Pricing irrigation water for drought adaptation in Iran

Journal of Hydrology 503 (2013) 29–46

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Pricing irrigation water for drought adaptation in Iran Alireza Nikouei a,1, Frank A. Ward b,⇑ a b

Isfahan Research Center for Agriculture & Natural Resources, Mailbox 81785-19, Esfahan, Iran Department of Agricultural Economics and Agricultural Business, New Mexico State University, Las Cruces, NM 88003, USA

a r t i c l e

i n f o

Article history: Received 23 November 2012 Received in revised form 23 July 2013 Accepted 19 August 2013 Available online 22 August 2013 This manuscript was handled by Geoff Syme, Editor-in-Chief, with the assistance of M. Ejaz Qureshi, Associate Editor

s u m m a r y This paper examines alternative water pricing arrangements that better manage and more accurately reflect conditions of increased water scarcity experienced during drought in Iran. A comprehensive water balance and crop use model compares the existing below cost water pricing model with an alternative two-tiered pricing approach. The tiers reflect two uses of irrigation water. The uses are (1) subsistence level crop production from farm household production of crops for food security and (2) discretionary cropping. Results of the study offer evidence for a reform of Iranian water pricing principles, subject to caveats described by the authors. Ó 2013 Elsevier B.V. All rights reserved.

Keywords: River basin Food security Irrigation Water pricing Cost recovery Integrated water resources management

1. Introduction Irrigated agriculture is the largest use of water in most dry parts of the world (Biswas, 2007; Brooks, 2007; Varis, 2007). Despite its heavy water use, irrigation makes important contributions to food security in the world’s arid developing countries (Varis, 2007). While irrigation often produces low marginal values of water in these places (Brooks, 2007; Makdisi, 2007), a predicable irrigation water supply creates opportunities for the poor that reduces their vulnerability to climate fluctuations and extreme weather (Tyler, 2007). Drought, water-related shortages, unpredictable water supplies, in addition to poor irrigation water shortage sharing rules are major sources of food security risk in those regions (Li et al., 2011; Mainuddin et al., 2011; Waddington, 2010). Problems with existing methods for sharing water shortages occur as a result of several factors. These include (a) imbalances in social power (Phanslkar, 2007; van der Zaag, 2007), (b) large quantities of irrigation water assigned to politically well-connected farms, which can reduce supplies available for subsistence uses by less well-connected farms (Moreddu, 2011; Nickerson et al., 2010; Roe et al., 2005), and (c) weak institutional responses to address growing water ⇑ Corresponding author. Tel.: +1 575 646 1220; fax: +1 575 646 3808. E-mail addresses: [email protected] (A. Nikouei), [email protected] (F.A. Ward). 1 Tel.: +98 913 116 2826; fax: +98 311 775 7022. 0022-1694/$ - see front matter Ó 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.jhydrol.2013.08.025

scarcities in the face of drought and climate change (Cai, 2008; Jones et al., 2000). Therefore, a difficult and ongoing challenge is how to match the water programs and policies to meet the needs of the world’s poor and/or marginalized irrigation farmers (Namara et al., 2010). Policy reforms could address food poverty in the world’s irrigated regions (Mu and Khan, 2009; Turral et al., 2010). The need to develop more flexible irrigation water allocation rules can become important measures to adapt to impacts of future climate variability to sustain food security and rural livelihoods in the developing world’s dry regions (Ward et al., 2013). Recent studies describe the kinds of irrigation management improvements needed to support growing food security needs (Batchelor, 1999; Lankford et al., 2004; Yang et al., 2003). Non-price rationing is one widespread policy approach to address water shortages (Perry, 2001). Yet, it is widely recognized that this approach can be a poor way to achieve economic efficiency (Zardari and Cordery, 2009), defined for this paper as the use of water so as to maximize the total value of farm income it produces for a basin. Non-price rationing is a poor way to achieve that efficiency because it provides no assurance that water will gravitate to its highest-valued use to maximize a basin’s total farm income. Moreover, a growing challenge is the need to ensure food security, meet water demands for multiple uses, and sustain key ecological assets for growing populations (Fang et al., 2007; Lamberts, 2006; Mu and Khan, 2009).

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Integrated water resources management (IWRM), as an approach to guide policies that promote food security in the developing world’s dry areas, plays an important role in informing policy tradeoffs. IWRM performs that role by keeping track of all sources and uses of water as water supplies move from the headwaters to various downstream irrigation water use areas (Biswas, 2004; Jewitt, 2002; Scott et al., 2003). The use of IWRM is the best practice to account for the interdependence of water use and food production in a large system of irrigated regions in a watershed (Ward et al., 2013). The design and implementation of policy instruments to reach desirable outcomes needs quantitative support. The Dutch economist Jan Tinbergen formulated a theory of economic policy that identified the required set of policy instruments to best reach a set of targets (Tinbergen, 1955). In that work, he recognized that some economic quantities are targets and others are policy instruments. Targets are the economic outcome variables that the policy maker would like to influence. Instruments are the variables over which the policymaker has control. Tinbergen made the important insight that achieving the desired values of a known number of targets requires the policy maker to control an equal or greater number of instruments. Access to more instruments than targets widens the range of choices in reaching the targets. For this paper an important application of Tinbergen’s framework for economic policy is the identification of instruments and targets. Control over the pricing structure for irrigation water is an instrument. Important targets include economic efficiency in the allocation of scarce water, affordable access to irrigation water for family food security, and financial sustainability of the water pricing system. Since there is only a single policy instrument considered here, it will be generally impossible for a single water pricing program to hit all three targets. Pricing is an important policy instrument in the world’s irrigated regions. In those areas, regional water managers face the challenge of managing water use patterns to raise the productivity of irrigated agriculture (Huang et al., 2009, 2010). The price of irrigation water, where such a price exists, can provide an important signal that guides its use patterns (Griffin, 2001). Where implementing affordable access to enough irrigation water for farm family food subsistence needs is an important social goal, access to that irrigation water will not be limited by water users’ ability to pay (UNDP, 2006). Setting the price of irrigation water needs to achieve a number of goals. A number of recent studies conclude that water prices should recover the full costs of supply (e.g., Brooks, 2006; Kostas, 2008; e.g., Rogers et al., 2002). So, water pricing arrangements need to be carefully designed so that water is affordable to the water user while also being financially sustainable for the supplier. Numerous recent published works suggest that the price of irrigation water should promote a more widespread access to water for all users (Abu-Zeid, 2001; Ruijs et al., 2008; Whiteley et al., 2008). Volumetric pricing is one important signal that rewards water users who avoid using high cost water for low valued uses as they adapt to changing water scarcity (Dinar and Mody, 2004; Easter and Liu, 2005; Tsur, 2005; Ward, 2007). However, the costs of implementing volumetric pricing can be high (Tsur, 2005). Moreover, the more conventional pricing method in which prices are set to average cost of supply suffer from the widely-recognized failure to reflect water’s underlying economic scarcity. Average cost pricing (ACP) causes special problems with revenue adequacy in drought periods when supplies fall off without a reduction in the total costs of supply (Nikouei, 2012). Users have less water to buy, so revenues also fall, making it difficult for the supplier to cover costs.

A less commonly used water pricing method is marginal cost pricing (MCP). MCP can improve economic efficiency in agricultural water use (Griffin, 2001; Le Gal et al., 2003; Tardieu and Préfol, 2002). However, MCP can undermine meeting subsistence water needs for food security when the marginal cost of supply rises considerably during all-too-common severe or sustained droughts that occur in the dry parts of the world (Dinar and Mody, 2004; Howe, 2005). The use of two-tiered pricing (TTP) is one recognized method to achieve efficient water pricing as well as securing the subsistence needs for food (Easter and Liu, 2005; Tardieu and Préfol, 2002; Ward and Pulido-velazquez, 2008). Under this arrangement, the price established at the first tier for subsistence needs can be set at an affordable level. However, the price charged at the second tier for discretionary (non-subsistence) uses increases in the face of rising water scarcity from drought or climate change (Abu-Zeid, 2001; Tsur, 2005). While the dividing line between subsistence and discretionary use is never clear, smaller landholders typically use their first few parcels of land for food grain security in order to meet subsistence calorie needs. Additional land, if available, is more commonly used to secure income from commercial production for sale to local or export markets. An analysis of irrigation water pricing reform by Bar-Shira et al. (2006) showed that a TTP arrangement for large scale farming operations can reduce aggregate water use while having little effect on small farms for which the main use of water is to protect farm family food security of calorie intake. Chohin-Kuper et al. (2003) examined financial cost recovery objectives in several Mediterranean countries and found similar results. Several recent studies concluded that setting up a TTP arrangement for irrigation water use in a shared water system offers considerable potential to address both economic efficiency while protecting food security from irrigation water (Barberán and Arbués, 2009; Garcia-Valiñas, 2005; Garcia and Reynaud, 2004; Tardieu and Préfol, 2002). Adopting two tiered pricing for irrigation water achieves the aim of securing access to water for subsistence irrigation food production. Two-tier pricing differentiates between water to support the right to subsistence food production (food security) and the use of water for commercial irrigation. To meet the a food security policy objective the provision of water for subsistence food production would be set at an affordable price, while water would be priced at its marginal cost for its commercial use in irrigated agriculture. Agriculture, the largest user of freshwater resources, encompasses both subsistence farming and commercial use (larger-scale farming). So the policy challenge is to find an effective pricing mechanism that supports the right to subsistence food production while accurately reflect the scarcity of water and also recovering the financial costs of the water supplier. The above literature has made important advances in the analysis of irrigation water allocation and pricing systems that meet one or more of the three objectives described. Despite these contributions, we have found few studies that examined irrigation water allocation and pricing arrangements that could meet or at least address all three objectives. In light of those gaps, the objective of this paper is to examine the potential impacts from establishing a twotiered pricing (TTP) arrangement for farm water uses in order to secure greater economic efficiency, a more affordable access to irrigation water for production of food staple subsistence, and financial sustainability in water use. Financial sustainability is defined for purposes of this paper as having revenues equal to or exceeding costs for the water for the indefinite future. The paper’s objective is met through the development of an integrated basin framework based on the hydrology, economics, and institutions characterizing water use in Central Iran. That framework permits a hydrologically balanced side-by-side comparison of two water pricing arrangements. The two policies

