water use
Economic Analysis for Water Policy in China’s Agriculture Jikun Huang and Jinxia Wang Center for Chinese Agricultural Policy (CCAP) Chinese Academy of Sciences
Per capita water availability in China is about 35% of the world average and this number for North China is 4% Cubic meter
Per capita water availability (cubic meter)
8000 7000 6000 5000 4000 3000 2000 1000 0
North China
South China
China Average World Average
In the past 50 years (1961-2011), runoff in 60% of River Basins in China declined 20
Unit: change of runoff, %
15 10 5 0
So
-10 -15 -20
an d In l
ut he as t W es tea st
Pe ar l
zi an g Y
ua ih e H
w ell o
aih e H
e
aji an g
Li ao h
Y
So
ng
hu
-5
h
Water use competition among sectors also has substantially increased Share of water use (%)
1 100%
2
1 11
80%
13 24
60% 97 40%
88 61
20% 0%
1949
1978
2012
Domestic Industry Agriculture
Government’s efforts: investment in water supply infrastructure Since 1950s, infrastructure for developing new water resource has always been the government’s investment priority
South-North Water Transfer Project
While investment in water infrastructure is necessary, it is not sufficient condition to effectively ensure water security, appropriate institution settings and incentive mechanism matter greatly.
Goals of this presentation: Roles and gaps of economic analysis for agricultural water policy in China
Areas that economic analyses have constructively contributed to the design of water policy in China’s agriculture: based CCAP’s studies • A pilot water price reform (groundwater) – Biggest concern is farmer’s income
• Surface irrigation water management reform • Water rights and YRB • Groundwater management reform
A Pilot Water Price Reform in Hebei Province “Increase Price + Provide Subsidy” Before reform: farmers paid P1W1; After reform: Subsidy from government: Value of (W1-W2) P A: P1W2
Farmers B: (P2-P1)W2
Water suppliers Managers: keep in Bank
Return to farmers based crop area Farmers use GW and they pay irrigation fee (P) based on their use of electricity for pumping; P1W2
Impacts of the pilot reform • Our economic analysis showed that, on average, farmers: – saved 20% water without affecting crop yield , – paid additional water fee 450 yuan/ha, but – also compensated by 600 yuan/ha Source: Wang, et al.,2010
MoWR and local government have considered how to implement this reform in other regions in China.
Surface irrigation management reform in the Yellow River Basin Share of villages（%）
100% 80% 60% 40% 20% 0%
1990
1995
Collective
2001
WUA
2004
2008
Contracting
Incentives and irrigation management 100% 80%
Reforms with no or poor incentives
60% 40% 20%
Reform with good incentives
0%
WUA
Contracting
Not all WUAs or Contractings are the same: only 25% of WUAs and 80% of Contractings their managers’ income can come from water saving – with incentives
Determinants of crop water use Dependent variable: water use (m3/ha ) OLS
2SLS
Coefficient
t value
Coefficient
T value
WUA
-1311
-0.70
-1920
-1.00
Contracting
-704
-0.49
-2469
-1.34
With incentive
-2844
1.72*
-6356
1.99**
275
0.18
1108
0.43
Without incentive
• When irrigation managers face with effective incentives, crop water use can be reduced by 40% • Policy impacts: Incentive for water managers have been incorporated in China’s water management in recent years
Constraints of economic analyses and economics advance needed • Lack of water measurement: economic analysis requires good data on actual water uses by production activity;
• Lack of empirical cases for policy study: little actual policy implemented (e.g., water price and water rights);
• Highly political sensitiveness: most policies • Need innovated methods: for examples, – In-the-field Randomized Control Trials (RCT) when water policies are actually not implemented – Better way to measure marginal value of water, which often is problematic in empirical study
Major water policy issues in the future • Institutional arrangements – Integrated water demand and supply management institutions – Institutional arrangement for water rights
• Incentive policies – Water price policy – Water market policy – Incentive to adopt new technologies
• Investment policies – Investment priority – Investment related to adaptation of climate change
• Thank you!
