Instruments for Managing Water Demand

In light of the increasing scarcity of water relative to its demand in many countries, and the growing recognition of its economic value in sectors other than agriculture, the management of irrigation demands has become a central issue in irrigation policy. Prices of irrigation water usually are too low to influence demands significantly, and therefore recourse is frequently made to other mechanisms for allocating and reallocating water. The allocational issue is fundamental for several purposes: ensuring that water is allocated to its most productive and socially desirable uses, ensuring that equity objectives are satisfied in the provision of water, achieving water conservation objectives and minimizing negative externalities (environmental damage). Such objectives would be given concrete expression in a national water strategy and the challenge for policy and projects is to effect an allocation of water that is consonant with them. The word 'reallocation' is used as

74. J. R. Moris and D. J. Thom, 1991, pp. 176 and 178.

well, because water demands, equity requirements and opportunities for productive uses change over time, and so the allocational mechanisms that are used need to have built-in flexibility and responsiveness.

There are three principal systems of demand management, or water allocation, in use today. As explained by Meinzen-Dick and Rosegrant, they are as follows:

• Administrative allocation of water includes publicly managed allocation of water. . . through quantity distributions or administered water pricing schemes. Quantity-based administrative water allocation is the traditional mode of operation in most large developing country irrigation systems and is by far the most common mechanism in use at all levels in the developing world today.

• User-based allocation systems are controlled by users with a direct stake in the use of water, often operating within the confines of a predefined water right. Institutions undertaking this type of allocation are irrigation districts, groundwater districts, cooperatives, irrigator associations, village-based organizations, or more informally constituted user groups.

• Market allocation of tradable water rights attempts to structure economic incentives for water users, whether irrigation, industrial, or municipal users, to consider the full opportunity cost of water when making water use decisions.. . .

These three allocation mechanisms correspond to the three sectors in which water resource management can take place: the public sector, the collective action sector, and the private sector. These differ, among other things, by the assignment of property [usufruct] rights: Property rights in the public sector are assigned to the State, in the collective action sector to groups, and in the private sector to individuals.

In practice, different allocation mechanisms often overlap. For example, there may be public allocation between sectors and within large-scale irrigation systems, with user-based allocation ... on tertiary distribution units, and market allocation of groundwater used conjunctively to supplement surface irrigation. . .. No single allocation type will be optimal, or even appropriate, for all situations.75

Of the three mechanisms, market allocations are the least frequently used but there is growing interest in them (see below). Administrative allocations in practice do not place much discretion in the hands of the managers of irrigation systems. In reality, allocations of water are usually decided by system design (e.g. strict rotations) or farmers' requests (within system parameters).

While the above-mentioned three mechanisms for allocation cover most of actual practice, two others should be mentioned that are relevant in some circumstances:

• Joint allocation by users and governmental agencies. The best-known example of this mechanism is the set of participatory institutions created for managing water supplies in each of the six principal watersheds in France.

• Individual allocational decisions made by owners of infrastructure. The most obvious example of this mechanism is provided by the irrigation decisions made by owners of wells. It may seem a trivial mechanism but there are hundreds of thousands of such owners in each region of the world. In some cases, e.g. in Yemen and in Tamil Nadu, India,76 some of their decisions have been in the direction of reallocation, to sell their water for non-agricultural uses (usually through informal market arrangements), while others have continued to allocate their pumped water strictly within the farm, guided to varying

75. R. S. Meinzen-Dick and M. W. Rosegrant, 1997, pp. 210-211.

76. The informal water markets in Tamil Nadu are described in M. W Rosegrant, R. Gazmuri S. and S. N. Yadav, 'Water policy for efficient agricultural diversification: market-based approaches', Food Policy, 20(3), June 1995, p. 207.

An important aspect of the French system is that water resources are managed at the level of the river basin. There are six river basin committees and six river basin financial agencies, whose territories closely correspond to the main river basins. They specialize in water resource management (planning and macromanagement), which they have performed efficiently for twenty-five years. The river basin committees facilitate co-ordination among all the parties involved in managing water resources. These committees have become the center for negotiations and policymaking at the river basin level. . . . The committees approve long-term (twenty to twenty-five year) schemes for developing water resources. Every five years they vote on action plans to improve water quality. In addition, they vote annually on two fees to be paid by water users within the river basin: one fee based on the level of water consumed and the other one on the level of pollution at each point source. . . . The committees are composed of 60 to 110 persons, who represent interested parties: the national administration, regional and local governments, industrial and agricultural groups, and citizens (The World Bank, 1993, p. 46).

degrees by an appreciation of the value of water in alternative uses.

Meinzen-Dick and Rosegrant have also summarized some of the justifications for and issues concerning administrative allocations of water by governments:

Heavy State involvement in water allocation has been justified based on the strategic importance of the resource, the scale of systems required to manage it, and the positive and negative externalities in its use.. . . The large-scale systems used to deliver much of the water for irrigation and municipal needs lend themselves to natural monopolies and would be beyond the capacity of most communities or private firms to organize and fund. The positive externalities [and the] high individual costs of internalizing negative externalities such as deterioration of water quality from agricultural runoff, sewage, and industrial effluents, or deterioration in groundwater levels, provide further arguments for a strong State role. . ..

The State's role is particularly strong in inter-sectoral allocations, as the state is often the only institution that includes all users of water resources and has jurisdiction over all sectors of water use.. . .

While public allocation or regulation is clearly necessary at some levels, government-operated irrigation. . . [tends] to be expensive to operate and often [fails] to live up to expectations. .. .

Under public management the dominant incentive to comply is coercion - that is, setting regulations and using sanctions for those who break them. But this type of incentive is effective only if the State detects infractions and imposes penalties. In many cases the State lacks the local information and ability to penalize for infractions such as breaking water delivery structures or excessive water withdrawals. Enforcement is more effective where there are fewer points to monitor. It works better, for example, for main canals of large irrigation systems than it does for small-scale irrigation.

Market-based and user-run allocational mechanisms are gaining increasing favor throughout the world. There is a strong trend towards transferring operation and maintenance of irrigation systems to users, and by now considerable experience has been accumulated regarding such transfers.78 These mechanisms are discussed in subsequent sections. However, first the principal

77. R. S. Meinzen-Dick and M. W. Rosegrant, 1997, pp. 211-212.

78. Many of the lessons of this experience are summarized in D. L. Vermillion and Juan A. Sagardoy, Transfer of Irrigation Management Services, Guidelines, FAO Drainage and Irrigation Papers No. 58, Food and Agriculture Organization of the United Nations, Rome, 1999.

concepts and issues concerning the pricing of irrigation water are reviewed. In irrigation experiences to date, pricing and allocation of water usually have not been closely related, unlike the situation of many other resources and almost all commodities.

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