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Fig. 1. Iran’s Zayandeh-Rud Basin and study area.

compared are (1) a TTP arrangement and (2) the existing actual below average cost pricing (BACP) arrangement for water users in Central Iran’s Zayandeh-Rud Basin (Fig. 1), referred to in the remainder of the paper as the Basin. 2. Study area 2.1. The Basin The Basin has a land area of just over 42,000 square kilometers, including 57% in flatlands and the other 43% in more mountainous landscapes. Basinwide annual rainfall average is 130 mm with monthly temperature averages ranging from 3° in winter to 29 °C in summer. The Zayandeh-Rud (the River) is the Basin’s main river. The river flows 400 km eastward and passes through the desert city of Esfahan, a major cultural and economic center of Iran with a population of about 1.5 million (IWMI, 2009). Freshwater resources, including both surface and groundwater in the Basin, are overexploited. Water demands continue to grow while supply has become increasingly constrained or unreliable due to droughts (Salemi et al., 2000). 2.2. Basin map and data Fig. 2 shows a schematic of the Basin. Nodes are assigned to all important points that represent sources or uses of water2. Included are gauged river nodes that measure inflow, streamflow, diversions, surface water return flows, reservoirs, reservoir releases, and groundwater pumping. The structure of the schematic was used as

2 Nodes are: Ben-Saman District (BSD), Mobareke-Semirome sofla District (MSD), North Mahyare District (NMD), Najaf Abad District (NAD), Esfahan-Borkhar (EBD), and Kohpaye-Segzi (KSD).

a foundation for a mathematical model of the Basin. We used the model to analyze policy interventions under each of two water supply scenarios in the Basin over a 10 year period. Major data sources included the Esfahan Regional Water Company (2009), the Iranian Ministry of Jihad-e-Agriculture (2009), and Statistical Center of Iran (2009). In addition, numerous sources of unpublished survey data, and incidental studies and reports were used to provide empirical content to the model. 2.3. Water rights In Iran, water is treated as national community wealth. All water resources of the county are treated as the property of the national community (Parliament of Iran, 1983). However, the right to use water can be owned as private property by irrigation farmers. Surface water rights in Iran’s basins are typically based on a priority permit system. Under this system, regional water resource managers allocate the Basins’ water supplies first to urban residential and commercial uses, then to industrial uses, subsequently to irrigated agriculture, and last to the environment. For agricultural users, each irrigator is assigned a base nominal water allocation, from which actual supplies delivered to the irrigator fall to reduced levels as overall supplies are reduced. Groundwater rights are assigned to private landowners. Under these rights, farmers are allowed to pump up to a set volume of water from wells located on their own land, but they are required to have withdrawal permit from the government. There has been little metering for enforcing the pumping limits in the past. As a result, farmers typically expand their use water from community aquifer for maximizing individual profits without considering the external costs associated with their pumping to other current users or to future generations. Installation of meters on each well has been highly debated by various water stakeholders in Iran since the 2005 legislation.

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Polkaleh Gauge

Varzaneh Gauge

Fig. 2. Node network for Zayandeh-Rud Basin, Iran.

Under the existing surface water allocation system in the study area, each irrigator is assigned a base nominal water allocation. A water agency named MIRAB is responsible for delivering water to irrigators. MIRAB works on the behalf of the Regional Water Management Company, a government organization. MIRAB contacts farmers about planned water deliveries in the upcoming cropping year in the fall based on climate forecasts and existing reservoir storage prior to the sowing of winter crops. MIRAB contracts to market and deliver the given year’s quantities based on their historical water use patterns. It should be noted that traditional surface irrigation is the most popular technology used by farmers in the ZRB. However, the availability and use of irrigation technologies and cropping pattern as well as irrigation scheduling practices vary widely among the irrigated regions of the Basin.

A representative of the farmers known as a PIM participates in this contract. MIRAB forecasts are rarely perfect, so it is often not possible to continue supplying enough water to irrigators throughout the subsequent spring and summer. Water distribution among farmers in each PIM area is based on a time-sharing formula. Supplies are allocated for a given time interval such as a week or 10 days. For each farm the allocation is typically based on a quantity of water such as a cubic meter per ha for that time interval. Therefore, large farms proportionally receive more water than small ones. When drought occurs, actual supplies delivered to the irrigator fall to lower levels as overall supplies available in the Basin are reduced. Since an overall water shortage throughout the Basin is allocated to each farming area and among individual farms as a reduced water flow, the reduced quantity of water

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threatens the food security of small farms when shortages occur, especially in the lower reaches of the Basin. For example, a small farm (up to 1 ha in size) might receive 30 l/s in over a period of 10 h once a week for a farm under normal water supply, which is adequate for food security. However, that same farm may receive only 15 l/s over the 10 h period once a week under drought. That quantity threatens the farm’s food security. As mentioned and Fig. 1, the Zayendeh-Rud river flows eastward and passes through Esfahan City. Locations in the Basin are categorized as: upper basin (above Esfahan city), middle basin (north and south of Esfahan city), and lower basin (below Esfahan city). Upstream irrigated lands tend to have smaller farms and are very fertile for vegetables, rice, and fruits. Downstream irrigated lands have larger sizes and are well-suited for some cereals including wheat and barley. Before constructing the reservoir, water was distributed based on an ancient document, the Sheikhbahaei Rule, written in the early 1600s (Nikouei, 2012). All historical surface water rights in the Zayandeh Rud are derived from this rule. Under this rule, the top priority of water distribution was given to cereal cultivation (including wheat and barley) in the downstream reaches of the Basin. Therefore, water was distributed to downstream lands through traditional networks from October (beginning of cropping year) to June. During this period, water inflows were closed to upstream lands, especially during periods of water shortage. After midsummer, water was closed to downstream and supplied to upstream (from July to September). In periods of severe water shortage, priority of water deliveries was assigned to upstream land for cultivating rice. Only return flows and water uses surpluses from upstream farmers flowed in the river. All modern irrigation networks in the basin were developed after construction of the Zayandeh Rud Reservoir. Neku Abad (Left and Right Banks) in the upper basin and Abshar (Left and Right Banks) are the most important (Salemi et al., 2000). After constructing the reservoir and irrigation networks, parts of the old water rights were converted to new ones supported by such networks. In addition new water rights were made possible, based on possibility of saved and better timed water in addition to new inter basin water transfers that passed through the first and second Kohrang Tunnels. Other parts of the ancient water rights system still exist and are supported by traditional networks in the upper basin (MSD). The remainder of the ancient water rights in the lower basin (KSD) is supported by traditional networks converted to new ones after constructing Roudasht Irrigation Networks in 2004. There are also some new water rights in the basin supported by two new irrigation networks including Borkhar and Mahyar in the middle basin (EBD and NMD). The constructed reservoir allowed better control of flooding. So in normal or wet years both downstream and upstream irrigation networks could deliver water in the majority of cropping months. However, under the typical priority system in this Basin currently (2013), the method of allocating shortages places the heaviest burden of shortages on the lower basin farmers, a fact that has been revealed for several droughts that have occurred in Iran since 2000. Three important points are illustrated in Fig. 2: (1) According to the figure, the main surface water supply resources for the first and second priorities, urban residential – commercial and industrial uses, are located in the upstream (BSD and MSD). This means that even in the water shortage, Zayandeh-Rud Reservoir release has to be set up so that required water for such priorities are supplied. (2) BSD, MSD, and NAD are very fertile for cultivating profitable crops like vegetable and garden crops, as well as making a bargaining power for irrigators to get more water when shortages occur. (3) According to Sheikhbahaei Rule, there was a water allocation priority for farming rice in the upstream including MSD and NAD. While many decision makers in the government do not believe that rice farming should be continued because of its high water use per

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ha, rice farmers claim a priority for getting water to rice from the river even in water shortage because of the importance of rice as a food grain staple. 2.4. Water pricing The Iranian water law titled ‘‘Law of Fair Water Distribution’’ was enacted in 1982 and subsequently amended in 1990 (Parliament of Iran, 1983). Under this law with amendments, the country has attempted to achieve a more fair distribution of water, although it is widely-recognized that fairness is a difficulty concept to measure and harder to implement. Implementations of water pricing in Iran are typically based on this law. Surface water prices in Iran’s irrigation networks are typically formulated as 1 to 3% of total value of cultivated crops in both the traditional and modern and regions of those networks (Council of Iranian Ministry, 1993). Actual prices charged typically recover only a part of financial cost of maintenance and operation for the irrigation networks (Soltani, 1995). However, marginal returns to irrigation farmers from the use of water in most cases are considerably higher than either its price or delivery costs (e.g., Soltani, 1995; Soltani and Zibaei, 1996). Still, article 7 of law titled ‘‘Law of Crop Water Price Fixation’’ (Parliament of Iran, 1990) states: ‘‘Water uses in excess of real cultivation needs (rational/advisable use) will be charged extra prices. Those extra prices would be implemented according to specific condition of region and will be up to 1.5 times more than normal water price in that region.’’ There is no price charged for groundwater pumped for irrigation. Farmers pay capital, maintenance, and operation costs of groundwater withdrawal. Under this arrangement, groundwater resources face overexploitation such that the water table in many irrigated districts of Iran have fallen (Baghestani and Zibaei, 2010; Fathi and Zibaei, 2011) because of the well-known common property problems of shared groundwater aquifers. So there is considerable debate over measures to promote economically attractive uses of groundwater that are also sustainable (Ahmadpour and Sabuhi Sabuni, 2009; Asadi et al., 2007; Baghestani and Zibaei, 2010; Fathi and Zibaei, 2011). There are several reasons to conduct a serious examination of agricultural water pricing reforms in Iran. These include: (a) the lion’s share of water use in the country is consumed by irrigated agriculture, (b) the potential utility of water pricing as a policy instrument to promote economic efficiency, farm family food security, and financial sustainability in terms of cost recovery in irrigation water use, (c) serious water shortages that have occurred several times since 2000, and (d) ongoing debates associated with the best way to implement or alter current water pricing arrangements for irrigated agriculture. Many studies in Iran have analyzed the current and alternative potential water pricing policies to improve the economic water use efficiency (wue) in the farming sector (e.g., Ahmadpour and Sabuhi Sabuni, 2009; Mohamadi Nejad, 2001; Sabuhi et al., 2007), where wue is defined for this paper as the percentage of river system applications (diversions plus pumping) that reach the plant root zone. Overall, such studies conclude that since current water pricing does not vary with the volume of water use, there is no incentive for efficient uses of water by an individual farmer. That efficient use would occur if water for irrigation is used to the point where the economic value at the margin does not fall below the incremental opportunity cost of supplying it. There is a general recognition that if water were priced and allocated by more efficiently, then a greater total benefit from that water could be achieved in addition to promoting greater food security (e.g., Mohamadi Nejad, 2001; Soltani, 1995).

