When reminded that about 60% of the human body is water, all would agree that water is a truly "valuable resource". But what is the value of the estimated 3 000 litres of water used to grow the food that the average person consumes each day? That would have been an academic question just 15 years ago, when water was still viewed largely as a free, or at least low-cost, public good. Today, amid growing water scarcities, increasing competition from industrial and domestic users, and alarm over the degradation of ecosystems, the economic valuation of water use in agriculture is rapidly emerging as a key issue in water resources management.
Of all the sectors that use freshwater, agriculture - which claims 70% of global withdrawals from natural sources - shows the lowest overall economic return. That fact has led some proponents of water valuation to champion unregulated "water markets" which, by treating water as an economic commodity, redirect it from low-value to high-value uses - typically from irrigated agriculture to higher value horticulture and from rural areas in general to the industrial and urban sectors. The reasoning is that, since demand outstrips supply when water is treated as a free good, the market will "bring supply and demand into balance" and, in some cases, mitigate the environmentally detrimental effects of overexploitation.
A "triple bottom line". But a new report from FAO says indiscriminate use of the economic approach risks overemphasizing "monetary expressions of value" at the expense of two other important dimensions: environmental values, such as the role of water flows in maintaining biodiversity and ecosystem integrity, and social values - which, at its most basic, can mean simply using water to grow food to eat. Needed, the study says, are water valuation frameworks that recognize a "triple bottom line" giving equal value to water's economic, social and environmental uses.
The report argues that a sound valuation of water can only be done through a process involving all stakeholders in water use. To explore stakeholder-oriented approaches, it presents cases from Cambodia, Sri Lanka and Tanzania where valuation tools and methods were imbedded in "real-world" water resources management. "We found that the concept of value is inherently subjective," says FAO's Leon Hermans, who co-authored the report. "In the end, value is really what the stakeholders can agree on. That's why we see valuation mainly as a practical means of helping stakeholders express the values that water-related goods and services represent and supporting them in reconciling their water demands."
In Tanzania, another study analysed simmering conflicts among irrigated rice farmers, and between rice farmers and livestock owners, in the Mkoji sub-catchment in the country's southwest. Competition for water is rife in the area's middle and lower zones, where water flows regularly cease during the dry season. In the middle zone, paddy cultivation is the main source of income, and conflict over water usually erupts early in the growing season during rice transplanting. In some years, competing farmers destroy water canals and intakes to divert water to their own fields, and some disputes have escalated into violence.
Livestock owners. Complicating water management in Mkoji are lower zone livestock owners who graze their herds locally in the wet season but must seek pastures elsewhere during the dry. Since adjacent wetlands were gazetted as a game reserve, many now move their cattle into irrigated rice areas, where they frequently damage irrigation intakes and canals. The result, the report found, is an impasse: paddy farmers fight each other for irrigation water, while livestock keepers must choose between entering into conflict with irrigators or game wardens.
By clarifying these "underlying values", the search for solutions focused not only on water - e.g. improving water use efficiency - but on income generation. "A promising way out of the vicious cycle could be creation of a joint management and marketing system for rice," the researchers found. "For example, shared storage facilities would increase farmers' control over the timing of marketing and could increase their bargaining position. In this way, it could create value, by increasing the shared income from rice sales."
Meanwhile, the fact that lower zone livestock keeping is highly economic in terms of water use suggested a strategy of "payment for environmental services" - a local mechanism allowing livestock keepers to gain access to dry season grazing land in Mkoji's middle zone in return for financial compensation or investments in alternative income-generating activities for rice farmers. Researchers noted: "Livestock keepers who illegally graze their herds in the game reserve are already paying for such access, although they are paying fines rather than taxes."
Finally, in southeast Sri Lanka, a third case study examined the scope for "trade-offs and complementarities" between inland fisheries and an extensive irrigated rice scheme in the Kirindi river basin. While the scheme had created new fishing grounds in its large head reservoir, drainage outflows had raised water levels and reduced salinity in coastal lagoons, which reduced the productivity and biodiversity of fisheries. To lower water levels, farmers also frequently drained the lagoons - and their fish and shrimp stocks - into the sea.
Production potential. After socio-economic surveys in a representative sample of villages, and workshops involving stakeholders and government departments, the study concluded that scheme had actually increased the production potential of fisheries in the catchment, from 1,500 tonnes a year to more than 2,600 tonnes. But actual production was negatively affected by scheme operation and water management practices, particularly in drought years. "Conflicts over water resources in the reservoirs and lagoons were the main issues of concern to stakeholders, rather than the overall impacts of construction of the scheme itself," the study concluded. "Stakeholder valuation helped establish a consensus that the fisheries in the project area should be restored and sustained, recognizing that at the very least this would require improvements in the efficiency of irrigation water management."
The FAO report uses the three cases to provide "a first outline" of a water valuation framework that reflects the importance of stakeholders as the key driving force in water resources management and adds to the existing base of valuation tools and methods. "The stakeholder-oriented process should include both stakeholders and water valuation experts," says Leon Hermans. "Throughout the process, use should be made of the suite of methods that is already available for economic water valuation, but in a participatory way, recognizing that in the end it is the stakeholders who have to reach an agreement on how to share the benefits and costs associated with different water management arrangements."
Download Stakeholder-oriented valuation to support water resources management processes - PDF, 1.64MB
See also Economic valuation of water resources in agriculture (FAO, 2004) - PDF, 5.7MB
Read more about water issues in Spotlight: Water use in agriculture, Water management: towards 2030 and Water, food and ecosystems in Africa
Published March 2006