavy metals. Over

12 I. Carruthers and C. Clark. 1983. Theeconomics of irrigation. Liverpool,Liverpool University Press.

85 percent of total withdrawals by industryare recycled as waste water.13

Domestic water demand is moderate incomparison with agriculture and industrybut its quality requirements are high.Domestic and municipal water uses includedrinking, washing, food preparation andsanitation.

Water and health

Two of the most troubling domestic watersupply issues for policy-makers are accessand health. Nearly one billion people in theworld are without clean drinking-water.

D.B. Gupta. 1992. The importance ofwater resources for urban socioeconomicdevelopment. In International Conferenceon Water and the Environment:Development Issues for the 21st Century,Keynote Papers. Dublin, Ireland.

10

Providing easier access to safe drinking-water significantly improves healthconditions. Personal hygiene increaseswhen water availability rises above 50 litresper day (which generally means that it mustbe delivered to the house or yard). Anestimated 1.7 billion persons contend withinadequate sanitation facilities. The lack ofsewage collection and treatment is a majorsource of surface and groundwaterpollution.

Health officials identify five categories ofdisease related to water: i) water-bornediseases (typhoid, cholera, dysentery,gastroenteritis and infectious hepatitis); ii)water-washed infections of the skin andeyes (trachoma, scabies, yaws, leprosy,conjunctivitis and ulcers); iii) water-baseddiseases (schistosomiasis and guinea-worm); iv) diseases from water-relatedinsect vectors such as mosquitoes andblackflies; and v) infections caused bydefective sanitation (hookworm).

The World Bank's World DevelopmentReport 1992 estimates that providing accessto safe water and adequate sanitation couldresult in two million fewer deaths fromdiarrhoea among young children and 200million fewer episodes of diarrhoealillnesses each year.

Water as a strategic resource

Water, even when plentiful, is frequentlydrawn into the realm of politics. Domesticlaws and well-established customs can helpresolve water-related disputes at nationaland village levels but international law hasnot developed fast enough to deal with thegrowing number of water-related conflictsbetween many countries and regions. In1989, Egypt's then Minister of State forForeign Affairs, Boutros Boutros-Ghali,declared: "The national security of Egypt isin the hands of the eight other Africancountries in the Nile basin."14 As Postelnotes, Mr Boutros-Ghali's statement

See footnote 7, p. 4.

highlights the importance of water toEgypt's economy as well as the advantageupstream countries have over downstreamneighbours.

The increasing value of water, concernabout water quality and quantity, andproblems of access and denial have givenrise to the concept of resource geopoliticsor "hydropolitics". In this context, waterjoins petroleum and certain minerals as astrategic resource. Its increasing scarcityand value will only intensify the prevalenceof water politics and relevant internationalconflicts.

Several countries depend heavily on riverflows from other countries. Botswana,Bulgaria, Cambodia, Congo, Egypt, theGambia, Hungary, Luxembourg, Mauri-tania, Netherlands, Romania, the Sudanand the Syrian Arab Republic all receiveover 75 percent of their available watersupplies from the river flows of upstreamneighbours. More than 40 percent of theworld's population lives in river basins thatare shared by more than one country.

Along with land and energy sources, waterhas been the focus of disputes and, inextreme cases, even wars. The division ofthe Indus waters and its tributaries amongIndia and Pakistan provided a salutarywarning example. War was only justavoided in the early years of independenceby a binding agreement, backed by massiveinternational aid, to build two huge waterstorage dams and a system of canals. Watercould then be channelled to the areas ofPakistan that were deprived of water whensome of the Indus tributaries were divertedinto Indian territory.

The costs to all parties of this settlementwere high but certainly less than the humanand financial costs of a conflict. Manyother international rivers, including theNile, Euphrates, Ganges and Mekong, areprospective risk points for disputes. Thefuture of the Jordan waters is already anintegral component of regional peace talksand illustrates how complicated hydro-politics can be. The fact that groundwater

11

BOX 2THE INTERNATIONAL CONFERENCE ON WATER AND THE ENVIRONMENT:DEVELOPMENT ISSUES FOR THE 21ST CENTURY

The International Conference on Water andthe Environment (ICWE) was held in Dublin,Ireland from 26 to 31 January 1992. Theconference provided the major input onfreshwater problems for UNCED, convenedin Rio de Janeiro, Brazil, June 1992. TheICWE was attended by 500 participantsfrom 114 countries, 38 NGOs, 14 inter-governmental organizations and 28 UNbodies and agencies.

The major work of the ICWE was undertakenby six working groups which addressed:

• Integrated water resources developmentand management;

• Water resources assessment and impactsof climate change on water resources;

• Protection of water resources, waterquality and aquatic ecosystems;

• Water and sustainable urbandevelopment and drinking-water supplyand sanitation;

• Water for sustainable food production

and rural development and drinking-watersupply and sanitation;

• Mechanisms for implementation andcoordination at global, national, regionaland local levels.

The two main outputs of the conference arethe Dublin Statement and Report of theConference, which set out recommendationsfor action based on four guiding principles.First, the effective management of waterresources demands a holistic approach link-ing social and economic development withthe protection of natural ecosystems, includ-ing land and water linkages across catch-ment areas or groundwater aquifers; second,water development and management shouldbe based on a participatory approach thatinvolves users, planners and policy-makersat all levels; third, women play a central partin the provision, management and safeguard-ing of water; and, finally, water has aneconomic value in all its competing uses andshould be recognized as an economic good.

resources are also involved in the talksadds another dimension of difficulty.