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Overall, Iranian water law is also designed to be compatible with Islamic principles. All laws and rules including economic ones attempt to follow these principles. Islamic law requires that equitable prices should be established for water (Sadr, 1999). This principle is typically implemented by requiring that water sold by the public sector must return the financial cost of water supplies without discrimination among users. Some scholars have proposed that implementation of such policy should signal to farmers the opportunity cost of water, in order to help them to make rational decisions in water use, crops planted, and irrigation technology used (e.g., Nikouei et al., 2012; e.g., Sabouhi Sabouni and Bakhshoodeh, 2004). In line with the above arguments, Soltani and Zibaei (1996) concluded that water pricing for agricultural uses should be reformulated based on recovering the financial cost of irrigation water supply. They consider four goals for pricing and financial cost recovery, including: (a) economic efficiency, (b) financial self-sufficiency for the water sector, (c) income distribution, and (d) providing incentive for farmers to conserve water. Water prices affect water demands for all seasons (e.g., Asadi et al., 2007; Soltani and Zibaei, 1996). Different groups of farmers categorized by land size or cropping pattern react differently to water prices to reduce their use per hectare of land (Asadi et al., 2007; Torkmani and Shajari, 2008). Water demands are more price elastic in wet years than in dry periods (Baghestani and Zibaei, 2010). Farmers adjust to increased water prices by: (a) changing the cropping pattern, (b) reallocating water, and (c) deficit irrigation (Ahmadpour and Sabuhi Sabuni, 2009; Sabouhi Sabouni et al., 2007; Torkmani and Shajari, 2008). 2.5. Recent debates and enactments In 2003, the 1990 law described above was amended to include certain other objectives including economic optimization of available water resources. A central mission of this legislation was to improve water allocation, regulate demand, improve wue, introduce differential water pricing across various classes of users, finance repair and maintenance of irrigation infrastructure, and reduce environmental pollution (Iranian Ministry of Energy, 2003). To implement these ambitious aims, there has been much debate over approaches to reform water policy in the country so that the equitable distribution of water is achieved while raising economic efficiency and promoting the sustainable cost recovery and use of water (Almasvandi, 2010; Iranian Ministry of Energy, 2003). The result of surface irrigation water supplies being priced at less than their opportunity cost in Iran in drought is predictable: The prediction and the fact has been shortages, with resulting food security threats, especially for subsistence farms in the bottom reaches of river basins for which supplies are unreliable in drought periods. These shortages bring considerable economic burden to downstream farmers. Reduced water supplies put at risk farmers’ food and water security. As a result, it becomes a challenge to design a water pricing arrangement to secure for all farmers sufficient water to irrigate a minimum amount of land needed to provide food grain security for the farm family even in the worst drought as well as recover financial costs and encourage economic efficiency. Some scholars believe that the establishment of various water trading or marketing arrangements could solve the problems (e.g., Kiani, 2009; Sadr, 1999). Nevertheless, the requirements, transaction costs, and administration needs of establishing the water market (Jafari, 2005) pose significant economic, political, and logistical challenges for the central government in Iran. Moreover, water marketing arrangements may not succeed in providing enough water at affordable prices for farmers’ basic food subsistence needs.

Iranian farmers are currently charged low prices for water in irrigation. Yet, those low prices exacerbate shortages especially in droughts, particularly for farmers who have a low priority for water supply based on their location in the bottom of Iran’s watersheds. Water prices in irrigation need to be greater than their existing levels and/or water rights need to be defined and administered more equitably to avoid significant food shortages produced by droughts in lower reaches of the country’s basins. A related challenge is to find a way to recover financial costs of water suppliers and encourage economic efficiency among water users. These sometimes conflicting missions are a central part of Iran’s water resource management long-term strategy (Iranian Ministry of Energy, 2003). 2.6. Water management challenges Recurrent drought in the Basin produces ongoing risks and costs of water shortages. Unless properly managed, drought carries important food security implications for subsistence irrigation farmers with landholdings less than 1 ha (Table 1). Water shortage risks and costs are faced by these small farms as a consequence of weakly established formal water right institutions3 and the widespread heavy water use. All of these can contribute to increased malnutrition rates when there is too little water to produce subsistence levels of caloric intake for small farms. In the Basin, water allocation, water use, and water rights all interact in this physically, economically, and institutionally complex watershed. Water use is a vital resource for irrigated agriculture in the Basin. These needs take on more compelling importance when the inevitable drought occurs, during which time the common outcome repeated throughout history has brought considerable suffering to small scale subsistence farmers. These farmers typically have small landholdings on which food grains for subsistence household use is grown. Reduced water supplies undermine small farms’ food security, since much of household’s grain calorie supply comes from its own subsistence production. For each of the farming areas (Fig. 2) food subsistence is the last crop to drop out of production as droughts intensify. Moreover, the lack of extensive scientific knowledge about the Basin’s interacting subsystems has made it difficult for policy makers to comprehensively address water management and policy goals while implementing these aims in the face of ongoing and recurrent water shortages. While water shortages continue to occur frequently, little organized discussion, debate, and analysis has taken place in the Basin that addresses equitable, financially sustainable, and efficient measures to meet water subsistence needs for agricultural water uses. Recent advances in the published literature since 2000 have reached a consensus that integrated basin scale analysis provides a uniquely comprehensive framework for dealing with the related scientific and policy issues of water management. For that reason we see a considerable potential to address this paper’s objective. That objective is to integrate the diverse physical, economic, technical, agronomic, and institutional systems to inform debates over ways to protect subsistence water needs for the Basin’s farms. 3. Methods and materials Our analysis of measures to finance subsistence needs for irrigation water in Iran is addressed through the development and application of an integrated water resource management approach (Cai, 3 Farmers from the eastern part of Isfahan Province, who in 2011 experienced the worst losses from reduced flows of the Zayandeh-Rud, accused the manager of Isfahan Water Management Company of unfair management. Plaintiffs increased from 850 to 2200 in a single day.

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A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46 Table 1 Farmland characteristics, Zayandeh-Rud Basin, Iran, 2012. Location

Upper basin

Irrigated region Farm numbers

Land area (ha)

Average farm size (ha/farm)

a b

Farm Size Smalla Largeb Total Small Large Total Small Large Total

Middle basin

Lower basin

BSD

MSD

NAD

NMD

EBD

KSD

150 22 172 962 1156 2118 6.4 52.6 12.3

15,682 2107 17,789 10,627 14,120 24,748 0.7 6.7 1.4

17,296 373 17,669 30,115 8615 38,730 1.7 23.1 2.2

2922 215 3137 2743 3394 6,137 0.9 15.8 2.0

10,529 615 11,144 16,252 10,391 26,643 1.5 16.9 2.4

16,781 2699 19,480 31,192 32,014 63,206 1.9 11.9 3.2

Total

63,360 6031 69,391 91,890 69,690 161,581 1.5 11.6 2.3

Up to 1.0 ha in size. Greater than 1.0 ha.

2008; van der Zaag, 2007; Ward, 2007). Our approach is based on the empirical analysis of a two-tiered water pricing arrangement that meets several criteria. These criteria include sensitivity to the need for financial cost recovery, the desire to secure and sustain subsistence needs for food grains supplied by irrigation affordably (Gorantiwar and Smout, 2005). Two tiered pricing (TTP) is a special kind of marginal cost pricing. Under TTP, prices that exceed marginal cost are charged for discretionary uses in excess of subsistence requirements. To recover costs, prices for discretionary uses are set slightly above marginal cost in normal water supply periods, but escalate as droughts become more severe. The discretionary price fluctuates with the severity of drought conditions to reflect the growing scarcity (opportunity cost) of water. No matter how severe the drought is, low affordable prices are charged for minimum subsistence uses (Ward, 2007). For our analysis, subsistence use in irrigated agriculture is defined as enough water to irrigate a family farm of 1.0 Ha. Under a TTP arrangement, farm family subsistence food security is promoted by making affordable and accessible that level of subsistence use in irrigated agriculture. That affordable price in the first tier is set to zero for our analysis. In addition, financial cost recovery is assured by producing revenues adequate to cover the cost of supplying water for current and future years when prices for discretionary use in excess of the need to irrigate 1.0 Ha are raised to a sufficiently high level in excess of average costs to ensure overall cost recovery. Our integrated model presents a flexible framework for examining impacts of various proposed water policies. With application to Iran, its development and use can inform the authorities in the Basin and country water authorities about impacts of a TTP program under various water supply scenarios (Gorantiwar and Smout, 2005). The framework accounts for multiple water users, locations, and time periods in the Basin. Recent studies show that more widespread use of river basin analysis would considerably improve the effectiveness of water resource management initiatives. Examples in the literature have been published for the case of France (Lanini et al., 2004), South Africa (Jonker, 2007), Spain (PulidoVelazquez et al., 2008), USA (Brinegar and Ward, 2009), Botswana (Swatuk and Motsholapheko, 2008), Turkey (Gürlük and Ward, 2009), Brazil (Maneta et al., 2009), Egypt (Gohar and Ward, 2010), and Iran (Nikouei et al., 2012). In this study, we build upon the model developed by Nikouei et al. (2012), modifying, calibrating, and verifying it to fit with the objectives of this study. 3.1. Agriculture We defined food grain subsistence needs for irrigation water based on the notion that the Basin’s farms typically plant the first lands on a farm produce to calories to support family food grain dietary supply. For larger farms, lands in excess of 1 ha are com-

