The shadow prices and demand elasticities of agricultural water in China: A StoNED-based analysis

- The technical efficiencies of agricultural sector in China are relatively low, but increasingly improving.
- The shadow prices of agricultural water are ranging across provinces and over time.
- The demand for agricultural water in China is inelastic, and raising water price cannot provide enough incentives for agricultural water conservation.

Based on stochastic nonparametric envelopment of data, this paper estimates the shadow prices of agricultural water and the technical efficiencies, using an input-output data of 30 provincial units in Mainland China from 2002 to 2012. The results show that the average shadow price estimates for agricultural water range between 2.57 yuan/m3 and 3.88 yuan/m3; the estimated price elasticity of agricultural water is 0.12, and that improving technical efficiencies of the agricultural sector has a significant effect on the water demand. That means the prospect of reducing the amount of agricultural water depends on the improvement of technical efficiency and the spread of water-saving irrigation techniques.