THE WATER SECTOR ANDNATURAL RESOURCE POLICY

In January 1992, the ICWE concluded thatscarcity and misuse of freshwater pose aserious and growing threat to sustainabledevelopment and protection of theenvironment.15 The conference emphasizedthat human health and welfare, foodsecurity, economic development andecosystems are all at risk, unless water andland resources are managed moreeffectively in the future.

To address water problems at local,national and international levels, the ICWE

15 The Dublin Statement and Report of theConference. 1992. ICWE, Dublin, Ireland.

recommended a range of developmentstrategies and policies based on fourprinciples (see Box 2). While theconference participants readily agreed onthe wording of the first three principles, thefourth provoked a long and contentiousdebate. Principle 4 declares that water hasan economic value in all its competing usesand should be recognized as an economicgood.

For many, it is difficult to reconcile theconcept of water as an economic good withthe traditional idea of water as a basicnecessity and human right. Olderelementary economic textbooks explain thisconceptual puzzle - why diamonds, whichhave so little utility, are expensive whilefreshwater, which is so essential to life, ischeap. More recent texts leave water out ofthese vignettes. Like fresh air, water wasonce considered a classic free good; nowthat it is growing scarce, while not yetexpensive, it is at least acknowledged to bevaluable.

12

Scarcity is one of the most important issuesin considering the various socio-economictradeoffs in allocating water amongdifferent users. Allocation policies anddecisions determine who will have accessto water and under what conditions, andwhat impact this will have on society andthe economy.

The cheapness of water is often moreapparent than real. It is a free good notbecause water provision is without costobviously this is far from true but becausegovernments have chosen to charge lessthan full costs for water services for one ormore reasons.16 These subsidies are nowcoming under scrutiny. The ICWE's finalreport acknowledges that failure in the pastto recognize water's economic value andthe real cost of service provision has led towasteful and environmentally damaginguses. Moreover, the conference reportstates that managing water as an economicgood is an important way of achievingefficient and equitable use, as well asencouraging the conservation and protectionof scarce water resources.

It is in this context that the ICWE andUNCED called for a new approach to theassessment, development and managementof freshwater resources. The proposedapproach involves the management offreshwater as a finite and vulnerableresource and the integration of sectoralwater plans and programmes within theframework of national economic and socialpolicy.17

16 Water may be considered a "free" good inthe form of rain, but when this free good iscaptured and delivered to customers bycanal, pipe or other means, it becomes awater service. There is generally much lessresistance to water service fees than thereis to water charges.

17 UN. 1992. Protection of the quality andsupply of freshwater resources: applicationof integrated approaches to the develop-ment, management and use of waterresources. Chapter 18, Agenda 21, Reportof the United Nations Conference onEnvironment and Development.

A more integrated and broader approach towater sector polices and issues is importantbecause of water's special nature as aunitary resource.

Rainwater, rivers, lakes, groundwater andpolluted water are all part of the sameresource, which means global, national,regional and local actions are highlyinterdependent.18 Water use in one part ofthe system alters the resource base andaffects water users in other parts.

Dams built in one country frequentlyreduce river flows to downstream countriesfor years afterwards, thereby affectinghydroelectric and irrigation capacity. Whena city overpumps a groundwater supply,streamflows may be reduced in surroundingareas; when it contaminates its surfacewater, it can pollute groundwater suppliesas well. Some human actions at local levelsmay contribute to climate change, withlong-term implications for the hydrologicalsystem worldwide.

Water policies, laws, projects, regulationsand administrative actions often overlookthese linkages. Governments generally tendto organize and administer water sectoractivities separately: one department is incharge of irrigation; another oversees watersupply and sanitation; a third manageshydropower activities; a fourth supervisestransportation; a fifth controls waterquality; a sixth directs environmentalpolicy; and so forth.

These fragmented bureaucracies makeuncoordinated decisions, reflectingindividual agency responsibilities that areindependent of each other. Too often,government planners develop the samewater source within an interdependentsystem for different and competing uses(see Box 3). This project-by-project,department-by-department and region-by-region approach is no longer adequate foraddressing water issues.

18 P. Rogers. 1992. Comprehensive waterresources management: a concept paper.Policy Research WorkingWashington DC, World Bank.

Paper

13

BOX 3FRAGMENTED PLANNING AND WATER RESOURCES IN SOUTHERN INDIA

The World Bank's waterresources management policypaper presents severalexamples from South India toillustrate the kinds of problemcaused by fragmenteddecision-making. The ChitturRiver's highly variable flowshave traditionally beendiverted at many points intosmall reservoirs to irrigate themain rice crop. The diversionchannels are large enough toaccommodate flood flowsfollowing the monsoon rains.Thus, when a storage damwas constructed, the upper-most channel was able toabsorb virtually all theregulated flow. The uppertanks now tend to remain fullthroughout the year,concentrating benefits andadding to evaporation losses.The more extensive lowerareas have reverted touncertain rain-fed cultivation,and total agricultural valueadded has decreased.Construction of the storagedam without adequateconsiderations of downstreamusers or the existing storagecapacity of the basin is oneexample of how individualproject development inisolation can cause significanteconomic losses.