monly planted to support commercial crops for sale in local markets for cash or for export. To implement this principle, our analysis treats water use on the first 1 ha of land of the typical farm as supporting food security needs, for which a low price of reliably supplied water is required. TTP as a water pricing and allocation policy takes on special significance as a measure to address, where possible, the three aims of efficiency, farm family subsistence food security, and sustainable cost recovery. From an examination of historical data in the Basin, our evidence shows that the irrigation water needed for this calorie subsistence is about 5000 cubic meters per farm for the first 1 ha irrigated (0.5 m depth) in the Basin. With this information, total subsistence agricultural water needs in each irrigated node was calculated by multiplying 5000 cubic meters per farm by the quantity of land under cultivation for farms of this size and smaller. 3.2. Hydrology The Basin’s hydrology is defined to include water supply sources, water stocks (reservoir and aquifer levels), water flows (river flows, river diversions, reservoir releases, evaporation, pumping) and water uses for irrigation. An empirical stream-aquifer mass balance is used to account for hydrologic connections over time, use, and location. Water inflows into the Basin originate from two sources: surface runoff and inter-basin transfers. Water put to any use can come from stream diversion and/or pumping from aquifers. Total predicted water use in irrigated agriculture is based on technical crop water coefficients per unit of land multiplied by the amount of land in production. Water applications to crops are supplied by a combination of water diverted from the surface water system plus water pumped from an aquifer. After water is applied to the crop, it is partitioned by the use of coefficients into crop evapotranspiration (ET), return to the aquifer as seepage, and surface return flows to the river system. The partitioning coefficients are fixed and unique by crop and region based on historical data. Reservoirs and aquifers are both treated as stocks. For reservoirs, each year’s storage volume is based on its storage in the previous year, annual evaporation, and net reservoir releases. Aquifer storage in any given year is calculated as beginning ground water storage added to the year’s water additions to the groundwater table minus pumping during the year (Ward et al., 2006). System inflows are stochastic over the 10 year planning period, reflecting means and year-to-year variances seen in the period of record. 3.3. Land use Crop irrigation in the Basin typically suffers more from periodic water shortages than from land supply limitations. If water sup-

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A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46

plies are available, land can be found or developed, especially if sufficient time is allowed for development. Nevertheless, in the short term, land use patterns have a major influence on the demand for irrigation water. We used the maximum current irrigated land capacity for each irrigated region as the upper limit on available land. Total irrigated land in production by node, crop, technology, and time summed over crops and technologies combined with crop water ET coefficients. The result determines the demand for water diverted from the river, total crop water ET, and water returned to the system. 3.4. Economics Water use, measured by ET, produces an economic value to irrigators whose crop production enables them to earn an income. For the Basin’s irrigated regions (Figs. 1 and 2), the economic benefit is measured as the willingness to pay (WTP) for water by agricultural producers. It is expressed as total gross margin of water-related farm income earned by crop irrigation. Gross margin per unit land equals price multiplied by yield minus average variable cost, including the cost of water. The total cost of water is measured by energy, operation, and maintenance costs for diversion and pumping at agricultural nodes. Throughout Iran, surface water for irrigation is typically priced under the current policy at a level less than the cost of supply, in which no discounts are given to water use on subsistence farms less than 1 ha in size. 3.5. Objective The objective function used in our analysis is to maximize discounted net present value of agricultural economic benefits over a 10 year time horizon, discounting at a 7% rate. Achieving that objective faces several constraints. These constrains include the Basin’s hydrological, agronomic, institutional, and economic structure, including observed starting values for reservoirs and aquifer levels. A separate model optimization is run for each of two water supply scenarios (normal and drought) and for each of two policy options. Because each model run performs an optimization, it allocates reservoir storage and release patterns along with crop diversion and use patterns so as to maximize discounted net present value of total economic benefits. The model is forward looking with perfect foresight, so in the starting period, it has information on headwater inflows for the 10 upcoming years. Using that information it seeks an optimized trajectory of reservoir storage and releases. The outcome of that optimization is an irrigation water diversion and use pattern that is changes only little over time, consistent with the reservoir system’s large amount of total storage capacity. Larger storage capacity would permit irrigation water use to become more nearly constant over time for a given stochastic inflow pattern. This near constancy of irrigation water use over time is achieved by limiting water use in wet years to reduce use to make the unused water available for storage. The un-evaporated part of water taken from current use and put into reservoir storage is available for release from storage during future dry years. Dry year reservoir releases reduce the higher scarcity of water that would otherwise occur. Higher levels of reservoir storage capacity make water use levels and water scarcity more nearly constant over time. 3.6. Policy analysis The existing irrigation water pricing and allocation system in Iran amounts to below-average cost pricing (BACP) combined with an upstream priority approach for sharing shortages when shortages occur. That arrangement often leads to both financial and

water shortages because water is priced below average cost. This study compares a TTP policy to the existing BACP policy for agricultural uses. Under the TTP arrangement, water uses are priced at what amounts to a politically-negotiated price in which small farms are charged a price sufficiently low to affordably produce subsistence food supplies. TTP is desirable on financial revenue sustainability grounds because the price for all water use in excess of the required minimum subsistence level is raised to a level higher than average cost to make up for financial losses from pricing basic subsistence needs to secure food security from subsistence irrigation. Appendix A describes the algorithm used to implement the model, with additional detail in an earlier article (Nikouei et al., 2012). For our analysis of TTP the first-tier (subsistence) price is set at levels well below the average cost of supply, equal to zero for our study. The price on discretionary uses (second tier) is raised to a level sufficiently higher than average costs to recover financial costs of supply on the total quantity of water supplied for irrigated agriculture. By contrast, under the existing BACP arrangement for the Basin, there is no water subsidy to support subsistence needs for food security. Both subsistence needs and discretionary uses are priced at below-average cost levels. In addition to its weak capacity to make reliable water available for subsistence needs, a widely-recognized disadvantage of BACP is that it fails to signal the scarcity (opportunity cost) of water. Failure to signal the real scarcity of water discourages economically attractive investments in measures to conserve water, a value that becomes more important in the face of droughts of greater severity. 3.7. Water supply scenarios Alternative scenarios for the supply of headwater flows were implemented for our study based on the use of observed data on historical inflows from the recent hydrologic period of record. Two water supply scenarios were constructed for the 10-year planning period. The first is a normal scenario, based on a stochastic set of inflows, equal to 100% of the long term average water supply trend in the Basin and equal to the year-to-year variance in historical inflow. The second is a drought scenario, also using stochastic inflows, but equal to 50% of long term average supplies. 3.8. Solving the model We solved the model using the GAMS CONOPT solver (Brooke et al., 1988). It is a nonlinear programming solver that finds a constrained optimization for reservoir contents, pumping, water use patterns, crop mix, irrigation technologies, and irrigation water use patterns for all Basin nodes (Fig. 2) for the 10 year time horizon. The complete program code is written in GAMS, for which data, assumptions, code, and results are available from the authors on request. 4. Results and discussion 4.1. Overview The current irrigation water allocating and pricing in Iran is (BACP) compared to results of a TTP allocation system (Table 2). Moreover, results are presented for both water pricing arrangements described earlier for each of two water supply scenarios, for a total of four sets of findings. Each policy and each water supply scenario results in a unique hydrologic, agronomic, food security, and economic outcome. Results are shown for BACP under normal and reduced water supply scenarios (Tables 3 and 4), and

37

A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46 Table 2 Irrigation water prices, by water policy, location in basin, water source, and water supply scenario, Zayandeh-Rud Basin, Iran, 2012 ($US/1000 m3). Location

Upper basin

Irrigated region Water policy option Baselinea

Two-tiered

Water supply Normal and drought

Normal

Drought

Use and source Water price for subsistence Surface waterb Ground waterc Price for discretionary use Surface waterb Ground waterc Water price for subsistence Surface water Ground water Price for discretionary use Surface water Ground water Water price for subsistence Surface water Ground water Price for discretionary use Surface water Ground water

Middle basin

Lower basin

BSD

MSD

NAD

NMD

EBD

KSD

0.0 0.0

2.7 0.0

4.0 0.0

4.0 0.0

4.0 0.0

4.0 0.0

0.0 0.0

2.7 0.0

4.0 0.0

4.0 0.0

4.0 0.0

4.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

21.0 0.0

60.5 0.0

35.0 0.0

28.0 0.0

48.8 0.0

29.3 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

69.6 0.0

73.7 0.0

162.2 0.0

30.0 0.0

85.8 0.0

92.6 0.0

a Based on historical water distribution in which users are charged a fixed price of 1–3% of total value of cultivated crops for surface water. Prices do not recover 100% of total cost of water supplied. b Surface water prices are based on the Law of Agricultural Water Prices (Council of Iranian Ministers, 1993). Under that legislation, surface water prices in Iran’s irrigation networks are set at 1–3% of crop receipts. c No price to reflect the scarcity of water is charged for agricultural ground water pumping in Iran.