Per capita water availability in China is about 35% of the world average and this number for North China is 4% Cubic meter
Per capita water availability (cubic meter)
8000 7000 6000 5000 4000 3000 2000 1000 0
North China
South China
China Average World Average
In the past 50 years (1961-2011), runoff in 60% of River Basins in China declined 20
Unit: change of runoff, %
15 10 5 0
So
-10 -15 -20
an d In l
ut he as t W es tea st
Pe ar l
zi an g Y
ua ih e H
w ell o
aih e H
e
aji an g
Li ao h
Y
So
ng
hu
-5
h
Water use competition among sectors also has substantially increased Share of water use (%)
1 100%
2
1 11
80%
13 24
60% 97 40%
88 61
20% 0%
1949
1978
2012
Domestic Industry Agriculture
Government’s efforts: investment in water supply infrastructure Since 1950s, infrastructure for developing new water resource has always been the government’s investment priority
South-North Water Transfer Project
While investment in water infrastructure is necessary, it is not sufficient condition to effectively ensure water security, appropriate institution settings and incentive mechanism matter greatly.
Goals of this presentation: Roles and gaps of economic analysis for agricultural water policy in China
Areas that economic analyses have constructively contributed to the design of water policy in China’s agriculture: based CCAP’s studies • A pilot water price reform (groundwater) – Biggest concern is farmer’s income
• Surface irrigation water management reform • Water rights and YRB • Groundwater management reform
A Pilot Water Price Reform in Hebei Province “Increase Price + Provide Subsidy” Before reform: farmers paid P1W1; After reform: Subsidy from government: Value of (W1-W2) P A: P1W2
Farmers B: (P2-P1)W2
Water suppliers Managers: keep in Bank
Return to farmers based crop area Farmers use GW and they pay irrigation fee (P) based on their use of electricity for pumping; P1W2
Impacts of the pilot reform • Our economic analysis showed that, on average, farmers: – saved 20% water without affecting crop yield , – paid additional water fee 450 yuan/ha, but – also compensated by 600 yuan/ha Source: Wang, et al.,2010
MoWR and local government have considered how to implement this reform in other regions in China.
Surface irrigation management reform in the Yellow River Basin Share of villages（%）
100% 80% 60% 40% 20% 0%
1990
1995
Collective
2001
WUA
2004
2008
Contracting
Incentives and irrigation management 100% 80%
Reforms with no or poor incentives
60% 40% 20%
Reform with good incentives
0%
WUA
Contracting
Not all WUAs or Contractings are the same: only 25% of WUAs and 80% of Contractings their managers’ income can come from water saving – with incentives
Determinants of crop water use Dependent variable: water use (m3/ha ) OLS
2SLS
Coefficient
t value
Coefficient
T value
WUA
-1311
-0.70
-1920
-1.00
Contracting
-704
-0.49
-2469
-1.34
With incentive
-2844
1.72*
-6356
1.99**
275
0.18
1108
0.43
Without incentive
• When irrigation managers face with effective incentives, crop water use can be reduced by 40% • Policy impacts: Incentive for water managers have been incorporated in China’s water management in recent years
Constraints of economic analyses and economics advance needed • Lack of water measurement: economic analysis requires good data on actual water uses by production activity;
• Lack of empirical cases for policy study: little actual policy implemented (e.g., water price and water rights);
• Highly political sensitiveness: most policies • Need innovated methods: for examples, – In-the-field Randomized Control Trials (RCT) when water policies are actually not implemented – Better way to measure marginal value of water, which often is problematic in empirical study
Major water policy issues in the future • Institutional arrangements – Integrated water demand and supply management institutions – Institutional arrangement for water rights
• Incentive policies – Water price policy – Water market policy – Incentive to adopt new technologies
• Investment policies – Investment priority – Investment related to adaptation of climate change
• Thank you!