The construction of theSathanur Dam on the Ponnani

River in Tamil Naduto serve aleft bank command areadeprived productive deltaareas of irrigation water.While the rights ofdownstream irrigators arerecognized in the damoperating rules, most of theregulated flow is divertedupstream; water losses havegreatly increased in the widesandy bed and no surfacewater has reached the sea fortwenty or more years.Continued spills in about 50percent of all years wereused to justify thesubsequent construction ofthe right bank command,further aggravating shortagesin the delta and leading tocontinual conflicts betweenthe two Sathanur commands.Meanwhile, additional storagedams on upstream tributariesare adding to evaporationlosses in what was already afully developed basin. Irriga-tion in the productive deltahas declined further and theSathanur commands in turnare suffering. The high-valuecrops that were once grownon the main river are beingreplaced by cultivation onless productive lands, servedby tributaries that are morevariable than the main river.

The Amaravati River, atributary of the Cauvery, is

the most disputed major riverin India. In the absence of aCauvery agreement,Karnataka (the upstreamriparian state) has steadilydeveloped large irrigationschemes, depriving the delta(Tamil Nadu's rice bowl) ofits accustomed supplies.Meanwhile, Tamil Nadu hasbeen developing theAmaravati. As at Sathanur,water releases are made fromthe Amaravati Dam for thetraditional areas, but theseare far downstream and thesubstitution of regulated floodflows has encouraged thedevelopment of privatepumps along the river bank.Even though the new electricconnections have now beenbanned, little can be done tocontrol illegal connections ordiesel pumps and,consequently, little waternow reaches the lowestcommands, let alone theCauvery. Meanwhile, newstorage dams are beingconstructed on tributariesboth in Kerala and TamilNadu, further depriving notonly the old lands but alsothe new lands and the pumpareas.

Source: World Bank. 1993.Water resources manage-ment: a policy paper.

To help resolve the growing number ofwater resource issues, policy-makers areincreasingly being called on to review andexplain the conditions, problems andprogress in the overall water sector. Thisintegrated approach requires watermanagers to understand not only the watercycle (including rainfall, distribution,ecosystem interactions and naturalenvironment and land-use changes), but

also the diverse intersectoral developmentneeds for water resources.

The next section further explores thisimportant concept of linking the watersector with the national economy andprovides a conceptual basis for under-standing the role of economic policy-making.

14

II. Water resources: economics and policy

In early civilizations, water played arelatively simple role. It was needed fortransportation and drinking and it provideda fishing and hunting source. Over time,sedentary agricultural societies evolved andwater use became more important. Familiesbegan settling near springs, lakes and riversto supply livestock and crops with water,gradually developing technologies to divertwater for irrigation and domestic purposes.Babylonian, Egyptian, Hittite, Greek,Etruscan, Roman, Chinese, Mayan, Incanand other empires constructed waterdelivery systems such as long aqueducts tocarry water to large cities.19 In fact, untilthe middle of the twentieth century, mostsocieties were able to meet their growingwater needs by capturing reliable andrelatively inexpensive sources.

When water is plentiful relative to demand,water policies, rules and laws tend to besimple and only casually enforced. Aspopulations grow and economies expand,water sectors evolve from an"expansionary" phase to a "mature"phase.20 At a certain point during theexpansionary phase, the financial andenvironmental costs of developing newwater supplies begin to exceed theeconomic benefits in the least productive(marginal) uses of existing supplies. Thereallocation of existing supplies, rather thanthe capture of unclaimed supplies, thenbecomes the least costly method tomaximize benefits.

A water sector in the "mature" phase ischaracterized by rising marginal costs ofproviding water and increasing inter-dependencies among users. In this phase

19 V. Yevjevich. 1992. Water Int., 17(4);163-171.

20 A. Randall. 1981. Property entitlementsand pricing policies for a maturing watereconomy. Aust. J. Agric. Econ., 25:195-212.

phase, conflicts over scarcities and externalcosts arise. (External costs result when oneuser interferes with another's supply, e.g.when an upstream user pollutes a river andraises costs for downstream users.) Theseconflicts eventually become so complex thatelaborate management systems are neededto resolve disputes and allocate wateramong different users and economicsectors.

Developing effective water sector policiesis troublesome for a number of reasons.First, water has unique physical properties,complex economic characteristics andimportant cultural features that distinguishit from all other resources.21 Second, waterresource management is administrativelycomplicated because it involves legal,environmental, technological, economic andpolitical considerations.22 In most societies,political considerations dominate decisionson water resource use. Nonetheless, mostpolicy options are framed and discussed ineconomic terms.

This section attempts to provide aconceptual basis for understanding waterpolicy interventions while examining thecircumstances under which water policieswork or fail. It comprises three parts: the

21 R,A. Young and R.H. Haveman. 1985.Economics of water resources: a survey.In A.V. Kneese and J.L. Sweeney, eds.Handbook of natural resources and energyeconomics, Vol. II. Amsterdam, ElsevierScience Publishers.

22 For example, water resource managementdepends on the government's ability toestablish an appropriate legal, regulatoryand administrative framework. In fact,markets are based on a system ofenforceable private property rights. Privatewater markets require secure andtransferable property rights, including theright to exclude other users.

15

BOX 4ECONOMIC POLICIES AND

After struggling throughoutthe 1980s, the Syrianeconomy has performedwell over the past fewyears. The end of a two-year drought allowedagriculture and agro-industries to recover in1991. During the drought.the government was forcedto import large quantities oiwheat and barley, therebydraining foreign currencyreserves. In addition, thelower water levels meant areduction in hydropowergeneration, increasing theneed for thermal powerand, in turn, lowering crudeoil exports.

Two of the Syrian ArabRepublic's major nationaldevelopment objectives are:achieving food self-sufficiency to reducedependency on imports;and expanding agriculturalexports to earn moreforeign exchange. Tosupport these objectives.the government hasinvested 60 to 70 percentof the entire agriculturalbudget in irrigation over thepast ten years.

