Groundwater pricing for farms and water user association sustainability

Abstract

Tunisia has invested heavily in irrigation schemes to secure water supply. The management of irrigation systems has been denied to local water user associations (WUA). These WUAs are assimilated to a natural monopoly. They sell water to farmers at the unit operational cost (marginal production cost). Such a price does not allow for budgetary balance, which leads to a chronic deficit of these WUA. It also does not reflect the scarcity of the resource, a situation that contributed to irrigated area expansion, an increase in the agricultural water demand, and misallocation of the resource. Low cost recovery results in poor maintenance, infrastructure deterioration, and water distribution inefficiency. The purpose of this paper is two folds: (i) to propose an alternative price scheme which ensures cost recovery and water use efficiency and (ii) to examine the impact of this new price on the farms’ surplus. To achieve this goal, we assumed that irrigation’s water price increase will be necessary. A field survey of 75 farmers in the center of Tunisia was conducted to estimate the irrigation water demand function. We also used the data collected on 36 WUAs in the region to estimate the irrigation water production cost function using the OLS method for both demand and cost functions, and the peak and the non-peak irrigated demand functions (i.e., summer and winter). The methodology consisted of maximizing social surplus to derive optimal prices for both seasons. The main results show that an increase in price in the range of 11 to 15 % in the winter and 50 to 75 % in the summer results in 11 % decrease of the annual quantity consumed and in a 2 % increase in the social surplus.