Table 3 Hydrologic, agronomic, food security, and economic performance, existing water pricing institutions, normal water supply conditions, Zayandeh-Rud Basin, Iran, 2012. Location

Upper basin

Irrigated region

BSD

MSD

NAD

39.7 0.0 39.7

584.4 173.5 410.8

1117.6 309.9 807.7

11.6 0.5

180.1 0.7

2.1 1.0 1.2 0.8 1.3

Food security performance Small farms Ave water use (1000 m3/farm/year) Ave staple food (tons/farm/year) Food security (1000 calories/person/day)b Large farms Ave water use Ave staple food Food security

Hydrologic performance Water applied (million m3/year) Surface water Ground water Water depleted Total (million m3/year) Average (meters depth/ha) Agronomic performance Total land in crop production (1000 ha/year) Small farms Large farms Food staplesa Commercial crops

Economic performance Total revenue ($US million/year) Total cost Total net income Average net income ($US thousand/ha/year) a b

Middle basin

Lower basin NMD

Total

EBD

KSD

95.3 41.3 54.0

487.0 59.3 427.7

1214.4 502.1 712.3

3538.4 1086.2 2452.2

331.8 0.9

32.9 0.5

175.0 0.7

426.7 0.7

1158.1 0.7

24.8 10.6 14.1 17.6 7.2

38.8 30.1 8.6 21.3 17.5

6.1 2.7 3.4 4.7 1.4

26.6 16.3 10.4 15.6 11.1

63.3 31.2 32.0 46.1 17.2

161.7 91.9 69.7 106.2 55.6

120.2 2.8 4.5

16.0 0.4 0.6

50.1 2.4 2.9

14.6 0.9 1.7

28.2 1.1 2.0

35.7 3.6 6.2

32.7 1.9 3.0

985.3 28.2 44.7

158.1 4.3 7.4

665.2 11.1 13.7

245.2 19.1 33.9

308.8 10.8 18.4

227.7 25.8 44.9

242.1 15.6 26.8

7.4 3.7 3.7 1.7

101.2 54.1 47.1 1.9

300.5 114.0 186.6 4.8

11.2 7.9 3.2 0.5

89.1 38.3 50.8 1.9

180.3 92.3 88.0 1.4

689.7 310.3 379.4 2.3

Wheat, barley, rice, maize, beans, and potato. Average household size in rural Iran is 5.

TTP arrangement under the same two water supply scenarios (Tables 5 and 6). Finally, we compare outcomes of all four in terms of impacts on food security, economic efficiency, and sustainability (Table 7).

An important feature of the results shown in the tables is that any new policy affects the hydrologic balance at each point in the Basin, and these impacts are spread throughout the Basin. For example when a policy alters average wue at one part of the

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A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46

Table 4 Hydrologic, agronomic, and economic performance, existing water pricing institutions, reduced water supply conditions, Zayandeh-Rud Basin, Iran. Location

Upper basin

Irrigated region

BSD

Middle basin

Lower basin

Total

MSD

NAD

NMD

EBD

KSD

24.9 0.0 24.9

371.8 107.4 264.4

810.9 239.1 571.8

3.3 0.0 3.3

141.4 0.0 141.4

81.7 0.0 81.7

1434.0 346.5 1087.5

Water depleted Total (million m3/year) Average (meters depth/ha)

7.4 0.6

115.5 0.9

243.9 1.0

1.2 0.9

52.4 0.7

31.2 0.8

451.6 0.9

Agronomic performance Total land in crop production (1000 ha/year) Small farms Large farms Food staples Commercial crops

1.2 0.5 0.6 0.2 1.0

13.6 5.8 7.7 8.1 5.5

25.5 19.8 5.7 12.0 13.5

0.1 0.1 0.1 0.0 0.1

7.6 4.6 2.9 3.1 4.4

4.0 2.0 2.0 1.6 2.5

52.0 32.8 19.1 25.0 27.0

75.4 1.0 1.6

10.2 0.2 0.4

36.4 1.7 2.1

0.5 0.0 0.0

8.2 0.3 0.6

2.4 0.4 0.7

14.6 0.7 0.9

618.5 9.9 15.8

100.6 2.6 4.5

482.6 8.0 9.8

8.4 0.0 0.0

89.7 3.2 5.4

15.3 2.8 4.8

83.5 3.0 4.9

271.48 89.89 181.59 7.11

1.09 0.33 0.76 5.83

48.85 14.71 34.14 4.52

44.15 13.82 30.33 7.50

453.1 158.1 295.0 5.7

Hydrologic performance Water applied (million m3/year) Surface water Ground water

Food security performance Small farms Ave water use (1000 m3/farm/year) Ave staple food (tons/farm/year) Food security (1000 calories/person/day) Large farms Ave water use Ave staple food Food security Economic performance Total revenue ($US million/year) Total cost Total net income Average net income ($US thousand/ha/year)

5.92 2.47 3.45 2.96

81.62 36.88 44.73 3.30

Table 5 Hydrologic, agronomic, and economic performance, two-tiered pricing, normal water supply conditions, Zayandeh-Rud Basin, Iran. Location

Upper basin

Irrigated region

BSD

Middle basin MSD

NAD

Lower basin NMD

Total

EBD

KSD

Hydrologic performance Water applied (million m3/year) Surface water Ground water

39.7 0.0 39.7

377.7 35.6 342.1

1081.3 285.9 795.4

68.1 28.7 39.4

491.8 56.3 435.4

1104.6 377.4 727.2

3163.3 783.9 2379.4

Water depleted Total (million m3/year) Average (meters depth/ha)

11.6 0.5

117.7 0.9

320.0 0.9

23.5 0.5

176.7 0.7

388.1 0.7

1037.7 0.7

2.1 1.0 1.2 0.8 1.3

13.8 5.9 7.9 8.3 5.6

35.2 27.3 7.8 17.9 17.4

4.3 1.9 2.4 3.4 0.9

26.9 16.4 10.5 15.7 11.2

56.8 28.0 28.7 41.1 15.7

139.2 80.6 58.5 87.2 52.0

Food security performance Small farms Ave water use (1000 m3/farm/year) Ave staple food (tons/farm/year) Food security (1000 calories/person/day)

122.6 4.2 6.6

12.9 1.3 2.3

49.6 3.6 4.5

13.0 2.6 4.6

30.3 3.6 6.1

34.6 6.4 11.2

31.8 3.7 6.0

Large farms Ave water use Ave staple food Food security

968.9 27.7 44.0

83.1 2.9 5.0

596.0 10.3 12.6

139.9 12.3 21.8

281.5 10.9 18.6

193.8 24.2 42.2

189.9 14.1 24.3

82.48 37.90 44.58 3.22

294.73 109.48 185.24 5.26

170.10 87.09 83.02 1.46

652.71 282.76 369.96 2.66

Agronomic performance Total land in crop production (1000 ha/year) Small farms Large farms Food staples Commercial crops

Economic performance Total revenue ($US million/year) Total cost Total net income Average net income ($US thousand/ha/year)

7.37 3.71 3.66 1.73

8.63 5.93 2.70 0.62

89.40 38.65 50.75 1.89

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A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46 Table 6 Hydrologic, agronomic, and economic performance, two-tiered pricing, reduced water supply conditions, Zayandeh-Rud Basin, Iran. Location

Upper basin

Irrigated region

BSD

Middle basin

Lower basin

Total

MSD

NAD

NMD

EBD

KSD

24.9 0.0 24.9

302.7 73.2 229.6

530.1 143.7 386.5

44.3 19.2 25.1

289.6 53.7 235.9

283.0 95.8 187.2

1474.6 385.5 1089.2

Water depleted Total (million m3/year) Average (meters depth/ha)

7.4 0.6

92.0 0.9

159.1 0.9

15.3 0.6

105.4 0.7

102.7 0.6

482.0 0.7

Agronomic performance Total land in crop production (1000 ha/year) Small farms Large farms Food staples Commercial crops

1.2 0.5 0.6 0.2 1.0

10.5 4.5 6.0 6.6 3.9

17.9 13.9 4.0 8.1 9.7

2.6 1.2 1.4 1.9 0.7

16.0 9.8 6.2 9.2 6.8

16.8 8.3 8.5 13.2 3.6

64.9 38.1 26.8 39.2 25.7

77.8 2.3 3.7

10.8 1.2 2.1

24.8 2.8 3.5

9.4 2.3 4.2

18.5 3.3 5.5

10.5 4.6 8.0

15.9 2.9 4.7

602.1 9.5 15.1

62.8 1.7 3.0

267.9 6.6 8.1

78.6 6.9 12.3

153.3 7.7 13.1

39.8 10.6 18.4

77.0 6.8 11.6

54.86 30.98 23.89 2.27

217.92 67.13 150.79 8.44

86.42 31.59 54.84 3.26

441.7 161.1 280.6 4.3

Hydrologic performance Water applied (million m3/year) Surface water Ground water

Food security performance Small farms Ave water use (1000 m3/farm/year) Ave staple food (tons/farm/year) Food security (1000 calories/person/day) Large farms Ave water use Ave staple Food Food security Economic performance Total revenue ($US million/year) Total cost Total net income Average net income ($US thousand/ha/year)

5.92 2.47 3.45 2.96

5.98 3.62 2.37 0.92

70.60 25.31 45.29 2.83

Table 7 Economic efficiency, food security, and sustainability of two water pricing and allocation institutions, two hydrologic supply scenarios, Zayandeh-Rud Basin, Iran. Location

Upper basin

Middle basin

Lower basin

Irrigated region

BSD

MSD

NAD

EBD

3.7 9.7 100.0 3.5 3.4 100.0

47.1 1.4 100.0 44.7 0.9 100.0

186.6 3.2 84.4 181.6 2.3 139.6

3.2 3.9 37.1 0.8 0.0 0.0

3.7 11.4 100.0 3.5 5.2 100.0

44.6 2.6 100.0 23.9 2.2 100.0

185.2 4.6 100.0 150.8 3.6 100.0

2.7 5.8 100.0 2.4 4.7 100.0

Water pricing arrangement Baselinea

Water supply Normal

Drought

Two-tierede

Normal

Drought

Objective Economic efficiency Food securityc Sustainability d Economic efficiency Food security Sustainability

b

Economic efficiency Food security Sustainability Economic efficiency Food security Sustainability

NMD

Total KSD

Basin

50.8 2.9 19.6 34.1 0.8 0.0

88.0 11.6 125.3 30.3 1.2 0.0

379.4 5.1 87.2 295.0 1.3 63.0

50.8 6.8 100.0 45.3 6.0 100.0

83.0 15.5 100.0 54.8 9.5 100.0

370.0 7.6 100.0 280.6 5.3 100.0

a Historical water distribution combined with charging users an administered price of surface water equal to 1–3% of total value of cultivated crops. Except for energy and capital costs, groundwater is unpriced. b Measured as total discounted net present value summed over uses, locations, and time periods ($US million/year). c In 1000 calories/person/day. Minimum required energy in Iran to support food security is 2200 calories. d Defined as financial sustainability, measured as the percentage of total financial costs recovered. e Defined as pricing water sufficiently low in the first tier to supply an acceptable number of calories/person/day from on farm subsistence grain production, while charging a sufficiently high price in the second tier to recover total financial cost on all water supplied. The quantity of irrigation water defined for subsistence is taken to be 5000 cubic meters per household for a 1 ha farm (0.5 m deep).

