Research management of water economics in agriculture - an open agenda

It is indeed a privilege and an honour to deliver the FR Tomlinson Commemorative lecture this year. Although the invitation was quite unexpected, it is of course highly appreciated. When Prof Johann Kirsten phoned me with the request, I was initially not sure what topic I should address. The topic, which I have now formulated, is one which has fascinated me and certainly kept me busy for the most part of my career. I want to share with you some thoughts and perspectives, but will steer away from a laborious review or an abstract analysis. In doing so, I trust that this is appropriate within the spirit of the occasion, which is now a well established tradition in the Agricultural Economics Association of South Africa (AEASA). Let me start with a quotation which is at the core of the theme I want to unfold in this lecture. “Our most important resource is not land, nor capital and even less the climate. Our most important resource is not the gold under the earth’s crust, or the oil that might be there. Our most important resource is our human material. We must develop our human material and make full use of it.” (Groenewald JA, 1973a)Resource /Energy Economics and Policy,

A Dynamic Risk Optimization Model for Evaluating Profitable and Feasible Water Management Plans

Currently the South African government is advocating the cultivation of high valued crops and more efficient use of available water resources through the adoption o f more efficient irrigation technology and irrigation scheduling. A requirement of the National Water Act (Act 36 of 1998) is the compilation of water management plans. The main objective of this paper is to develop a multiperiod mathematical risk programming model able of assisting water user associations with the compilation of water management plans that are both profitable and feasible. Special care was taken to represent canal capacities and irrigation system application rates in the model. Risk simulation procedures are used to generate an appropriately correlated inter- and intra-temporal risk matrix for the programming model. A combination of subjectively elicited distributions of crop yield and objective data on crop prices were used to characterize risk. The model was applied to a representative flood irrigation farm in the Vaalharts irrigation scheme South Africa to demonstrate the capability of the model to optimize water use over a 15 year planning horizon. Model results clearly indicated the potential of high value crops and more efficient irrigation technology to soften the impact of water shortages. Furthermore infrastructure, the financial position of the farmer and the level of risk averseness have significantly impacted on the results. Policy makers and government authorities should take cognizance of these factors when evaluating water use efficiency and water management plans of different water user associations. Improvements in the adopted modeling procedure are also made.Dynamic Linear Programming, risk, irrigation, feasibility, South Africa, Resource /Energy Economics and Policy, C6, Q15, Q12,

Water marketing in the Crocodile River, South Africa

Transfers of water in the Crocodile River above and below the gorge (near Nelspruit and Malelane) were studied based on a survey in the area during November 2003, followed up by telephonic interviewing during March 2004. Almost all the water trades (permanent and rentals) observed in this study were from farmers above the gorge to farmers below the gorge. In order to study whether the water market promotes efficiency the data were subjected to several statistical analyses (Principal Components, Ridge Regression, Logit). It is concluded that in the transfer of water some attributes in the purchasing area such as lower production risk (sugar cane) and lower financial risk and better cash flow (bananas and sugar cane) were more important than the income per cubic meter of water. Water supply in this area is highly irregular while farmers were found to be extremely risk averse especially as far as down-side risk is concerned. The average water price in this area in recent years (2002 to 2003) was between R2,000 and R3,000 per ha (1ha = 8,000 cubic meter). Buyers are large progressive farmers that purchase (and rent) from many sellers (or lessees). It is concluded that information (sale prices and rents) is asymmetrical. Few permanent transfers have taken place in the Crocodile River in recent years. It is concluded that there are reasons why transfers at present are not processed and role players should discuss these reasons and possible solutions before further action is taken.Resource /Energy Economics and Policy,

The value of water in the South African economy: Some implications

The South African Water Research Commission (WRC) initiated a number of research projects aimed at determining the value of water in different sectors of the economy and in different parts of the country. This research is reviewed. Water values were found to differ significantly between sectors, between geographic areas and within geographic areas. As agriculture is a large consumer of water several studies along different rivers were undertaken, including studies on water quality. Average ratios indicate that agriculture is an inefficient user of water in terms of gross income generated per unit of water and also in terms of jobs created per unit of water. Irrigation farming is, however, an important employer of labour while it contributes 30% to the value of farm output. A marginal approach and water demand elasticities also indicate that non-agriculture generally places a high value on water assurance but little value on more than what it already uses. This may indicate that although water is expected to transfer out of agriculture in the longer run, in the short run agriculture may be its best use. Water efficiency could be significantly enhanced if transfers within and between river reaches are promoted, as water shadow prices differ. Inputs from the Department of Water Affairs and Forestry (DWAF) are important in water allocation due to socio-economic and environmental externalities of water allocation.Resource /Energy Economics and Policy,