Several factors explain thisspecial attention forirrigation development. Theirrigated area comprisesonly 15 percent of thecultivated land yetproduces over 50 percentof the total value ofagricultural production. Alarge part of wheat

WATER USE IN THE SYRIAN ARAB

production as well as allmajor industrial crops.including cotton tobaccoand sugarbeet, areproduced on irrigatedfarms. Production on theremaining rain-fed area,representing 85 percent ofthe total area, variesgreatly from year to year.

At present, agricultureaccounts for around 85percent of the country'swater consumption, butcompetition is increasing.During the 1980s, industrialwater demand increased bynearly 900 percent. Currentprojections suggest thatwater requirements will betwo to three times greaterby 2010.

The government's effort topromote food self-sufficiency has produced asecond generation ofwater-related problems. Toencourage growth inagricultural production andenhance rural incomes.interest rates, seeds.fertilizers, pesticides.transport and energy pricesare subsidized. Thegovernment alsoestablishes purchase pricesand buys industrial crops.major cereals andfeedgrains. For example.the 1992 domestic wheatprice was almost twice theinternational price.

These policies are contri-buting to the proliferation

REPUBLIC

of wells in the Syrian ArabRepublic. Digging wells topump groundwateraccounts for 80 percent ofthe newly irrigated landsince 1987. With irrigation.farmers obtain higheryields, more stableproduction and greaterprofit. Since water is free.the only investmentexpense required is the welland the pumping gear - aone-time fixed cost.Farmers obtain subsidizedcredit to purchasesubsidized fuel foroperating imported pumpspurchased with overvaluedcurrency (an implicit sub-sidy). With these economicopportunities, most farmerswant to dig wells or pumpsurface water.

Other current economicpressures are alsoinfluencing farmers'decisions to dig wells andexpand irrigation. Forexample, as incomes inurban areas increase.consumers are demandingmore fruit and vegetables.At the same time, recentchanges in trade andexchange rate policies aremaking Syrian agriculturalproducts more competitivein regional markets.Farmers who inititallyplanned only onsupplementary irrigation forwinter wheat are findingsummer vegetables andirrigated fruit productionincreasingly profitable.

16

first examines the relationship between thewater sector and the overall economy; thesecond explains the social, physical andeconomic nature of water; the thirdassesses the advantages and disadvantagesof broad alternative approaches to publicwater policy and also reviews policy issuesrelated to the economic organization ofwater resource management.

LINKING THE WATER SECTORWITH THE NATIONAL ECONOMY

Economic policy-makers tend to confrontpolicy issues one at a time, stating policyobjectives in single dimensional terms. Thisapproach presents difficulties because apolicy aimed at achieving a single objectiveusually has unintended and unrecognizedconsequences. Water managers and policy-makers need to assess the entire range ofgovernment interventions to understandfully the economic, social andenvironmental impacts on a given sector,region or group of people.

Improving water resource managementrequires recognizing how the overall watersector is linked to the national economy.Equally important is understanding howalternative economic policy instrumentsinfluence water use across differenteconomic sectors as well as between local,regional and national levels and amonghouseholds, farms and firms. For too long,many water managers have failed torecognize the connection between macro-economic policies and their impact on, forexample, technical areas such as irrigation.

Macroeconomic policies and sectoralpolicies that are not aimed specifically atthe water sector can have a strategic impacton resource allocation and aggregatedemand in the economy. A country'soverall development strategy and use ofmacroeconomic policies - including fiscal,monetary and trade policies - directly andindirectly affect demand and investment inwater-related activities. The most obviousexample is government expenditures (fiscalpolicy) on irrigation, flood control or dams.

A less apparent example is trade andexchange rate policy aimed at promotingexports and earning more foreignexchange. For example, as a result ofcurrency depreciation, exports of high-value, water-consuming crops mayincrease. If additional policy changesreduce export taxes, farmers are providedwith an even greater incentive to invest inexport crops as well as in the necessaryirrigation (see Box 4).

National development strategies candirectly influence water allocation and usein other ways. In the case of a food self-sufficiency strategy, the government maysubsidize water-intensive inputs toencourage farmers to produce more rice.By providing financial incentives for riceproducers, the government is influencingthe demand for water and private irrigationinvestment through price policies.

Apart from the direct effects on water useresulting from such price policies, theincreased demand for irrigation water alsohas intersectoral, intrasectoral, distri-butional and environmental implications.The agricultural sector is provided with aneconomic advantage in access to water vis-a-vis the industrial sector (intersectoral);water used for rice gains an economicadvantage over water used for other crops(intrasectoral); rice producers with moreland and access to water gain over thosewith less land and water (distributional);and increased pesticide and fertilizer useare likely to affect water quality(environmental).

Sectoral policies affect water use andallocation in non-agricultural sectors in avariety of ways. For example, in thewestern United States, 70 to 80 percent ofthe region's water yield results fromsnowmelt from the high-elevation forests,many of which are under public juris-diction. Water yields are significantlyaffected by timber harvest policies on theselands. Rangeland management policies onlower elevations also alter vegetationconditions and thus affect the rate ofevapotranspiration, in turn affecting

17

streamflow and groundwater recharge.23 Insuch cases, it is important for downstreamcity water managers to recognize, under-stand and become involved in the decisionsof other sectors such as livestock andforestry.