Basin, outcomes affects the downstream water balance, subsequent water availability for other locations in the Basin and ultimately modeled results. Although the wue for any given crop and technology is always constant (no deficit irrigation in our study), there are several crops, and up to three irrigation technologies for each crop (flood, sprinkler, and drip). So any policy change alters the mix of crops and irrigation technologies, and therefore propagates hydrologic effects throughout the Basin.

4.2. Irrigation water pricing Table 2 shows water prices by source and water use tier for both BACP and TTP arrangements. As a matter of policy (Parliament of Iran, 2004), ground water is never priced for agricultural uses. However, it can have a significant capital and energy cost and therefore, marginal cost of pumping increases with rising depth, so groundwater use is currently more expensive than surface water

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A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46

use, although in drought periods it can be much more reliable. The irrigated regions of Iran currently have little metering in place for enforcing existing or potential restrictions on pumping. As a result, the price of groundwater is set at zero everywhere for both BACP and TTP in the study area, as seen in the table. The BACP presents current surface water prices that vary by irrigated region. The table also shows the self-financing characteristic of TTP. This pricing arrangement avoids the need for public subsidies to keep the program financially viable while also presenting affordable prices for subsistence uses. Under a TTP arrangement, the table shows a first tier subsistence price of zero for all locations, assuring the first half meter depth on the first ha of land available for all irrigators in all regions. That first tier assures access to water for food security for all. The first tier makes no contribution to the cost of delivering the water. Capping the first tier’s use at 0.5 m depth on the first ha guards against excess demand for water in that first tier. But it also produces zero revenue for the water supplier. Even with a zero price, it should be able to supply enough water for food security everywhere, unless all headwater sources have virtually zero inflow. TTP does not aim to enact a constant change everywhere from the current BACP pricing scheme. Rather it aims to set a constant first tier price everywhere, regardless of the level of the current BACP price. Of course, reducing the first tier’s price will require raising the second tier’s price in order to recover total costs of supply. The mechanism for designing the TTP arrangement to recover financial costs is to raise the price of the second tier as droughts become more severe. Table 2 shows that the second tier price fluctuates with the severity of drought conditions to continue signaling the opportunity cost of water. No matter how severe a drought is, a zero price is charged for up to the first ha of subsistence water uses. We assume that the first ha of land on all farms is allocated to family farm food security, presumed to be grain production. The higher price for the second tier also promotes some economic efficiency by reflecting a growing opportunity cost of water use. This result is seen in Table 2, when comparing the BACP and TTP results. The second tier price performs an important water allocation function. The table shows that the second tier price for irrigation increases considerably when the water supply falls to 50% of base level. TTP is shown to send the right pricing signals to conserve high marginal cost water brought about by greatly reduced quantities. An important part of the rising marginal cost of water in a drought reflects the higher cost of existing water uses displaced. This high price on discretionary use also performs an important mission of avoiding the considerable shortages that would otherwise occur under drought conditions. 4.3. Program performance 4.3.1. Below average cost pricing, normal water supply Table 3 shows the hydrologic, agronomic, and economic impacts of a BACP arrangement for a normal water supply scenario. Hydrologic impacts are shown in the top part of the table. These impacts are presented for surface and groundwater applications as well as for water depletions. Average crop ET in the Basin is 700 mm per ha (0.7 m depth). The maximum ET rate is about 900 mm in Najafabad District (NAD), for which is seen a more water intensive suite of crops. The table shows that the Ben-Saman irrigation district (BSD) has the lowest absolute water use, while the two agricultural districts Najafabad (NAD) and Kohpaye-Segzi (KSD) consume much more water. An important difference among the irrigation regions is that NAD has a greater amount of land assigned to non-staples (commercial production), while the KSD district makes the largest abso-

lute contribution to food security with about 73% of total land in production planted to staples. These staples include wheat, barley, rice, maize, beans, and potato. This high percentage of food staple production supplied by the KSD occurs because of its distinct cost advantage in supplying food security. Fig. 1 shows that KSD is located in the downstream part of the Basin with fewer restrictions on lands for production but with more limitations on water quantity. Farmers under these conditions plant more of their land to production of food staples with less water quantity but assign greater land to crops like wheat and barley. Similar conditions with fewer restrictions on water quality occur for North Mahyar (NMD) and Esfahan and Borkhar (EBD). Both of these districts have a high percentage of their lands allocated to food staples; they offer a modest cost advantages over the BSD region. The BSD area is located in the upstream reaches of the Basin, with much very fertile land planted to commercial crops such as dried leguminous vegetables, fruits, and nuts. Among the six irrigation regions, the maximum share of land in production for food staples is shown to be the NMD, even though its absolute quantity of staple production is small because of its size. The NAD has a moderate role in supplying both food staples and commercial production. Good water quality and abundant quantity allow the NAD irrigators to bring some of their land into production of staples. The NAD and EBD regions include a large percentage of land in small farms. Since the small farms have just under 57% of total irrigated land in the Basin, the table shows that the majority land brought into production rests on the shoulders of small scale farms. So, any policy that assigns a large and sustainable volume of water to small farms plays a politically and economically important role in sustaining the food security of Basin. The food security performance assigned to a BACP arrangement is presented in the middle part of the Table 4. Results show that water use per farm varies widely among districts by farm size. They show that water is disproportionally allocated by farm size in all parts of the Basin. As a result of such water allocation under a BACP arrangement, there is a disproportionate food security distribution among districts by farm size. The food security produced by staples crops in the large farms as is almost 9 times greater than for those crops for small farms. The bottom part of the table shows the total agricultural economic value associated with each of the irrigated regions. Results show the farms located at upper Basin earn greater economic value per ha than those are located in both middle and lower Basin. The NAD in the upper Basin produces just less than 50% of the Basin’s total irrigation water related net income and also has maximum average net income per ha yearly. The agronomic performance of table shows how the two districts contribute on food staples production of the whole Basin. 4.3.2. Below average cost pricing, reduced water supply Table 4 shows hydrologic, agronomic and economic outcomes associated with a BACP arrangement for water when headwater supplies are reduced to 50% of long run average supplies. Compared to BACP under normal water supplies, agricultural users shoulder just over 59% of the water shortage. That is, in drought, the upstream users appear to take their customary allotment while downstream people get none. Farmers try to use more water per ha (see average ET in Table 4 compared to Table 3) but the wue4 is reduced from 32.7% in the normal water supply to 31.5% in the drought. The result shows that since the price of irrigation water does not rise in drought then BACP provides no effective signal 4 Depending on crop and location in the basin the unused part of water applied to crops equals 1 minus wue. In our model, the unused part of water applied to crops ends up in one of two places: return to the aquifer and surface return to the river. Water returned to the aquifer raises the water table, which reduces future pumping costs, while return to the river system increases downstream river flows.

A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46

rewarding water conservation. Under these conditions, there is no motivation for farmers to improve their wue to make more water available for others to contribute to improved food security. A comparison of Tables 3 and 4 shows impacts of reduced water supplies on the Basin’s crop productions. A 50% water shortage reduces the Basin’s land in food staple production and non-staple crops by 76% and 51%, respectively; a very large reduction in staples products. These changes reflect behavior of farmers who react to water shortages by taking land out of production for less profitable crops (staples). They allocate remaining water supplies to the most profitable crops. Although small farms lose 64% of land into production which less than losses by large farms as 73%, but the absolute amount of land out of production by small farms is 59,000 ha compared to normal water supply which is greater than 54% of the Basin’s land out of production under such water pricing and allocating arrangement and water supply scenario. Therefore, food security becomes more risky for small farms as droughts worsen. For similar reasons, fixed water prices lead to water shortages to downstream uses as described above, with attendant threats to food security. This threat is especially significant for subsistence farms in the bottom reaches of the Basin. These shortages in fact did occur when the water authority cut irrigation water supplies during the drought. As expected, this action brought special suffering to downstream subsistence farmers. Reduced water supplies put at risk farmers’ food security, since the top priority for subsistence farmers is self-sufficiency in food grain production. The Tables 4 and 5 also show that on-farm substitution of higher valued crops for more economically marginal ones in the face of the water shortage reduces economic benefits in irrigated agriculture by only about 22%. The NMD, EBD and KSD districts in the middle and lower Basin suffer a reduced profitability of 77%, 33% and 66% respectively while the impact of a drought over the 10 year period of analysis averages a much smaller 4% for the remaining three agricultural regions in the upper Basin. Consequently, the current water pricing and allocating arrangement treats the welfare of downstream farmers compared to those who are farming in the upper Basin as droughts worsen. 4.4. Two-tiered pricing, normal water supply Table 5 shows TTP under a normal hydrologic supply contributes to reduced surface, ground, and overall water use 12%, 39%, and 3%, respectively. The table also shows the distribution of land in production among agricultural users. There is a 16% change on land brought into crop production for food staples and other crops under two-tiered compared to BACP in the normal water supply. However, the distribution of land in production by crop is altered. For instance, land in production of food staples decreases from 21,300 to 17,900 ha in NAD (16%) while it decreases just 11% in the KSD, the lower part of the Basin. That is, while there is no major change in land in production for commercial crops in NAD, but such crops decreases by 8% in KSD. These results occur because the NAD region is fertile for the production of commercial crops like vegetables. Irrigators in that district have incentives to implement production of such crops to balance their income in the face of raised second tier water prices associated with more severe drought conditions, in which growers reduce their land in production of food staples. In contrast, KSD is major food staples producer for reasons described above. The increased water motivates farmers to keep their use of water for food staples, much of which is for subsistence production to support the basic subsistence calories needed for small scale farm families. A comparison of Tables 3 and 5 shows that TTP increases food security indicator for small farms up to 50% while decrease this indicator for large farms just 10%. This change occurs while the absolute amount of food security indicator (2430 kcal/person/

