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Executive summary

The purpose of this report is to produce a review on water resource valuation issues and techniques specifically for the appraisal and negotiation of raw (as opposed to bulk or retail) water resource allocation for agricultural development projects. The review considers raw water in naturally occurring watercourses, lakes, wetlands, soil and aquifers, taking an ecosystem function perspective at a catchment scale, and takes account of the demands from irrigated and rainfed agriculture. It is hoped that the review will have particular application to developing countries where agreed methods for reconciling competing uses are often absent, but nevertheless takes account of valuation approaches that have been made in post industrial economies.

The competition for raw water is intensifying and agriculture is often cited as the principal ‘user’ of raw water. The fact that agricultural use involves returns of significant (although often degraded) volumes of water is sometimes ignored. Nevertheless, national agricultural policies in developing countries continue to promote irrigated agriculture to minimize perceived risks in food supply and distribution. In addition, the promotion of agricultural activity is considered strategic in fixing and developing rural economies and in many cases the existing systems of water use rights has reinforced the seniority of agriculture user rights. The agricultural sector therefore needs a transparent system of resource evaluation with which to negotiate and regulate allocation of the resource, both at the national level and at the international level in the case of shared river basins, aquifers and catchments.

This review presents a framework and suite of techniques that can be employed to analyse these issues and make the rationale for agricultural use of water explicit and transparent. It is not a field manual in the sense of a practical ‘cook book’ but rather an ‘advocacy’ brief which sets out to bring together economic and ecological evidence and argumentation in support of the need to challenge and change the fundamentals of the prevailing technocentric water resources exploitation worldview. A new and more suitable approach to water resources allocation in the new century is necessary if the world’s population is to be adequately fed, without further degradation and destruction of the planet’s critical ecosystem services. Water productivity needs to be greatly enhanced and economic cost-benefit analysis and pricing regimes can play a significant role in such a process. These economic measures will not, however, be sufficient on their own and will need to be buttressed by technological innovation and institutional changes to encourage a more equitable distribution of resources and to mitigate potential international conflicts across ‘shared’ waterbasins.

The water resources management problem

Water resources have been experiencing intense and sustained pressure demand from a range of direct and indirect socio-economic driving forces. Although globally, freshwater is abundant, the problem is that it is not available in the right place and at the right time. Arguably the world has been treating water as an almost free resource, despite the fact that competition for raw water is intensifying. Although globally the absolute physical scarcity of water is at best a long term concern, the current management of water resources has been found wanting, with problems relating to inefficient, inequitable and environmentally damaging.

While agriculture is often cited as the principal ‘user’ of raw water, domestic, municipal and industrial uses of water are increasing, and there is now more widespread recognition of the important environmental services provided by water resources. As such, the management of water is an economic, social and political issue encompassing all sectors of an economy. The management involves trade-offs between these sectoral users, as well as between additional economic growth and further water resource depletion, degradation and related environmental concerns. In spite of these trade-offs, much socio-economic improvement can be secured without the imposition of excessive costs or loss of environment integrity. Striking a balance between the complementarity and the trade-off that exists between economic growth and water resource degradation and depletion defines the context that economic and environmental policies and investments for water resources.

The key issues can be summarized as comprising the following (Turner and Dubourg, 1993):

An international consensus in policy regarding water management has emerged, based on growing concerns about efficiency in the use of government and donor resources, disappointing outcomes from past efforts, and greater awareness of environmental issues. This consensus adopts an integrated approach to water resources and multi-sectoral view of water use an at least a catchment scale. Water management is considered in relation to key issues of economic efficiency, environmental protection, sustainability, and the needs of marginalized and poor people. Despite the consensus on water policy there is considerable debate over the practical implementation of any reforms. Efficiency is a necessary but not sufficient condition for sustainability, but just how constraining sustainability standards ought to be remains an open scientific and policy question. The methods and techniques reviewed in this report can provide a decision support toolbox to assist in the answering of these composite 'sustainability' questions and challenges.

An integrated framework to water resource valuation, appraisal and management

Given the generic goal of sustainable water resource management, the approach taken is based on an interdisciplinary, analytical framework in which water is viewed as an integral component of a catchment-wide ecosystem, a natural resource, and a social and economic good, whose value is based on the linkage between water resource structures and processes and the goods and services that they provide at the respective temporal and spatial scale.

The evaluation framework and decision support system proposed in this document is in line with the sustainable water resource management approach advocated by the World Bank (World Bank, 1993). This has as its core the adoption of a comprehensive policy framework and the treatment of water as an economic good, combined with decentralized management and delivery structures, greater reliance on pricing, environmental protection and fuller participation by stakeholders. The adoption of this framework facilitates the consideration of relationships between the ecosystem and socio-economic activities on an extended geographical scale. It takes into consideration social, environmental, and economic objectives and the views of all stakeholders. Water management at this scale needs to be underpinned by coupled hydrological economic models and information (Rosegrant et al., 2000). This form of analysis is still in a fairly rudimentary stage but is evolving quickly.

