Case Study #8-4 of the Program: ''Food Policy For Developing Countries: The Role Of Government In The Global Food System''

14 pp.©Cornell University, Ithaca, New York. All rights reserved. This case study may be reproduced for educational purposes without express permission but must include acknowledgment to Cornell University. No commercial use is permitted without permission.Agricultural production in Egypt is virtually fully dependent on irrigation. Egypt gets more than 95 percent of its annual renewable water resources from the Nile, and the construction of the High Aswan Dam, which was completed in 1971, has allowed Egypt to take full advantage of its share of Nile flows and increase both cropping intensity and size of the cultivated area. Egypt may face significant water scarcity within the foreseeable future, however, because of the combination of a more or less fixed supply of fresh water and increasing demands for water owing to population growth and reclamation of desert land for agricultural production. Because agriculture is the major water user in the Egyptian economy, it will be important to ensure efficient allocation of irrigation water across users and uses. In situations characterized by water scarcity, irrigation activities may be associated with several types of externalities, which in turn have implications for water use efficiency. A classic externality is when some farmers are able to appropriate as much water as they like while the other farmers receive only what is left over, resulting in possible drought damage to their crops. Another type of externality arises because not all water applied to the fields ends up being consumed (that is, evapotranspired) by the crops. Parts or all of the excess water may subsequently be returned to the basin water system and become available for another diversion cycle. Thus, even if individual farmers use inefficient irrigation technologies, this need not result in large water losses at the river basin level. Both of these externalities are present in various regions in Egypt and should be considered when designing policies for efficient allocation of irrigation water. Using water in a socially efficient manner is not merely a question of physical efficiency in water use. Whereas improving physical efficiency is about conserving water by increasing the share of water applied that is beneficially used, increasing economic efficiency is about maximizing the economic value of water use through physical measures and allocation of water between water uses and users (Cai et al. 2001). Within the cropping sector, economic efficiency may be improved by reallocating water from low- to high-value cropping activities or in some cases by adjusting the choice of production technique and using deficit irrigation (that is, applying less than the full crop water requirement). Many different policy instruments can be used to regulate farmers' use of water. The options include volumetric taxes and non-volumetric taxes (like crop-specific land or output taxes), various types of quotas, market-based allocation mechanisms, and user-based allocation mechanisms. The degree of efficiency that can be achieved in water allocation differs across these policy instruments, and so do the costs of implementing the policies. Regulating farmer water use has not only efficiency implications, however, but also distributional implications. Stakeholders in irrigation water allocation issues may be roughly divided into three groups: farmers, agents outside agriculture like industries and households, and agents in other countries. Although efficiency in water allocation policies should be an important matter for everyone in regions with water scarcity, stakeholders are also likely to be highly concerned with the distributional implications, which depend on the choice of policy instrument. All these aspects consequently must be taken into account when choosing what policy mechanisms to use for allocating scarce irrigation water resources in Egypt and elsewhere. Your assignment is to discuss the efficiency and distributional implications of using tax policy instruments versus quota policy instruments to regulate farmers' use of irrigation water. Then, based on the features of the Egyptian economy and irrigation system, design a policy strategy for regulating farmers' use of irrigation water in Egypt, considering economic efficiency aspects, implementation costs, and stakeholder issues.Cornell University Division of Nutritional Science

The Policy Implications of Using Water More Than Once - The Case of Irrigation in Egypt