41

day) is still acceptable compared to minimum calories per person needed to having food security in Iran5. We conclude that TTP improve the food security for small farms without undermining that security for large farms. So TTP addresses the aim of conserving water as well as promoting food security. Results also show that total net efficiency benefits decrease slightly from $379.4 million/year produced under a BACP to $370 million with this system, a 3% loss. This is because the farm income lost from water losses to large farmers’ discretionary uses is larger than the farm income gain from subsistence use going to small scale farmers.

4.5. Two-tiered pricing, reduced water supply Table 6 shows the Basin’s overall performance for a TTP system charged to irrigators under reduced water supplies. Water applied increases by 3% compared to the same hydrologic supplies under a BACP arrangement. This increased water use occurs through increasing of 10% to surface water demands. Under BACP, groundwater resources face high use, by which water tables in many irrigated districts of Iran have fallen. However, water shortages under a TTP arrangement are met by price signals sent to farmers to conserve water.6 Results show that since water depletion decreases by about 6% in this water policy and scenario, WUE increases up to 32.7%; an improvement by 4% compared to same water supply scenario under BACP. Remarkably, land allocated to food staples increases by 36% while land allocated to other crops also decrease by 5% compared to results under BACP. Table 7 also shows that TTP performs an important mission of increasing food security for the smaller farms with too few economic resources to afford to pay higher water prices during drought periods under BACP. The results reveal that farmers would plant their land using available water for food grain subsistence that is made economically and physically accessible. Thus, the Basin’s food security increases by up to 80% and 57% respectively for small and large farms under TTP and reduced water supply compared to BACP and same hydrologic scenario. In addition, in drought conditions for the case of a BACP system, upstream users can be expected to take their customary allotment while downstream users receive none. The table also shows that TTP reduces economic efficiency (5%), but increases total farm income by about 36% for both the middle and lower Basin farmers who would otherwise receive no surface water allocation under BACP when drought occurs. TTP reduces upper Basin net farm income 29%. However, none of that loss in net income occurs where food security is at risk since the subsidized price for subsistence water use stays constant even during drought. Therefore, the gain in food security associated with TTP is more pronounced in the face of drought, just when the need to conserve water by upstream users is more important. Looking through the fog of details, our results show a general principle in action. That principle states that in the face of droughts of growing severity the price on discretionary water uses rises in greater proportion than the physical water shortage. That disproportionate rise in price occurs for the water system to remain financially viable while also pricing water cheaply enough to sustain and secure subsistence water needs to support food calorie security. This means that modest but essential subsistence water demands by small scale farms can be sustained even in drought periods, as long as discretionary quantities and prices are high 5 Minimum energy needed for food security in Iran is estimated at 2200 kcal/ person/day. 6 If the administrative challenges of implementing TTP could be met for the case of pumping, TTP could also reduce pumping pressure on the Basin’s aquifers.

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enough to make up for revenue shortfalls on the heavily subsidized subsistence demands. 4.6. Comparing programs The current irrigation water pricing and allocation arrangement in Central Iran is based on the principle of BACP combined with an upstream priority allocation system to allocate water during periods of shortage. That current arrangement, leads to financial and water shortages because water is priced below average cost, raising the demand for water and producing revenues that fall short of costs. Moreover, under BACP of water, there is only one price charged for all use levels and that price equals the average cost of supply, as shown in Tables 3 and 4. Under that arrangement, prices are lower than prices set to marginal cost for discretionary uses under a TTP arrangement. Compared to BACP, TTP subsidizes water prices to assure a minimum level of subsistence water use for irrigation uses equal to 0.5 m depth for the first ha. A comparison of Tables 5 and 6 shows that the second tier price on discretionary uses charges a higher price on all uses in excess of subsistence levels. While meeting subsistence needs is an important political factor that motivates TTP, the need for financial viability is another significant aim. When the policy decision is made to subsidize the first tier at a politically negotiated rate less than the average cost of supply, financial viability requires pricing water at a higher rate than average cost on discretionary use to make up for revenue losses on the subsidized water. The higher price on discretionary use under TTP promotes reduced water use by enough to adjust to a drought condition when it occurs. Pricing at a high enough level to recover costs on the second tier amounts to implementing politically workable marginal cost pricing, thus promoting added economic efficiency and financial sustainability compared to BACP. This added economic efficiency is particularly noticeable and important during a drought period. Under those drought conditions, TTP is especially attractive, because water use in the second tier adjusts more dramatically to guard against inadequate supplies that would otherwise occur without an incentive to save water. Table 7 shows financial losses in full supply periods under BACP, because irrigation water price is set below average cost. But water shortages, financial losses, and food security become more serious as droughts worsen. That is, in drought, the upstream users appear to take their customary allotment while downstream people get none (all for some and none for others). The price of irrigation water does not rise in drought to signal the need to conserve, so financial shortages to the seller (government) become more pronounced. That is, fixed prices provide discouraging incentives to save water while contributing to water shortages facing downstream users. Since a higher price is charged for agricultural uses finance subsistence uses, it is equally as financially sustainable as BACP. Moreover, TTP is more financially sustainable than BACP under drought conditions since the marginal price on subsistence use rises to provide additional incentives to conserve water in the face of a drought that reduces overall supplies. TTP deals with problems faced by the BACP as well as promoting food security under an accessible and affordable water amounts for all water supply scenarios and all irrigated regions. However, TTP will reduce farm income on irrigated lands larger than 1.0 ha in size compared to that earned under BACP when drought occur. However none of that loss occurs where food security is at risk since the subsidized price for subsistence water use stays constant even during drought. Overall, a TTP water pricing and allocation system achieves these benefits:

– It sustains more water to small scale farmers under drought than those farmers would secure under the current BACP pricing arrangement. – Food grain security in the Basin as a whole is increased, because these small scale farmers can produce enough grain for their families when small amounts of reliably supplied and affordably priced water are supplied to their farms. Under TTP, large scale farmers lose some water, but these large scale farmers do not lose access to their basic food grain production. They only lose commercial cropped income. – It may produce less overall farm income to the Basin. This is because the farm income lost from water losses to large farmers’ discretionary uses is larger than the farm income gain from basic need water going to small scale farmers. So economic efficiency is reduced slightly under TTP, but food security (production of calories from grains) is higher. – Economic efficiency slightly decreases for the basin, which may be a small price to pay for greater assurance of food security, financial sustainability, and near economic efficiency achieved on discretionary water uses. Tinbergen’s observation from 1955 is still true. One policy instrument achieves only one objective. An exclusive reliance on one instrument to achieve the objectives of economic efficiency, equitable food security, financial cost recovery, and resource sustainability is unlikely to achieve all objectives at the same time. Our results show that the TTP scheme modeled for Iran water is fortunate enough to contribute to a modest improvement in food security, cost recovery, and improved economic efficiency by signaling the growing scarcity of water in drought. If prices in the second tier are raised above the average cost of supply, the second tier can also contribute to financial sustainability. So a TTP system is really a system with two policy levers, the price at the first and at the second tier. Still, it is important to acknowledge the importance of Tinbergen’s insights applied to water management at the basin scale. Ignoring Tinbergen’s insights has led to multiple water policy response and reform failures.

5. Conclusions The ongoing search for self-financing measures to meet subsistence needs for water for sufficient, affordable, and accessible water for irrigation water users continues to challenge both the water science and water policy communities. This paper has examined one approach to secure affordable access to subsistence water needs for irrigation uses through self-financing water pricing measures. Based on the development and use of an empirical integrated basin framework, a two-tiered water pricing (TTP) system for agricultural uses was compared to the existing below average cost pricing (BACP) arrangement for the Zayandeh-Rud River Basin of central Iran. Both water pricing systems were analyzed under each of two hydrologic scenarios including normal and reduced water supplies over a 10 year period. Results reveal that TTP could reduce prices to sustain subsistence needs to a set minimum level of water security for uses in crop irrigation. However, the need to secure financial cost recovery for the program would require raising prices on discretionary uses in excess of the minimum level needed for subsistence use. The higher price on discretionary use in excess of the amount needed to irrigate 1.0 ha of land under a TTP arrangement promotes water use only if the use produces a higher economic value than the economic value in alternative uses. It also ensures financial sustainability. When drought conditions reduce water supplies, the subsidized price for subsistence use stays the

