Economic valuation of water resources in agriculture
From the sectoral to a functional perspective of natural resource management


Kerry Turner
Stavros Georgiou
Rebecca Clark
Roy Brouwer

Centre for Social and Economic Research on the Global Environment
Zuckerman Institute for Connective Environmental Research
University of East Anglia, Norwich
United Kingdom of Great Britain and Northern Ireland


Jacob Burke
FAO Land and Water Development Division


Rome, 2004


Table of Contents

Cover photograph:

Farmer pumping groundwater, Gujarat, India.
Marcus Moench

The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.

ISBN 92-5-105190-9
ISSN 1020-1203

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© FAO 2004




Executive summary

The water resources management problem
An integrated framework to water resource valuation, appraisal and management

Chapter 1. The role of water in agricultural development

Economic characteristics of water
The dominance of agricultural water use

Pressures on the supply of water for irrigation

Irrigation and agricultural development objectives

Food security
Poverty alleviation
International consensus in water policy: water as an economic good

Chapter 2. A framework for interdisciplinary analysis of water resources: a functional perspective

The nature and problem of environmental valuation

Previous studies

The functional perspective at a catchment scale
The need for analysis at the catchment scale
Ecosystem functioning and the functions of water resources
Maintenance of functional diversity
Structures, processes and functions of water resources

Hydrological functions
Biogeochemical functions
Ecological functions

An integrated approach to assessment

Scoping and problem auditing
Identification of appropriate evaluation criteria
Data collection and monitoring via indicators
Assessment of the options under consideration by decision-makers

Chapter 3. Economics of water allocation

Economic appraisal and allocation of water

Cost-benefit analysis
Cost-effectiveness analysis
Economically efficient allocation: the theory
Reasons for inefficient allocation

Water allocation policy

Water allocation systems
Pricing and cost recovery in the irrigation sector

Pricing, opportunity costs and economic benefits

Opportunity costs of resource depletion and degradation
Economic benefits

Chapter 4. Economic valuation of water resources

Valuation of goods and services provided by water

Total economic value: linking functions and service flows

Use of economic values in the management of water resources

The importance of water in national development strategies
Modification of national accounts
The setting of national and sectoral priorities
Project, programme and policy evaluation
Economic valuation and sustainable development

Practical issues concerning economic valuation

Aggregation and double counting
Allocation over time
Risk and uncertainty
Irreversible change
Data limitations

Economic valuation techniques

Indirect approaches
Direct approaches
Environmental value transfer
Income multiplier method
Other non-economic approaches to valuation

Economic valuation of functions and services: practice

Hydrological functions
Biogeochemical functions
Ecological functions

Review of valuation studies

Chapter 5. Conclusions

Values and services

Notions of efficiency
Valuations and pricing

An integrated framework to water resource valuation, appraisal and management

The implications for sustainability of productivity


Annex - Case studies

Overview of studies

Authors: A-D
Authors: E-K
Authors: L-Q
Authors: R-Z

FAO technical papers

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