Research management of water economics in agriculture - an open agenda

It is indeed a privilege and an honour to deliver the FR Tomlinson Commemorative lecture this year. Although the invitation was quite unexpected, it is of course highly appreciated. When Prof Johann Kirsten phoned me with the request, I was initially not sure what topic I should address. The topic, which I have now formulated, is one which has fascinated me and certainly kept me busy for the most part of my career. I want to share with you some thoughts and perspectives, but will steer away from a laborious review or an abstract analysis. In doing so, I trust that this is appropriate within the spirit of the occasion, which is now a well established tradition in the Agricultural Economics Association of South Africa (AEASA). Let me start with a quotation which is at the core of the theme I want to unfold in this lecture. Our most important resource is not land, nor capital and even less the climate. Our most important resource is not the gold under the earth's crust, or the oil that might be there. Our most important resource is our human material. We must develop our human material and make full use of it. (Groenewald JA, 1973a

Water institutions, markets and decentralized resource management: Prospects for innovative policy reforms in irrigated agriculture

Increasing scarcity and competition for water resources has led to international recognition that public policies must change to manage water as an economic commodity. An analysis of natural resources and markets shows that limited potential exists in a regional context for trade in 'virtual water' through food imports. Policy options for intra- and intersectoral water reallocation must therefore receive priority attention. Based on experiences in other countries, emphasis is placed on successful innovations of markets in tradable water rights, local management, user-based performance assessment and water saving technologies in irrigated agriculture. The recently published National Water Policy for South Africa and draft National Water Bill that has been released for discussion are accordingly evaluated. With application of the theory of New Institutional Economics, a number of deficiencies in the accepted principles and policy measures become apparent. It is clear that the proposed water licences are insecure; this will not induce efficient market allocations nor will it enable effective participation of water users in water management. Further economic contributions in policy making are required for the design of unattenuated water entitlements in order to achieve correct pricing incentives

Water institutions, markets and decentralized resource management: Prospects for innovative policy reforms in irrigated agriculture

Increasing scarcity and competition for water resources has led to international recognition that public policies must change to manage water as an economic commodity. An analysis of natural resources and markets shows that limited potential exists in a regional context for trade in 'virtual water' through food imports. Policy options for intra- and intersectoral water reallocation must therefore receive priority attention. Based on experiences in other countries, emphasis is placed on successful innovations of markets in tradable water rights, local management, user-based performance assessment and water saving technologies in irrigated agriculture. The recently published National Water Policy for South Africa and draft National Water Bill that has been released for discussion are accordingly evaluated. With application of the theory of New Institutional Economics, a number of deficiencies in the accepted principles and policy measures become apparent. It is clear that the proposed water licences are insecure; this will not induce efficient market allocations nor will it enable effective participation of water users in water management. Further economic contributions in policy making are required for the design of unattenuated water entitlements in order to achieve correct pricing incentives.Resource /Energy Economics and Policy,

A Dynamic Risk Optimization Model for Evaluating Profitable and Feasible Water Management Plans

Currently the South African government is advocating the cultivation of high valued crops and more efficient use of available water resources through the adoption o f more efficient irrigation technology and irrigation scheduling. A requirement of the National Water Act (Act 36 of 1998) is the compilation of water management plans. The main objective of this paper is to develop a multiperiod mathematical risk programming model able of assisting water user associations with the compilation of water management plans that are both profitable and feasible. Special care was taken to represent canal capacities and irrigation system application rates in the model. Risk simulation procedures are used to generate an appropriately correlated inter- and intra-temporal risk matrix for the programming model. A combination of subjectively elicited distributions of crop yield and objective data on crop prices were used to characterize risk. The model was applied to a representative flood irrigation farm in the Vaalharts irrigation scheme South Africa to demonstrate the capability of the model to optimize water use over a 15 year planning horizon. Model results clearly indicated the potential of high value crops and more efficient irrigation technology to soften the impact of water shortages. Furthermore infrastructure, the financial position of the farmer and the level of risk averseness have significantly impacted on the results. Policy makers and government authorities should take cognizance of these factors when evaluating water use efficiency and water management plans of different water user associations. Improvements in the adopted modeling procedure are also made