Economic value and pricing of water in agriculture Kasnakoglu H. in

(1)

in

Dupuy B. (ed.).

Aspects économiques de la gestion de l' eau dans le bassin méditerranéen Bari : CIHEAM

Options Méditerranéennes : Série A. Séminaires Méditerranéens; n. 31 1997

pages 137-145

Article available on lin e / Article dispon ible en lign e à l’adresse :

--- http://om.ciheam.org/article.php?ID PD F=CI971537

--- To cite th is article / Pou r citer cet article

--- Kasnakoglu H. Econ omic valu e an d pricin g of water in agricu ltu re. In : D upuy B. (ed.). Aspects économiques de la gestion de l'eau dans le bassin méditerranéen . Bari : CIHEAM, 1997. p. 137-145 (Options Méditerranéennes : Série A. Séminaires Méditerranéens; n. 31)

---

http://www.ciheam.org/

http://om.ciheam.org/

(2)

Department of Ankara, Turkey

H. Ç a h a k B3lkent University Department of

Ankara, Turkey

SUMMARY

-

The subject of this paper is to suggest a methodology to evaluate the economic value of water which can be used as a basis for water pricing. The methodology involves the use of agricultural sector models incorporating water as a scarce input. The economic value of water for different land types, regions and crops are estimated from the shadow prices of water and irrigated land constraints. After a theoretical discussion, the paper will also present the results of such a model applied to the South-eastern Anatolia Project (GAP) Region in Turkey, which is one of the world's largest irrigation and integrated regional development projects.

Changes and differences in land values as a result of irrigation will be presented towards the estimation of the economic value of water.

Key words: Value of water, sector models, water pricing, shadow prices, GAP

RESUME

-

Cet article suggère une méthodologie d'évaluation de la valeur économique de l'eau qui peut être une référence au prix de l'eau. Les modèles sectoriels agricole sont à la base de la méthodologie qui considère l'eau comme une ressource rare. La valeur économique de l'eau pour différent types de terre, régions et cultures sont estimés par le prix ombre des contraintes de l'eau et de la terre irriguée. Suite à une discussion théorique, l'article présente les résultats d'un modèle sectoriel appliqué au projet Sud-est Anatolien (GAP), qui, par ailleurs, est un des plus grands projets intégrés d'irrigation dans le monde. Les changements et les différences de la valeur de la terre dus à l'irrigation seront présentés en fonction de l'estimation de la valeur économique de l'eau.

Mots-clés: Valeur de l'eau, Modèle Sectoriel, Prix de l'eau, Prix de référence, GAP

(3)

138 H. H. Çakrnak

is a economic asset. use is limited by physical, economic and spatial conditions. When

it gnificant

is one of the most valuable inputs of it is one of the most subsidized inputs in

is the a

most sufficient to in some

the investment costs.

way the basis the is cost- based. is usually no

in the quality of soil

of the one hand to the

inefficient use of income

the inequalities in income is

penalty polluting

is a pénalty due to the misuse of this

in the inefficient allocation of

An to the cost of is

the of This

the knowledge of the value of of be a

cost the to the extend

lized, a

bution of the efficient use of the itself.

The cost and benefit calculations of tion is not only .to decide on the invest-

in the costs of

The of the this is to suggest a methodology to evaluate the economic value of

be used as a basis cing. The methodology involves the use of

gated land as inputs. The economic value of land types,

estimated the

a the

the of such a model applied to the in

which is and

land values as a of of the economic value of

Should be

institutions, is

how making a

This basic issue must in

1990).

like that effi-

ciency of allocation in the can be

claims that the efficiency gain is much

by pointing out the implications of

of and development of seeking, which in

supply existing in the

of additional in the

the main aqui-

is not and funds

on state

of state institutions the vice at subsidized

a mean to income not as an

allocation device a

Whittington et aZ.,(1990), point out also that the in the quality and quantity of in of the develo-

in: (i) use of

existing supplies and (ii) slow extension of

that

if to be both sustainable and

is that includes a eliciting in-

on the levels of

be designed so that at least

(4)

value and pricing of water in agriculture 139

capital costs) can be

is that of

"willingness to pay."

the full costs of it is a

is valued (and the- be used and maintained) and that it

tal demands. and point out that

in the 80's a fis-

They

effect; (iii)

the of

note defiied,

in the legal and

institutional of

On the the

ment of

"economic good" and point out is

so- in most the of

that the of

is in many developing

the

is that level, the

in

in many not sustai-

nable. the need to

of using incentives to is not questioned 1994).

point to the "community value" of its "commodity value". the public (social) definition

of those of an individual

the

of

that on

glect to allow flows,

it is to

cognize that exist nomic linkages.

of local, and even na- tional economies. As

pand, so can the activities (and incomes) of those is not just a commodity, but

is "a development

and maintenance of the

possible"

ning implies that a value placed on

may be be

to typical supply and demand analysis, and to calculations of it must be in of social

the need im- the efficiency and sustainability of

in the light of of

To

design efficient systems of fi-

levels, in the

outlined above. At the level he examines the

nomy. The

ginal costs of of

pollution costs) of use. At the second level "second-

the costs of consi-

the

a mix of both top-down and bottom-up

(5)

140 H. H. Çakmak

best pla-

ced to the

cation costs of

munication costs but is in

of spatial efficiency. At the level models

lose by coalitions of agents that seek the expense of the ge- population. The of public finance is the equitable of total benefits between di-

TO

of The

best optimum on the the know-

ledge of of

The of

costs of

the scope of of the

ginal henefits of is the subject of the fol-

Estimation of the benefits of in in

the

Such the com-

plex of in

the input and output of duction activities.