At the heart of this approach are a number of generic principles that together form a powerful and comprehensive case for the wider adoption of a decision support system based around economic analysis, and which provides a thorough and powerful analysis of key issues related to agricultural use of water:

The principle of economic efficiency and cost-benefit analysis. In an environment of increasing water scarcity, the allocation of water should be at least informed, if not guided (for political reasons), by the full economic value of water in its various uses. When determining the efficiency of water use, as many costs (e.g. destruction of wetlands through over-extraction of water) and benefits (e.g. purification of water through groundwater recharge by using household waste water for irrigation) of water use as is feasible need to be considered. The value of water to a user is the cost of obtaining the water plus the opportunity cost. The latter is given by the willingness to pay for the water in the next best alternative use (in terms of social welfare). For goods and services that are marketed, economic value can be determined using market prices. Methods are available that provide proxy estimates of value for goods and services that are not marketed, though application of many of these is sometimes problematic in the context of developing countries. Water pricing remains a complex process with its own ‘political economy’ arising from the set of legal, institutional and cultural constraints that condition water resource allocation and management in all countries. Economic efficiency as an objective will often have to be traded off against other decision criteria, but will gain in significance as the full social costs of water service provision escalate.

The principle of integrated analysis. The allocation of water has social, cultural, political, as well as economic impacts on society. For it to be sufficient, assessment of water allocation options is therefore required to assess these multiple impacts and interactions between them. This entails a shift away from a more simplistic and narrow sectoral view to a wider perspective that encompasses relevant economic, social, cultural, and political processes. Such an approach is provided by the proposed framework for integrated assessment.

The principle of an extended spatial and temporal perspective. The volume and quality of water supplies and the functions that they provide are determined by the abstraction of water, recharge of water resources and processes of the hydrological system. The thorough assessment of options for water allocation entails consideration of these processes and therefore requires the adoption of an extended geographical perspective. Such a perspective incorporates surface water processes at the catchment scale, ground water processes at the aquifer scale, interactions between surface and ground water, and socio-economic drivers in the wider environment that impact on water resources. Sustainability of water resources also requires a longer i.e. intergenerational, time scale for planning and management, with due regard for precautionary motivations.

The principle of functional diversity maintenance. Water resources provide many environmental goods and services that are of economic benefit to society (e.g. the amenity and recreational value of wetland sites, maintenance of biodiversity in surface water systems, purification of water through aquifer recharge). Diversity in the environmental functions that are provided by water resources contributes to the stability of the associated ecosystems and to the capacity of the ecosystems to recover from stresses and shocks. Of more importance to human development, the maintenance of this diversity also allows the continued provision of goods and services. Maintenance of functional diversity is, therefore, a key component of sustainable water resource management. This is fostered through the adoption of a functional perspective in integrated assessment, which indicates to decision-makers the diversity of existing environmental water resource functions and potential impacts on these of changes in water allocation.

The principle of long term planning and precaution. The criterion of sustainable (water use (in terms of quantity and quality) should supplant short term expediency. In terms of quantity, sustainability requires that current water abstractions should not impose costs upon future generations. The quantity of water that is available for use in any particular period is equal to effective runoff, i.e., the difference between total precipitation and the amount lost through evapotranspiration, plus the stock of freshwater (water stored on the surface or underground). The sustainability rule (at least at the national level) is that water demand should be met out of effective runoff only (Dubourg, 1992). From the quality perspective, sustainability requires that: water quality is non-declining over time. However, the concept of desirable water quality is complex, ambiguous and varies between time and place, making this rule difficult to operationalize. Hence, except in cases where effluent levels exceed critical loads, sustainability arguments cannot be used categorically as justification for improving water quality.

The principle of inclusion. Interactive, participatory and inclusive approaches involving decision-makers, experts and other stakeholders help ensure that decisions focus on real world problems, and that possible solutions are elicited using the combined knowledge and experiences of decision-makers, experts, interest groups and the lay public. They also assist in identifying distributional concerns and increase the chance of consensus being reached on proposed solutions.

In summary, a transparent appraisal of water related projects, programmes or courses of action require a comprehensive assessment of water resources and supporting ecosystems. Based on appropriate scales of analysis, the drivers, pressures, states, impacts and resources (DPSIR) auditing and scoping framework is deployed to highlight the main causal mechanisms that underlie the pressure that is being placed on water resources. Scenario analysis can play a useful role in sustainability planning and recognition of policy options. An explicit focus is required on the distributional consequences of water allocation, together with ‘coping’ strategies for greater stakeholder inclusion in the decision-making process. At the project, policy or programme level, economic appraisal, suitability modified by ecological sustainability principles, need to be applied in a rigorous fashion to assist in the identification of the preferred policy options. Finally, adequate resources need to be put into monitoring and feedback systems to guide the evolution of policy/management options.

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