When water is scarce and agricultural production is dependent on irrigation, the question naturally arises how to allocate water most efficiently from society’s point of view. Standard volumetric water pricing targets the amount of water the farmer applies to his field. However, what matters from a social efficiency point of view is often not how much water is applied to the field but rather how much water is consumed by the crops and evaporation, as a substantial amount of the water losses due to drainage and percolation tends to be recycled in a basin and become available for additional application cycles. One example of this ability to use water more than once can be found in the Egyptian agricultural sector. Egyptian agriculture is traditionally centred around the Nile, and in the Nile Valley virtually all water losses are recovered by the basin water system. So far Egyptian farmers have not had to pay for their irrigation water, but water scarcity is expected to be a growing problem in Egypt due to population growth and reclamation of desert land for agricultural production. Efficient allocation of irrigation water is consequently becoming an important issue from an economic efficiency point of view, and the fact that water losses are at least partially recoverable has implications for the socially optimal choice of policy instrument to regulate the farmers’ use of irrigation water. Based on results from a theoretical model I have recently developed on the optimality of policy instruments for regulating farmers’ use of irrigation water, the present paper will explore the empirical implications of different direct and indirect water allocation policy instruments ranging from water pricing to land taxation. The theoretical analysis will be incorporated into a modified version of the ORANI-G CGE model and the IFPRI 1997 SAM for Egypt, where the use of water in agriculture has been introduced. The aim of the analysis is to compare the production and welfare implications of the theoretical first best instrument of combined volumetric water taxes and return flow credits with the theoretically second best instruments of standard volumetric water taxes or crop-specific land taxes. Simulation results for production and welfare implications are reported for the two kinds of water tax policy instruments, but a satisfactory implementation of crop-specific land taxes have not yet been found. It is nonetheless expected that crop-specific land taxes will perform relatively well from an efficiency point of view

International Trade and the National Water Balance - An Egyptian Case Study

One of the general determinants for a country’s participation in international trade is the country’s relative factor endowment. CGE analyses of international trade have traditionally accounted for the production factors land, labor, and capital. However, irrigation water is also highly important for agricultural production in many countries. Egypt is one of the countries, which is highly dependent on irrigation water for agricultural production, and water scarcity is likely to materialize in the near future in Egypt due to the growing population and the government’s plans to reclaim large amounts of desert land for agricultural cultivation. The present paper will analyze the implications for Egyptian international trade of accounting for the national water constraint. The analysis is based on a modified version of the ORANI-G CGE model and the IFPRI disaggregated 1997 SAM for Egypt. The model and database have been extended to cover the use of water in agriculture, and the national water constraint has been specified to take account of the recycling of water from irrigation activities. The analysis features two scenarios in which the Egyptian agricultural land area is expanded. The first scenario takes account of the Egyptian national water constraint and places a tax on water diversions to ensure that Egyptian water use does not exceed Egypt’s current allotment of fresh water. The expansion of the agricultural area results in the national water constraint becoming binding in this scenario. In the second land-expansion scenario, on the other hand, the national water constraint has been relaxed. The results show that the highly tradeexposed agricultural sectors tend to dominate the agricultural supply response following the expansion of the agricultural land area. Furthermore, the analysis demonstrates how accounting for the water constraint is particularly important in the case of the highly tradeexposed and water-intensive rice sector

The Future Common Agricultural Policy of the EU: Consequences for Non-EU Regions

The European Common Agricultural Policy (CAP) is scheduled to undergo major changes in the coming years, as the EU is enlarged with ten new member countries and the Mid-term Review (MTR) of the CAP is implemented. These changes will obviously have significant impacts on European agriculture, but how will they affect other countries? The purpose of this paper is to provide a quantitative assessment of the impact these reforms will have on non-EU countries, focusing particularly on implications for trade, production, and welfare. The analysis is conducted using a CAP specific version of the GTAP model and an adjusted version 5 of the GTAP database. The analysis is based on a baseline for 1997-2013. Two scenarios are then analyzed to illustrate the effects of the Eastern Enlargement and the MTR-reform on non-member regions. The first scenario features the Eastern Enlargement of the EU under the new MTR-reformed CAP thus capturing the future realities in European agriculture. However, in order to decompose the results from this scenario, a second scenario is constructed featuring an Eastern Enlargement of the EU under the old Agenda 2000 CAP. Comparing the results from these two scenarios subsequently allows us to distinguish between implications deriving from the Eastern Enlargement, such as trade diversion effects, and outcomes attributable to the MTR-reform, such as the trade effects derived from decoupling of the EU direct payments. The analysis shows that the Eastern Enlargement and the MTR-reform do have significant impacts on EU agricultural production as for instance the decoupling of direct payments under the MTR-reform results in a significant reduction in the European production of cereals and bovine animals, while the introduction of milk quotas in the new EU member countries results in a reduction in raw milk production. The changes in EU agricultural production are subsequently reflected in EU trade with non-EU regions, but the derived effects on agricultural production in non-EU regions are generally minor. Finally the analysis also shows that the impacts on welfare in non-EU regions are negligible, all in all making the Eastern Enlargement and the MTR-reform primarily a European matter