1. The role of Water Economics
Title-slide (44 pt Security
in Food green text on
green line; 2nd line below it)
Coffee morning
Author: (28 pt white text)
Petra Hellegers
CTA, 13 April 2012

2. Story in four parts
1. Trends that affect future water demand
2. Water productivity gains from specialisation,
basin cooperation and water reallocation
3. Water allocation is a societal question
4. Limited role of economic instruments

3. Trends that affect future water demand
 Population growth, urbanisation, dietary change
 Climate change
 Rising energy prices

4. Population growth
Projected growth: from 7 billion people today
to more than 9 billion in 2050

5. Urbanisation
By 2050 more than 70% of the population
is expected to be urban

6. Dietary change
More vegetables, fruits, meat, dairy and fish

7. Possible impacts of climate change on water
 Rising temperatures
 Irrigation requirements of crops increase
 Affect size of snowpack & timing of release
 Changing precipitation patterns
 More frequent & intense droughts/floods
 Sea levels rise
 Salt water intrusion
Global water cycle
 Other, e.g. pollution

8. Rising energy prices
- Triggers demand for alternative energy sources:
hydropower and biofuels
- Makes extraction, conveyance and purification costly
Many water problems could be solved,
if only energy would not be so costly

9. Availability of water
 We only make use of a tiny
portion of the available water

10. Who is the main user of water?
Agriculture is responsible for 70% of all water
used and 90% of all water consumed
40% of our food is produced on irrigated land,
which is 17% of the world’s cropland

11. Global water gap 2030– assuming no efficiency gains

12. Unit costs ($/m3) of measures to bridge the gap

13. Demand versus Supply of water
 Demand for water with a low water productivity increases
 The value of water for staple crops varies 0.05 - 0.15 $/m3
 Costs of making water available increase with quantity supplied
 Desalination for irrigation of staple crop is currently not feasible
 The current costs of desalination are 0.50 $/m3

14. Alternative efficient coping strategies
 To import cereals
 Importing countries are vulnerable to rising global market price
 To acquire foreign land for own food production
 Countries have descended on fertile plains across Africa.
 The contracts are not only about land, but also about water

15. Securing food by securing water
The contracts are not only about land, but also about water!

16. Part 2 Water productivity gains from specialisation,
basin cooperation and water reallocation

17. Globalisation and trade liberalisation
Offers opportunities for specialisation in
low-value staple crops in rainfed areas and
in high-value cash crops in irrigated areas

18. When countries in the Nile Basin cooperate,
the Basin can be food self-sufficient in 2025
However, if irrigated area in Sudan expands by 1 million ha
 20 BCM less water for Egypt
 30% less land use revenues in Egypt
 10% less hydropower revenues
 Less revenues for the basin as a whole
due to low water productivity in Sudan
Christian Siderius

19. WIBIS tool to assess implications of a socially desirable allocation
 By combining remote sensing and economic analysis able to
assess the water productivity (in terms of kg/m3 and Rand/m3),
downstream water availability, employment, food security etc.

20. Spatial planning and integrated policy required

21. Role of water economics
 Provides insight into the water productivity gains
($/m3) of reallocation water among regions,
users, generations and population groups

22.  Part 3 Water allocation is a societal question

23. Other criteria apart from economic criteria
 Various social objectives:
 Poverty alleviation
 Equitable distribution of income and risk
 Food self-sufficiency
 Sustainability
Economists show foregone benefits of achieving such objectives

24. Water is often allocated in a socially desirable way
Economists analyse problems –
Politicians eventually decide

25. Difference between financial and socio-economic value
 Water for staple crops has a low financial value, but
a high socio-economic value
Higher wheat price can trigger revolution: Arab Spring

26. Concluding remarks
 Water becomes more scarce
 Economics can show the water productivity gains from
specialisation, basin cooperation and water reallocation
 but also the foregone benefits of not allocating water in
the most efficient way

27.  Part 4 Limited role of economic instruments

28. Water markets fail, due to special characteristics of water
 Water is part of a system
 Usage can be consumptive and non-consumptive
 Costs of water re-allocation can be high
 Property rights to water are often unclear
 Externalities of usage
 Water is a public good->consequences for water pricing

29. It is important to distinguish between
 The value of water
 The cost of water
 The price of water

30. The value of water
The demand curve for water reflects the maximum
willingness to pay by a consumer for a given water use
Value ($)
Quantity (m3)

31. The costs of water
The supply curve for water reflects the costs
incurred by the supplier in the provision of water
Costs ($)
Quantity (m3)

32. The price of water
The tariff actually paid for water use by a user
 The market-clearing price is where cost of provisions are equal
to the benefits of usage
 The price can also be set by the government at a lower level for
instance for social reasons like access to water
Price ($)
Quantity (m3)

33. Comparison of the price, costs and value of irrigation water
 Price < Costs: No full cost recovery
 Costs < Value: Profitable to irrigate
 Price << Value: Significant increase in price required to reduce demand

34. Role of water pricing as an instrument to:
 Trigger technology adoption
 To give a signal not to waste water
 For cost-recovery
 But not as “the solution” to balance supply and
demand for water (use other instruments instead)

35. Thank you very much!
© Wageningen UR

36. Exchange ideas about the kind of water
related projects CTA is working on

37. So strategies to cope with water scarcity and climate
change will affect food production in terms of what,
when, where and by whom food will be produced
The competition for water is taking place in the world
grain market and it seems that people that are financially
the strongest will fare best in this competition