Gains From Expanded Irrigation Water Trading in Egypt: An Integrated Basin Approach Abdelaziz A. Gohar, New Mexico State University Frank A. Ward, New Mexico State University In Press, Ecological Economics SUMMARY Economic development and population growth in Egypt continue to increase the demands for water. Meeting these demands places increasing stress on Egypt's water institutions to support the country's need for food, urban, industrial, and environmental water uses. Many studies have examined measures to increase Egypt's effective water supplies or reduce its water demands. However, no research to date has examined economically efficient and culturally acceptable water institutions for improving the economic performance of Egyptian agricultural water use. The aim of this study is to examine the potential for irrigation water trading as a measure to improve the economic efficiency of Egyptian agricultural water use of the Nile River. Using data on Egyptian land, water, and agriculture, a catchment scale framework is developed to characterize hydrologic and economic impacts of limited water trading by irrigated agriculture while respecting hydrologic, environmental, food security, and institutional constraints. Results suggest that expanded water trading among Egyptian farmers could raise the economic performance of Egypt's irrigation water use. That improved performance could increase national farm income by 6.3 to 7.9% annually with little or no loss in water- related benefits outside agriculture. Worldwide, solutions to safeguard food production are needed fast. Institutionalizing currently informal water trading arrangements could be a prototype for measures to promote food and water security in Egypt and in other countries with similar water management challenges. AIMS The Nile and its use have always been the most important resource limiting or promoting Egypt's economic development. Growing population, food security challenges, an emerging industrial sector, and the potential threat of climate change elevate the attention given to efficient and sustainable water management in Egypt. These factors point to the continued challenges of guarding against Egypt's water demands exceeding its supplies. Despite these challenges facing Egypt's policymakers and water managers, Egypt's share of the Nile's waters has historically been allocated with little attempt to harness the joint power of economic principles and hydrologic science applied at the catchment scale. To our knowledge, no research to date has examined comprehensively the potential for more economically efficient water use throughout Egypt that could occur from institutional changes. For these reasons, the objective of this paper is to examine the potential of one institution, namely water trading, to improve the economic efficiency of water use in Egyptian agriculture. CONCLUSION This study identified economic and hydrologic impacts of potential adjustments in Egypt's water and land use patterns in irrigated agriculture resulting from better use of existing water through water trading. It identified economic gains from two potential water trading policies. Adjustments were examined that would increase economic benefits from irrigation water supplies, while respecting food security, hydrologic balance, crop marketing limits, institutions, and community economic security needs that limit the size and scope of water reallocations. These findings could inform Egyptian water management and policy in the search for policies that are consistent with national economic goals while respecting environmental, political, and cultural requirements. For example, when irrigation water supplies are threatened by aging irrigation infrastructure, rising prices produced by increased water scarcity could help signal collective action to repair and maintain primary canal networks by providing an economic return to owners and workers. While on the surface, water trading is little more than trades in water volumes at the margin, it carries larger policy implications. Water trades induced by price signals have a considerable potential to tackle water policy challenges surrounding the need for increased water use efficiency through measures like canal lining, land leveling and improved water distribution. APPROACH Using information on the basin's water supplies and demands, an integrated basin framework was developed and applied to predict impacts of two water trading institutions on national farm income that could be earned with water available from Egypt's use of the Nile waters. In all cases, the model was formulated to maximize total farm income in Egypt's Nile Basin subject to numerous hydrologic, environmental, and institutional constraints that limit water reallocations. The overall objective function is discounted net present value of irrigated farm income over nodes and time‐periods, which includes all crops in each district's actual or potential crop mix. Figure 1 is a schematic diagram of the model’s area of study. The main component of this basin framework contains:  Hydrology: headwater runoff, river flow, water diverted, water consumed, surface return flow, and evaporation.  Economics: using the General Algebraic Modeling System (GAMS), baseline management, intra-regional water trading, and interregional water trading policies are evaluated.  Farm Budgets: financial information for agricultural production (crop price, cost, yield, irrigated area for different regions and crops water use coefficients).  Institutions: historical water use pattern, water reallocation constrains, and total agricultural water use.  Environmental constrains: equal minimum stream outflow at both outflow gages under all policies analysis, Zifta and Edfina outflow gages. FINDINGS Table 1 shows results for farm income by region, season, and water trading policy. It shows increased farm income under the intraregional water trading policy of about 6.3% compared to the baseline. A slightly larger increase of about 7.9% occurs under the interregional water trading policy. Total national annual average farm income under the base policy is an estimated $US 7.92 billion: 3.36 for winter plus 4.31 billion for summer plus 0.25 billion for nili. Intra-regional water trading produces average annual farm income of $US 8.42 billion: 3.61 billion in winter plus 4.55 billion in summer plus 0.25 billion for nili. For interregional water trading, total average farm income per year is estimated at $US 8.54 billion. The Mahmodia region is the largest beneficiary of winter water trading, with an estimated gain of $US 311 million. Tawfikia gains the most from summer trading, at $US 294 million. Consistent with the earlier results, these findings show that by far the largest part of the gains from water trading can be had without the need to trade water among regions. Table 2 shows farm income by irrigation region, crop class, and policy. Overall the table reveals similar findings as shown in previous tables. Nationally, income earned from staple crops are unchanged under both trading arrangements, since the trading has no effect on staple crop production from a base of $US billion. Much more income is earned for vegetables under trading, increasing from $US 2.79 billion without trading to $US 2.98 billion with intra-regional trading and to $US 2.94 billion under interregional trading. Figure 1.The flood irrigation at farm level. Right: Nasser Lake.: inside (Temple of Karnack on the Nile River, Luxor). Above: Ancient Egyptian Agriculture This research supported by Egyptian Ministry of Water Resources and irrigation, and New Mexico Agricultural Experiment Station. Figure 5: schematic of the Nile Basin, Egypt. Table 8: Farm Income by Season, Region, and Water Trading Policy, Nile Basin, Egypt, $US Million/Season, Five Year Average Irrigation District Region in Egypt WinterSummerNili Without Water Trading Intra- regional Water Trading Inter- regional Water Trading Without Water Trading Intra- regional Water Trading Inter- regional Water Trading Without Water Trading Intra- regional Water Trading Inter- regional Water Trading income% change income% change income% change ToshkaUpper AsfonUpper KelabiaUpper W NaghammadiUpper E NaghammadiUpper IbrahimiaMiddle IsmailiaMiddle NasserLower BeheraLower MenufiaLower MahmodiaLower TawfikiaLower AlsalamLower Total3, , Table 2: Farm Income by Region, Crop Class, and Water Trading Policy, Nile Basin, Egypt, $US Million/Year, 5 Year Average. Irrigation District Region in Egypt Food StaplesVegetablesOther Crops Without Water Trading Intra- regional Water Trading Inter- regional Water Trading Without Water Trading Intra- regional Water Trading Inter- regional Water Trading Without Water Trading Intra- regional Water Trading Inter- regional Water Trading income% change income% change income% change ToshkaUpper AsfonUpper KelabiaUpper W NaghammadiUpper E NaghammadiUpper IbrahimiaMiddle IsmailiaMiddle NasserLower BeheraLower MenufiaLower MahmodiaLower TawfikiaLower AlsalamLower Total 2,275002,786782, Figure 3: Sugar cane farm, Upper EgyptFigure 4: Rice farm, Lower Egypt. Figure 2. Irrigation system, Mesqa From right; High Aswan dam, Esna Barrage, Nagahamadi barrage, Toshka canal, Ismailia canal, and Ibrahimia canal..