'to estimate the

"willingness to pay" by the of to ap-

the value of to in-

willingness to

been ad hoc, in of the absence of validated, field tested methodologies assessing it.

cal

estimates of households' willingness to pay. The

times to collection points, of quality) to assess the of

mand, hedonic

cost models. The second,

is called the "contingent valuation method." is simply to ask an individual how much he she would be willing to pay the additional im-

et al., 1990).

we

the value of in its

believe will not only consistent

of the of

use, but can also easily amend itself to the se-

The mathematical optimization

models of the of the following

can be employed

s.t. <

W = Social CS =

=

A = = A2, A3]'

Al=

A2= Use

Use

= =

X = of

(6)

of the

the detail As the

dual of be W = [S]

is the of

of be

between the

model can also be employed to simulate the

investment

Water is

of 3,900

availability of The po-

tential cannot be fully developed, and the availability is

ble potential is of

this potential was consumed in 1993. The of in total consumption is 75%.

ficient use of

of of

of in total consumption is

and is the

of domestic consumption is

15% and use is 10%). it

might go up as high as 80% upon the completion of the

sumption is is quite

75%

lands in The

that 8.5 of land "economically"

of which 48% is in 95% of the

The is The

is 41%, with a 70% in 1990. The caused by

matching of the season,

insufficient density of field

the of the

at night

(cakmak,

^1994).

is one of the jects in the consists of 80 dams, 66

This would of all

capacity and 53 of all all

is planned to be completed by 2010. The full cost of the be $32 billion

(Cakmak,

1994 the significance of the

is the end of the of oil impe-

in the the beginning of new

...

two sets of in the

little

of

Water arzd Ownership: All vested in the state in the

in

well defined in the legislation, especially

face is be a

is entitled to use it subject to the of the

use of fishing,

is the sole of the

state and State is the only

legal investigation, use

and allocation of

is use all

is

lages. The municipalities do the with financing

the of

(7)

142 H. H. Çakmak

the tutions the

in duties include, to

pment plans. to

of

schemes, to develop the to 500

litedsecond

and to to villages. The Gene-

of the of the development of

the (@lam& 1994).

Water

cost

in

on the the

an annual has two components. The component, which is the significant of the fee, is intended to

the costs of

in

the last 10 80%). the

the to adjust the fees, and

set than the by

instance, in of

$34 and $80, The second component

of the is intended to the

capital cost of a of all, is not

allowed to any capital 10

completion. the

net value at the completion date is

Again no inflation adjustment is allowed.

$0.3 to in

the

less than 50% since 1985. 1992 only %33 of the fees was collected.

to of

the costs and pay back the capital cost

As it

to

the

O, in

in of

to in

gnificant impact on yields (@kmak, 1994).

this section the

ploy in the next section to

to simulate and analyse the

developments in of the

the of the

h c t i o n which maximizes the sum of

ted with in its fo-

is nested in

in

the All each

input and output flows and the model is solved simultaneously.

at the tion

(8)

andpricing of in agriculture 143

with

mand functions and demand functions ge- the

in the model endogenously by the non- of

field li-

83 ducts in the model. 37 of these field

6

feed 8 specified

the and

conditions and land capability classes. .

the and inputs

(10

months) the and the

of ni-

as inputs, in ad- dition to seeds and feed

gains, oil cakes.

a et. al., 1992).

this section on sha-

dow the

del in the the

be com-

in the and 7 in the

is also in the

which is outside the ject. Table l the land indices

these 15 well as 4 in

the in 2010. The 7 sub-

inTable 1 in the and the in the south. The sha-

indices and land by 3

land classes in Table 2.

Table l

-

Land Value in the for Year 201 O by Land Value = 100)

Gaziantep Silopi

L

100 92 72 71 110 76 110 76 113 121

1

O0 116

95 88 126 95

(9)

144 H. H. Çakmak

Table 2

-

for Year 201 O by = 100)

Land Class

1

^Weighted

I

Land Type

100 93

148

35 23

62 43

I I I I I I

The shadow land the

values of land in tions to

the shadow the as well as the

value added of a specific in-

can be employed to the

in the

The absolute values of the shadow

not to the ab-

solute as well.

land, the

that the value of significan-

tly by and quality of land. On

the the shadow class

land is than that of second class

land. value of class land is one

2010, the value of land in the

is to times that

of in the

The land in

show that the value of land

in 2010 will in in the

in The lowest

land value index is in Adfia- in the south with 77 and the highest in

in the with 126. The dif- is a significant one and

the need in

(Table 1).

also suggest that, between 1995 and 2010, the total in

ses by $75 billion. The in

in the same is $40 billion and the in-

in is billion. These

suggest that, the as well as con- benefit fiom the investment

in and it is not justified to

the full cost of to the

et. al., 1992).

Finally it should be pointed out that the

sults could have been employed to assess the value

of and

time in the would also be possible

to values

activities.

- (1991),

- Brajer, V. (1990). The American Journal

Vol. 49, NO:^, Janumy: 35-44.

-

Çakmak, (1994). Turkey:

on and in 3-6.

- Easter, W. and Feder, G. (1994). on

(10)

and pricing of water in agriculture 145

- W., (1992). Agriczdtural

Crop

- J. (1986). The of The Volume 40,

No. 1,

- J. (1994). Designing Schemes for

- Whittington, Briscoe, J., X. and Barron, W. in

of

ment and Cultural Change, 11.

- Yoav, (1994). Allocation by in

3-6.