Estimating the impacts of water pricing on smallholder irrigators in North West Province, South Africa

Worldwide growing water scarcity has increased the call for economic instruments to stimulate rational water use in agriculture. Furthermore, cost-recovery is now widely accepted as a cornerstone of sustainable water management. In many developing countries, where agricultural water use is often still subsidised, water pricing policies are developed for allocating water efficiently and achieving sustainability of water systems. However, the impacts of water pricing policies on irrigation water use and on farm production systems is mostly unknown. We introduce an innovative two-stage methodology that allows estimating these effects at farm level. Applying the method to small-scale irrigators in South Africa, we show that water demand is quite responsive even to small changes in water price. In addition, the introduction of a water price significantly decreases farm profit. This appears to be a problem primarily for the poorer farmers.