With the continuing importance ofstructural adjustment and stabilizationprogrammes, many developing countriesare implementing fundamental changes inmacroeconomic and sectoral polices.Typical adjustment programmes call for agreater reliance on markets, more opentrade, fiscal austerity and a phasing out ofproducer and consumer subsidies (input andproduct markets). Budget-reducingmeasures imply increased competitionbetween and within sectors for funding newwater projects. In these situations, theoverall economic, social and environmentalimplications of choices must be carefullyaddressed. For example, when governmentsmust choose between financing eitherirrigation projects or hydroelectric powerprojects, there is an additional socialopportunity cost of the irrigation water incountries that are dependent on importedenergy sources. At the same time, whenwater scarcity keeps some farmers onuneconomical lands such as steepwatersheds, the country suffers twice: oncein terms of reduced production comparedwith what would be possible withirrigation; and again in terms of erosionand resource depletion, with erosionpossibly shortening the life of existingwaterworks.24

In most countries, pressure has increasednot only to modify investment allocations

23 B. Saliba, D. Bush, W . Mart in and T.Brown. 1987. Do water market pricesappropriately measure water values? Nat.Resour. J., 27 (summer) .

24 D . W . Bromley, D . C . Taylor and D .E .Parker . 1980. Water reform and economicdevelopment: institutional aspects of watermanagement in the developing countries.Econ. Dev. Cult. Change, 28(2) .

but also to recognize and accommodatenew demands for water. The directimplications for water managers includefewer capital investments in new waterprojects, the elimination of irrigationsubsidies, increased efforts to recover itscost and more emphasis on demandmanagement to improve the efficiency ofexisting supplies.

THE SOCIAL, PHYSICAL ANDECONOMIC NATURE OF WATER

Policy-makers throughout the world treatwater as more than a simple economiccommodity. Because water is essential tolife, they often reject competitive marketallocation mechanisms. Many societiesbelieve that water has special cultural,religious and social values. Bouldingobserved that "the sacredness of water as asymbol of ritual purity exempts it some-what from the dirty rationality of themarket".25 In many cultures, goals otherthan economic efficiency play an unusuallylarge role in selecting water managementinstitutions. Some religions, such as Islam,even prohibit water allocation by marketforces.

The international community recognizesthat access to water is a basic human right.The ICWE asserted that "...it is vital torecognize first the basic right of all humanbeings to have access to clean water andsanitation at an affordable price".

The connection between water and humanlife is most dramatic in arid regions, wherecrop irrigation is essential to foodproduction. In Egypt, little food can begrown without the help of the Nile forirrigation. However, the focus on water'sspecial status tends to obscure the fact that,in most societies, only a tiny fraction of

25 K.E. Boulding. 1980. The implications ofimproved water allocation policy. In M.Duncan, ed. Western water resources:coming problems and policy alternatives.Boulder, Colorado, Westview.

18

water consumption is actually for drinkingand preserving life. In fact, a large portionof urban water is used for convenience andcomfort. In the arid western United States,per caput water withdrawal by householdsfrequently exceeds 400 litres per day, abouthalf of which is used to irrigate lawns andgardens. Most of the remainder is forflushing toilets, bathing and washing cars.Another important influence on waterresource policy is societies' partiality fortechnical solutions. In most countries,water management is typically relegated tothe engineering domain. Indeed, most watermanagers are engineers, who are trained tosolve technical problems. As inadequatepublic policies are increasingly blamed forwater-related problems, a strong case isemerging for emphasizing human behaviouras an additional component of watersystems.

Physical attributes of water

Water has two additional features thatfurther complicate management efforts:bulkiness and mobility. The value per unitof weight tends to be relatively low(placing water among the commodities thatare termed "bulky"). Unlike petroleum, thecosts of transporting and storing water aregenerally high relative to its economicvalue at the point of use. In crop irrigation,the water applied may yield additional eco-nomic values of less than $0.04 per tonneof water. Water is also difficult to identifyand measure because it flows, evaporates,seeps and transpires. This evasive naturemeans that exclusive property rights, whichare the basis of a market economy, arehard to establish and enforce.

Many water management problems are site-specific and so elude uniform policytreatment. While water consumption andquality require-ments are tied to localpopulations and development levels, localwater availability usually changes withclimatic variations throughout the year andover longer cyclical swings. These suppliesmay be highly variable and unpredictable intime, space and quality. In regionsthroughout India, for instance, most rainfall

is concentrated during a three-month periodand there are large year-to-year variations.In addition, forecasts of significant globalclimate change - attributable to both naturaland human causes - raise concerns aboutlonger-term supply trends (See Box 5).

Water projects that attempt to compensatefor extreme seasonal variations such asfloods and droughts frequently requireenormous investments. The economies ofsize are so large in these cases that unitcosts continue to exceed the range ofexisting demands. This is a classical"natural monopoly" situation in which asingle supplying entity is the mosteconomically efficient organizationalarrangement.

On the other hand, most economies of sizefor pumping groundwater are achieved atrelatively small outputs and multiplesuppliers can therefore operate efficiently.However, aquifers are usually hydraulicallylinked with rivers or streams - part of ariver's volume may come fromunderground flows and rivers mayreplenish groundwater stocks. Thishydraulic linkage is affected when anaquifer is heavily pumped. A loweredgroundwater table may draw water from aconnected stream, reducing its flow tosurface water users. Box 6 describes thespecial policy concerns related to aquifers.

