Pricing China's irrigation water

Many development agencies and other actors are advocating that China adopt a system of water markets or of high water prices in order to resolve the inefficiencies of irrigation agriculture and to supply sufficient water for growing urban and industrial uses. We argue that this proposal rests on a series of propositions: that the price of water is too low to encourage farmers to be efficient; that farmers are not charged volumetric prices and so are not encouraged to conserve water; that water is scarce largely because farmers are profligate in their use of water; and that proper pricing of water will not affect equity. None of these contentions is true. Farmers have to pay not only the official charges for water but also the much higher costs of pumping it onto their fields. Once pumping is included, farmers are paying prices that are volumetric. Furthermore, the inefficiency of farmers arises in large part from the manner in which water is delivered to them: the system offers no rewards for care in the use of water and instead rewards greed. And, finally, although it might be true that higher prices do not affect equity within a village, in fact they would have substantial effects on inter-sectoral equity, with farmers becoming worse off in comparison to urban dwellers. The paper concludes by sketching a more appropriate scheme for raising the efficiency of use of irrigation water.