Bearing The Costs Of Change

Under policies which aim to reduce groundwater use by lowering the profitability of agriculture, farmers would bear the full cost of the transition. In order to spread the costs of change more equitably, such policies could be accompanied by others that provide compensation to farmers for giving up their water rights and also by programs that help create employment for them in the industrial sector and provide the requisite training.

When higher-value users purchase water rights from lower-value uses, water transfers occur without fiscal cost and those giving up the rights are compensated. There are examples in Yemen of such transactions. Near Sana'a, private water suppliers have purchased wells from farming families, in order to supply water to expanding urban areas. Obstacles to the development of such transactions on a wider scale include the following:

• Lack of a clear definition of water rights and their marketability.

• Lack of a clear understanding of the true value of water on the part of farmers. Such an understanding could make them more willing participants in schemes for water saving and water reallocation.

• Lack of clear policies on the long-run role of the private sector in supplying water to urban areas.

It is likely that the government's policy objectives include not only achieving sustainability in the use of the natural resource base, but also achieving equity in apportioning the costs of adjustment. The third objective appears likely to be minimization of the role of the government and of the costs to it. A policy approach consistent with these objectives would consist of recognition of the role of private markets in water transfer and supply, and to set up an enabling framework that would allow the private sector to invest in water and manage it efficiently.

The necessity of compensating farmers for loss of their water rights has been recognized in the recent negotiations for transferring water out of the Rada' Basin and for transferring water to Ta'iz from well fields in villages near Ibb and Ta'iz. Therefore, the concept is not new; what are lacking so far are effective mechanisms for facilitating this kind of transfer and for making timely compensation to the rural population. An appropriate solution would consist of developing market mechanisms for effecting these transfers, given their efficiency as an allocative mechanism.

However, even if such an approach were successful, transfers of water rights out of agriculture to meet increments in urban water demands will not alone solve the problem of overdraft of the highlands aquifers. It also will be necessary to purchase larger quantities of water rights and retire them from use, in order to bring total abstractions more in line with the natural rate of recharge. In this case, the government clearly would have to finance the purchases of water, either directly or through private companies, since the purchased rights could not subsequently be sold.

There is another fundamental point, which bears on another aspect of policy. In order to avoid exhausting aquifers, a relatively large share of the agricultural labor force will have to be relocated in non-agricultural occupations. This is not an option but rather a necessity. If measures are not taken soon to encourage a more rapid inter-sectoral movement of labor, circumstances will force it upon the economy, as wells begin to dry up and the cost of deepening them becomes prohibitive. In this area, one of the most effective steps the government could take would be to promote the growth of the manufacturing industry, through measures such as reforming the investment law, privatizing State-owned industries, and improving the legal and regulatory framework.

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