Aquifer management is often complicatedby the aggregate impact of the actions ofmany individuals. Even though eachindividual may have a negligible impactwhen taken alone, the sum total can be ofmajor importance. One example is therapid spread of tube well irrigation in SouthAsia. One tube well has little effect on thetotal water supply, but thousands of tubewells can quickly deplete an aquifer.Establishing effective policies to regulatethese many small, scattered decision-makers is exceedingly difficult.

Economic attributes of water use

Water provides four types of importanteconomic benefits: commodity benefits;

19

BOX 5CLIMATE CHANGE, WATER

To date, research is notable to provide clearconclusions about theprospective impacts ofclimate change and globalwarning. Among thepotential impacts of climatechange is its effect on thehydrological cycle andwater managementsystems. For instance.increases in floods anddroughts causes increasedfrequency and severity ofdisasters. Relatively smallchanges can cause severewater resource problems.especially in semi-aridregions and humid areaswhere demand or pollutionhas led to water scarcity.

The statement adopted bythe Second World ClimateConference, held in Genevain 1990, concluded that thedesign of many costly

RESOURCES AND AGRICULTURE

structures to store andconvey water, from largedams to small drainagefacilities, is based onanalyses of past records ofclimatic and hydrologicalparameters. Some of thesestructures are designed tolast from 50 to 100 yearsor even longer. Records ofpast climate and hydro-logical conditions may nolonger be a reliable guidefor the future. The possibleeffects of climate changeshould be considered in thedesign and management ofwater resource systems.

Data systems and researchmust be strengthened topredict water resourceimpacts, detecthydrological changes andimprove hydrologicalparameterization in globalclimate models.

Agricultural impacts couldbe significant butresearchers are uncertainwhether global agriculturalpotential will increase ordecrease. Increases indrought risk are potentiallythe most serious effect ofclimate change onagriculture. Disease andpest patterns, raised sealevels and storm surges areadditional problems. It doesappear that many areas willhave increasedprecipitation, soil moistureand water storage, thusaltering patterns ofagricultural ecosystems andother water uses.

Source: WMO/UNEP/FAO/Unesco/ ICSU. 1990. SecondWorld Climate Conference.Geneva; and UNEP. 1992. Thestate of the environment.

waste assimilation benefits; aesthetic andrecreational benefits; and fish and wildlifehabitats. Individuals derive commoditybenefits from water by using it fordrinking, cooking and sanitation. Farms,businesses and industries obtain commoditybenefits by using water in productiveactivities. These commodity benefitsrepresent private good uses of water whichare rivals in consumption (e.g. oneperson's or industry's water use precludesor prevents its use by others). Governmentpolicies and regulations that concentrate onimproving market access and competitionare important means for improving theproductive and allocative efficiency of thecommodity uses of water.

The second and increasingly importanteconomic benefit of water is wastedisposal. Water bodies have a significant,but ultimately limited, assimilative

capacity, meaning that they can process,dilute and carry away wastes.

Recreation and aesthetic benefits and fishand wildlife habitats were once regarded asluxury goods outside the concern ofgovernments. Today, these two types ofbenefit are gaining increased attention. Indeveloped countries, more and more peopleare focusing their recreational activitiesaround lakes, rivers and seas. Indeveloping nations, as incomes and leisuretime grow, water-based recreation isbecoming increasingly popular and anadequate supply of good-quality water helpsprovide a basis for attracting the touristtrade. Examples are cruises on the Nile inEgypt and visits to the Iguazu Waterfalls onthe Brazil-Argentina border. Likewise,information and knowledge about howhumans have an impact on ecosystems haveraised concern about the fish and wildlife

20

BOX 6AQUIFER OVERDRAFT

An aquifer is a geologicalformation, actually orpotentially containing water inIts pores and voids. Aquifersconsist of tha porous rock orsoil media (sand, gravel or rockmaterials) within which water iscollected and through which itflows. Moisture from rain orsnow that escapes evaporationcollects in streams as surfacewater or seeps into the ground.Soil water not taken up byplants seeps downwards until itreaches the water-saturatedzone. Water in aquifers is calledgroundwater. Groundwaterdeposits are economical to usefor human purposes if they areclose to the surface (andthereby inexpensive to pump)and are of good quality.

Aquifers vary greatly in theirnature and extent. Thequantity, quality and ease ofextraction can be determinedaccurately only after extensiveexploration. Undergroundgeology varies widely and isexpensive to map. Aquifersmay be very thin or hundreds ofmeters thick; some are local incharacter, while others extendfor hundreds of kilometres. TheOgallala-High Plains Aquifer inthe central-western UnitedStates underlies more than 10million ha over six states.

Relative to surface water,groundwater moves veryslowly - in some cases only afew metres per year. Whileaquifers may have accumulatedover thousands of years,modern pumping devices caneasily exhaust them morerapidly than the naturalrecharge rate. It is also possibleto divert surface water toartificially recharge an existingaquifer and make it available forfuture use.

Aquifer status reports frommany parts of the worldsuggest that all is not well withour groundwater resources.Symptoms of managementproblems begin with pumpingrates that exceed the naturalrecharge. Primary symptoms

are: an exceedingly rapidexhaustion of groundwaterstocks and the consequentincrease in pumping costs; theintrusion of poorer-qualitywater into the deposit beingexploited; salt water intrusionfrom rapid pumping nearseacoasts; and mineralizeddeposits interspersed withbetter-quality water.

