1. Trade and Agriculture Directorate, OECD, Paris, France
Exploring the use of water pricing as a policy tool to improve water resource use efficiency in the agricultural sector
Kevin Parris
Trade and Agriculture Directorate, OECD, Paris, France
FAO, OECD and IWMI Session: “Drops for Crops”, 5th World Water Forum, Istanbul, – 13.00, 17 March 2009

2. Global challenges for water resource management in agriculture
Key drivers impacting water resource use by agriculture:
Water projections by sector
World water withdrawal projections: 2000 to 2050
Growing world population from current 7 billion to 9 billion by 2050
Increasing food demand from baseline requiring:
50% more food by 2030
double food production by 2050
Changing dietary habits towards more meat and dairy products
Expanding biofuel/bioenergy production from agri-forestry material
Increasing demand to meet environmental needs, e.g. wetlands

3. The outlook for water demand in China, India and South Asia, and OECD countries

4. IPCC (2007) assessment for global real agricultural prices under different warming scenarios

5. Limits and potential to improve water use productivity in agriculture
Megalitres per hectare of irrigated land
Irrigated area not likely to increase very much over coming decades
Major new irrigation infrastructure development unlikely (e.g. financial and physical limits)
Potential for agriculture to use recycled and desalinated water marginal and costly
Hence, high priority to improve productivity of existing irrigation system, and raise the water productivity of rain-fed agricultural systems, but performance is variable
−3%
% change to
−12% na
−50%
−10%
+69%
−19%
+7%

6. Using water pricing and market-based incentives to improve water use efficiency in agriculture
Most OECD countries have embarked on water reforms programmes that seek to make greater use of water pricing and market based incentives
Significant variations in farm water charges within and across countries
Rates of cost recovery have been increasing for most countries
Full recovery of operation and maintenance costs is common, but rates of recovery for capital costs are poor
Where countries have increased water charges to farmers, available evidence indicates this has not led to reduced output
A few countries are recovering some environmental and resource costs in agriculture, but mainly use other policy instruments to address these issues
Groundwater policies usually involve licences and other regulatory instruments and rarely have water pricing been applied

7. Summary of cost recovery rates for water services to agriculture in OECD countries
 100% recovery of Operation and Maintenance (O&M) and Capital Costs (CC):
Austria; Denmark; Finland; New Zealand; Sweden; United Kingdom
 100% recovery of O&M Costs, but less than 100% recovery of CC:
Australia, Canada, France, Japan, United States
 Less than 100% recovery of O&M and CC:
Greece; Hungary; Ireland; Italy; Mexico; Netherlands; Poland; Portugal; Spain; Switzerland; Turkey
 Less than 100% recovery of O&M Costs, with CC fully supported:
Korea
 Recovery of other costs through water charges or water pricing: Opportunity costs, economic and environmental externality costs
Australia (some environmental costs already recovered); United Kingdom (currently recovering share of environmental costs).

8. Recovery rates for Operation and Maintenance costs for irrigated areas in Mexico

9. Average Irrigation Operation and Maintenance Charges in Turkey
Turkish Lira (TRY) and US Dollars (USD) per hectare irrigated

10. Why do impediments to water market formation remain?
Incomplete understanding of the science of water resource and ecosystem linkages
Lack of physical networks between water delivery systems supplying agriculture, urban, industrial and other water users
Poorly defined property rights, including separating land from water entitlements
Problems of defining, securing and agreeing among stakeholders in a water basin allocation of water to sustain environmental and cultural values
Concern with the high transaction costs in creating water markets
Issues of equity and social concerns, that are perceived to be overlooked by the ‘economic’ focus of water markets
Frequently legal, administrative and institutional barriers to developing water markets

11. Policy issues and options toward improving water resource management in agriculture
Increasing cost recovery rates for water services to agriculture are more likely to be effective as part of a broader long term policy package that should embrace the following:
Recognise the complexity and diversity of water resource management in agriculture
Reform institutional systems for water management in agriculture
Enhance agriculture’s resilience to climate change and variability impacts
Improve policy integration between agriculture, water, energy and environment policies
Address knowledge and information deficiencies to better guide water resource management

12. This presentation has drawn from four OECD publications:
Sustainable Management of Water Resources in Agriculture, forthcoming
Managing Water for All: An OECD perspective on pricing and financing, (launched at the World Water Forum this week)
Environmental Performance of OECD Agriculture since 1990,
Water and Agriculture: Sustainability, Markets and Policies,
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