Subsidence of overlying lands isanother adverse impact ofaquifer overexploitation. Aswater is withdrawn, the soiland rock particles comprisingthe aquifer are compressed intoa smaller volume and,consequently, crack the earth'ssurface. This results indamages to buildings, roads,railroads, etc. Another con-sequence of overpumping maybe the interruption of flows inneighbouring wetlands andstreams; deprived of their watersource, they are reduced in sizeor may dry up altogether. Otheradverse effects from over-pumping result when residentialor farmers' wells dry upbecause of the presence oflarger and deeper wells.

From a broad perspective,aquifer exploitation can bringabout either or both of twotypes of social dilemma. First,overdraft is an example of aclass of resource problems,usually called "common pool"problems.1 A common poolresource can be defined by twocharacteristics. The first issubtractibility (meaning that aunit of resource withdrawn byone individual is not available toanother individual user). Thesecond is high cost ofexcluding potential beneficiariesfrom exploiting the resource.Fugitive or mobile resources,such as water, petroleum ormigratory fish and wildlife, aretypical examples of resourceswith high-exclusion costs.

Common pool problems ordilemmas arise when indivi-dually rational resource useleads to a non-optimal resultfrom the perspective of the

users as a group. Three condi-tions are necessary to producea common pool resourcedilemma: first, large numbers ofusers withdraw the resource;second, the actions and charac-teristics of the individual usersand the extraction technologybring about suboptimal out-comes from the group's view-point; third, there must be aninstitutionally feasible strategyfor collective resource manage-ment that is more efficient thanthe current situation.2

The roots of the problemsassociated with common poolsare found in the Inadequateeconomic and institutionalframework within which theresource is exploited.3 Commonpool resources have beentypically utilized in an "openaccess" framework, withinwhich resources are usedaccording to a rule of capture.When no one owns theresource, users have noincentive to conserve for thefuture and the self-interest ofindividual users leads them tooverexploitation. The character-istics of the economic institu-tions governing their use is thefundamental issue in managingcommon pool resources.

The second type of socialdilemma associated withgroundwater exploitation is theimposition of external costs orexternalities. In the presence ofsignificant externalities, thecalculation of costs andbenefits by exploiters do notyield a collectively optimal rateof exploitation.

1 R. Gardner, E. Ostrom and J.M.Walter. 1990. The nature of commonpool resources. Rationality andSociety, 2:335-358.

: Ibid; and E. Ostrom. 1990. Governingthe commons: evolution of institutionsfor collective action. Cambridge, UK,Cambridge University Press.

3 R.A. Young. 1993. Aquifer over-exploitation: economics and policies.Proc, 23rd Conference of theInternational Association ofHydrogeologists, Santa Cruz, Spain.

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benefits provided by water. Fish andwildlife habitats are related to bothcommodity and recreational uses.

Waste assimilation and recreational andaesthetic values are closer to being publicgoods than private goods. Public goods arenon-rivals in consumption - one person'suse does not preclude use by others. Forexample, enjoyment of an attractive waterbody does not deny similar enjoyment toothers. Non-rival goods require largeamounts of resources to exclude unentitledconsumers from using the good. Exclusioncosts are frequently very high for waterservices such as flood control projects andnavigation systems. Goods and services thatare non-rivals in consumption are normallybetter suited to public sector interventions,including ownership, provision andregulation.

ECONOMIC ORGANIZATION OFTHE WATER SECTOR: MARKETS ORGOVERNMENTS?

Most countries rely on a mix of marketpolicies and direct government inter-ventions to manage water resources. Eachsystem has its own advantages anddisadvantages.

A competitive market has the potential toefficiently allocate resources (watersupplies) among competing demands.Producers and consumers acting in theirown self-interest arrive at the price atwhich available supplies are allocated.Private producers, guided by prospectiveprofit, seek to buy inputs as cheaply aspossible, combine them in the mostefficient form and create products that havethe highest value relative to cost.

Consumers' incomes, tastes and preferencesinfluence expenditure patterns, whichencourage firms to produce thecommodities people are willing and able tobuy. Prices are forced upwards for thecommodities most desired, and producersallocate resources in the direction of thegreatest potential profits. The firms

producing desired goods most efficientlyare rewarded by profit while theunsuccessful are eliminated, so productionoccurs at the least cost. However, theneeds of potential consumers with limitedincome may not be met at all or onlypartially.

While the private market has the potentialto produce the maximum private-valuedbundle of goods and services, the publicsector also plays an important role. Publicactions incorporate a broader range ofsocial goals than the private sector. Thepublic sector can ameliorate incomeinequalities, promote development indisadvantaged regions, regulate privateactivities that harm the environment andcontrol other undesirable effects of aprivate, profit-oriented monopoly.

Market failures

If water as a commodity, or the economicsystem in which water is used, meets thepreconditions for a market system,government interventions can beminimized. In competitive markets,government's primary role is to emphasize"incentive structures" and to establish"rules". Some of the most important rulesare the laws governing the establishment ofproperty rights and the enforcement ofcontracts.

Market economies experience shortcomingscalled market failures.26 Market failuresoccur when incentives offered to indi-viduals or firms encourage behaviour thatdoes not meet efficiency criteria (or moregenerally, because efficiency or economiccriteria fails to satisfy national socialwelfare criteria). In these cases, the publicsector may intervene to influence waterprovision and allocation. Market failuresaffecting water resources includeexternalities, public goods and natural

26 C. Wolf. 1988. Markets or governments;choosing between imperfect alternatives.Cambridge, MA, Massachusetts Institute ofTechnology Press.

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monopolies. In other cases, even efficientmarkets may not meet societies' equitycriteria so public intervention is necessaryto compensate for distributional inequity.

Externalities are inherent in water sectoractivities. An example is the detrimentaleffect of saline return water flows (causedby irrigation) on downstream water users.Another example is the waterlogging ofdownslope lands through inefficient irriga-tion practices. Most irrigators do notnormally consider the external costs theyimpose on others, so governments attemptto protect affected individuals throughregulations, taxes, subsidies, fees ortechnical standards. For instance, irrigationpractices can be regulated by setting andenforcing standards to control salinity andwaterlogging.

In recent years, the "polluter pays"principle has attracted increased attention inindustrialized countries (and to a lesserextent in developing countries). Thisprinciple requires producers to pay the"full" cost of their production process,including externalities such as pollutingwater.

Water storage projects and flood controlprogrammes represent examples of publicgoods. The market does not adequatelysupply public goods because privateentrepreneurs cannot easily exclude non-paying beneficiaries and capture a return oninvestment. For example, it is not possibleto exclude people living along a river fromthe benefits of a flood protection plan onthat river.

A firm that experiences decreasing coststhroughout its range of production is easilyable to dominate the entire market andbecome a natural monopoly (a commonsituation in the water sector). Decreasingcosts imply increasing returns; thus, thefirst firm to begin production can alwaysunderprice new entrants. Urban watersupply systems, hydropower plants andcanal irrigation projects are subject to thistype of market failure. Unregulatedmonopolies can restrain production and

charge excessive prices; they also havelittle incentive to innovate. A watersupplier acting as a natural monopoly hasthe power to impose exorbitant costs - eveneconomic ruin - on its customers.

Public regulation or public ownership canmitigate the undesirable effects of a private,profit-oriented monopoly. When increasingreturns exist, the lowest-cost production isthat of a single producer. Society is likelyto benefit by regulating or owning themonopoly rather than by encouragingcompetitive suppliers. More than onecompetitive supplier would present muchhigher distribution costs.

While free competition is viewed as themost efficient system for allocatingresources, potential market imperfectionscan accentuate income disparities.Societies' public welfare goals oftenincorporate a broad range of socialobjectives. Primary among these isameliorating income inequalities betweenmembers of the society and sometimesamong political subdivisions or regions. Inthese situations, the government may directinvestment and subsidies towards specificregions or groups. Water projects provideimportant investment strategies both forhuman welfare (drinking-water and foodsupplies) and for infrastructure to supporteconomic development.

Government failure

Even in the event of market failures, publicsector interventions or non-marketapproaches may not lead to the sociallyoptimum solution. In many cases, non-market responses to market failures lead toless than optimal outcomes. In particular,some government agency performanceincentives result in a divergence fromsocially preferable outcomes (both in termsof allocative efficiency and distributionalequity criteria). The problem areas relevantto water sector services are:

• "Products" are hard to define. Theoutputs of non-market activities aredifficult to define in practice and to

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measure independently of the inputs thatproduced them. Flood control oramenity benefits of water storagereservoirs are examples of water systemoutputs that are hard to measure.

• Private goals of public agents. Theinternal goals, or " internalizes", of apublic water agency as well as theagency's public aims provide themotivations, rewards and penalties forindividual performance. Examples ofcounterproductive internal goals includebudget maximization, expensive andinappropriate "technical-fix" solutionsand the outright non-performance ofduties. In addition, agencies may adopthigh-tech solutions, or "technicalquality", as goals in themselves. Forexample, they may recommend sprinkleror drip irrigation systems when otherless expensive but reliable methods aremore economical. Finally, irrigationagency personnel may be persuaded, bygifts or other inducements, to violateoperating rules for a favoured few.27

• Spillovers from public action. Publicsector projects can also be a majorsource of externalities. Salinity andwaterlogging of downslope lands canoccur just as easily from inappropriatelymanaged public irrigation projects asfrom private irrigators.

• Inequitable distribution of power. Publicsector responsibilities, however nobletheir intent, may not be scrupulously orcompetently exercised. Yet the mono-poly control of water supplies by publicagencies provides certain groups or indi-viduals with so much power over theeconomic welfare of water users thatprocedures to protect those of limited in-fluence should be of prime importance.

27 R. Wade. 1982. The system of admini-strative and political corruption: landirrigation in south India. J. Dev. Stud.,18:287-299.

Economic structure and irrigation

For many years, the economic systems in anumber of developing countries discrimi-nated against agriculture through policiessuch as high levels of protection fordomestic manufacturing sectors, overvaluedexchange rates and taxes on agriculturalexports. Most developing countries todayare at some stage of structural reform,attempting to adjust and transform theireconomies towards a more liberal economictrade regime - modifying governmentinvolvement and increasing marketinfluence.

The developing world's recent record inconsolidating macroeconomic stability withsolid economic growth is very mixed.Where success is evident, most of theeconomic transformation has taken place atthe macro level and much remains to bedone to effect the consequent adjustments atthe micro level, i.e. at the level of waterusers.

Even with widespread acceptance of theneed for macroeconomic price policyreforms for all other sectors since the early1980s, the dominant supporting actions foragriculture have been non-price policies.For non-agricultural sectors, the new policymix includes minimizing state involvementin the pricing and marketing of inputs andoutputs, privatization and limitinggovernment borrowing.

Despite the irrigation sector's often beingsheltered or even benefiting from theeffects of these economic policy reforms,government subsidy cuts are inevitablyaffecting the scope and efficiency ofagricultural support services. In mostcountries, there is a pressing need todiscuss how various policy options,including both public interventions andmarket-oriented, private sector activities,may assist the irrigation sector in theprocess of economic reform.

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