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same as price under full supplies. Maintaining that price and associated access to water can be an important contributor to farm family food security. However, in order to avoid water shortages for downstream users that undermine downstream food security while also remaining financially viable the price on discretionary use needs to increase above its price under non-drought conditions. To finance the minimum water need for food security, the price on discretionary use is set equal to the marginal opportunity cost. That marginal cost is the economic benefit lost by displacing other water uses, a cost that can be quite high in periods of severe drought. TTP can perform an important contribution to drought adaptation, financial viability, and food security. Our results show that TTP is provides greater food security and cost recovery for the Basin than the existing BACP arrangement. An important qualification of our analysis is that is that food security is considered in terms of total production and dietary caloric requirement for all irrigation farm dietary needs in the Basin. This aggregate view of food security does not guarantee food security for all farm families in the Basin. Another important limit of our work lies with the scope of quantitative analysis. Our results found that a TTP arrangement was a more effective approach for sustaining farm income and food security in the face of drought. But quantitative economics may not be the most effective way to communicate and persuade irrigation water users or the state to take action. While our evidence is strong, it will be a challenge to get the findings and their implications embraced and put into action. At a minimum, implementing the path forward will require considerable communication with a wide range of water stakeholders. Translating our results into a just water rights administration system will be difficult in Iran or other developing countries with world views in rural areas different from policy analysts schooled in western analytical thinking. That is, policy insights gained by rigorous scientific analysis of objective data have no guarantee of being used to inform or support policy. Therefore, considerable challenges remain in finding culturally compatible methods to implement a TTP system described here. Our conclusion that TTP is a superior way to price and allocate irrigation water leaves much to be carried out on the ground. The existing irrigation water pricing and allocation system by which upstream users are assigned top priority and for which prices do not increase for discretionary use will be difficult to change for many reasons. Centuries of planting and water use habit will not change overnight without open and vigorous public debate of the alternatives discussed in this paper. Moreover, while TTP contributes to cost recovery and achieves greater food security objectives when the inevitable drought occurs, upstream water users may have the greatest amount of power and are unlikely to relinquish that power voluntarily. A broader scope approach for adapting to drought and climate variability would increase reservoir storage capacity and improve reservoir operation while also instituting a more food secure irrigation water allocation system. The joint development of storage and enactment of a more efficient water allocation system makes it easier to meter available supplies during drought periods, greatly simplifying administration of the kind of TTP water pricing and allocation system described in this paper. Better data combined with the existing type of analysis have considerable power to perform an important function for a more informed water management system in the Zayandeh-Rud River Basin of Central Iran. To the extent that the methods developed for this paper could be transferred to other target locations, we anticipate their application could contribute to water pricing and allocation institutions in other parts of the developing world’s irrigated areas.

Acknowledgements The authors are grateful for financial support for this work by Isfahan Research Center of Agriculture and Natural Resources (Iran) and the New Mexico Agricultural Experiment Station (USA). Appendix A. Mathematical documentation This appendix presents the algebra used to compare a twotiered water pricing (TTP) arrangement to the existing below-average cost pricing (BACP) for irrigated agricultural water use in a river basin of Central Iran. It augments the baseline mathematical appendix found in Nikouei et al. (2012). A.1. Water pricing systems Under a two tiered pricing (TTP) arrangement, the first tier of irrigation water use is priced at a set politically negotiated price that is below the average cost of supply. Subsidizing the first tier is desirable on food security grounds because it supports the typical irrigation farm family’s grain calorie subsistence needs affordably. For the second tier of water priced and used under TTP, the price for all irrigation water use in excess of subsistence crop water demands is elevated to a level sufficiently higher than the average cost of supply to offset financial losses from the subsidized water. Many small farms would have too little land to use the quantity of water beginning at the second tier. By contrast, a below average cost pricing (BACP) arrangement is typically practiced in this river Basin. Under the BACP arrangement there is no first tier water subsidy sufficiently large to protect subsistence food grain security. For the existing BACP system, both subsistence needs as well as discretionary uses are priced identically and below-average cost levels. Denoting Psu as the price for subsistence uses, and Pdu as price for discretionary uses, these systems are formulated as below equations:

( Psus;p agr;t

¼

Pnagr (

s;p

Pduagr;t ¼

s;p

Pbacagr;t

s;p

8p 2 BACP 8p 2 TTP

Pbacagr;t

8p 2 BACP

Pesagr;t

8p 2 TTP

ðA1Þ

ðA2Þ

Superscripts s and p denote the hydrologic scenario and water pricing policy. The subscript agr refers to an index for each of the six agricultural locations shown in Fig. 1,7 while t is year. Pnagr and Peagr are dividing lines for the first and second tiers of agricultural water use under a two tiered pricing (TTP) arrangement. The equations show that Psu and Pdu equal the negotiated price (Pnagr) for the TTP or the equilibrium price of water uses (Peagr) for BACP, for its cost of cost of water delivery (Pbacagr). Under BACP (p 2 BACP) and for all water supply scenarios (s), both Psuagr and Pduagr are equal to Pbacagr. However, Psuagr is equal to Pnagr and Pduagr is equal to Peagr under a TTP arrangement (p 2 TTP). A.2. Water allocation systems The water allocation data used for this study area shows that each district’s total annual water use as a function of the Basin’s total annual use summed over the irrigated districts under the normal (full) water supply. The functions are based on the principle that all districts have an equal priority, but have rights to unique 7 In the framework of Nikouei et al. (2012), there are pumping and diversion uses districts (u) including urban, industrial, and agricultural nodes. Here, the term agr shows that our analysis is limited to agricultural water use.

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shares of the river system’s total flow. However, there is a priority allocation system when drought occurs, in which upstream districts are assigned a higher priority. If all irrigated districts share water shortages proportionally, then each district’s share is: Total district use = a + /  Flowagr,

X ¼ a þ /  TAF

ðA3Þ

where a is an intercept and shows the constant amount of water delivered to district under all hydrologic supplies; / is the proportion that a given district receives from total agricultural flows (Flowagr) beyond its constant intercept amount. The proportions add to 1. Total agricultural water supplies are based on supplies remaining after use by other sectors, including urban, industry and environmental uses. Implementation of the above principle requires a water allocation formula to define the baseline water allocation policy against which alternative water allocation rules can be compared. The equations below incorporate alternative water allocation systems.

TAF st

¼

X agrdriv er

X s;p agrdriv ert ;t

s;p X s;p þ /s;p  TAF st agrdriv er ;t ¼ a

ðA4Þ 

a¼0 8p 2 BACP a ¼ TWsuagr 8p 2 TTP

X FWsupagr Scaleagr;size;t

p TPFus;p agr;size;t ¼ CPEagr MSUuagr Scaleagr;size;t

TPMss;p agr;size;t ¼

X

Yieldapplyagr;j;t Lapplyagr;j;size;t

ðA7Þ

8j 2 staple

ðA8Þ

j

where TPF shows the total product of food staple crops for farm food security, CPW is the staple crop production per unit water, Yield is crop yield per unit land for crop (j) at any given agricultural water application node (applyagr), L is the number of hectares of land in production needed for the irrigated area’s food grain security. The term TPM illustrates the total production of staple crops. To implement a food security mission through a TTP water pricing arrangement, the model implements the constraint: s;p TPMus;p 8p 2 TTP agr;size;t  TPFuagr;size;t P 0

ðA9Þ

where the optimization model allocates enough tier 1-priced water to support food staples production sufficiently high on tier 1 water use to assure food security for all farms. A.3. Cost recovery

ðA5Þ

where TWsuagr is the total quantity of water for subsistence uses, summed over all irrigators in an agricultural node (agr) shown in Fig. 2. It reflects subsistence food production needs required for an agricultural district’s grain food security. That total water quantity is the amount that is priced at a politically-negotiated and affordable rate in the first tier of a TTP arrangement. Under this arrangement, the first tier is set up so that total irrigation use at each agricultural node supplies enough to all farmers in the district in irrigation node to meet basic household food security requirements. Thus, if p 2 TTP then: a = TWsuagr. Define FWsu as the per farm household quantity of water needed to protect food grain subsistence dietary calorie production, e.g., cubic meters per farm needed to protect those calories. That quantity would be a politically negotiated amount of water per farm household per year. From that definition, the following equation describes total water quantity required for subsistence uses that assures farm family food security, summed over all irrigated areas in the Basin.

TWsus;p agr;t ¼

To incorporate allocating rule of water the subsistence uses of farm food staple crops, the following equation is added to model:

ðA6Þ

size

where scale is the total number of farm households and average farm size in each irrigated region is labeled by the subscript size. It shows that total water supplied in the first tier for subsistence uses (TWsu) to each irrigated district (agr) is found by multiplying per farm household minimum subsistence use (FWsu) by the number of farm households (Scale). Since there is no size subscript associated with FWsu, the equation shows that there is no difference on allocating water for subsistence uses between small or large farm sizes. Thus, the summation on size in the right hand sided of equation calculate the total water quantity for subsistence uses. Large and small farms have the same minimum subsistence water requirements. A BACP arrangement uses a different set of principles than a TTP. Under a BACP system, water is subsidized at a price that is independent of the use level, with no distinction made between subsistence and discretionary use. Thus, if p 2 BACP then a = 0. Water is priced at levels below average cost for all levels of use, so water is subsidized, but the rates are constant over all use rates, so there is no price differentiation by tier, and hence no need to define a tier. So, a BACP arrangement has only one tier.

The second step after defining the elements of water pricing systems defines the total revenue of water deliveries by: s;p

s;p s;p s;p TRs;p agr;t ¼ Pduagr;t ðX agr;t  WSUt agr;t Þ þ Psuu;t

ðA10Þ

which says total revenue, TR, at the agricultural use nodes, equals revenue from tier 1 (subsidized) use plus revenue from tier 2 (higher priced) use. For a given amount of total water use, X, allocated to a farming region (Fig. 2) revenue from tier 2 use is the price for discretionary use, Pd, times the difference between X, and the subsistence use rate, WSUt. Revenue from the subsidized use is the price for basic needs, Psu, times subsidized use, WSUt. As shown in (A2), prices for discretionary uses are set up at each agricultural node under TTP arrangement. Since a quadratic function is used to reflect total benefit of agricultural water uses (Nikouei, 2012), a linear marginal benefit function shows the incremental benefit of additional water for irrigated districts. That marginal benefit (MB) is the partial derivative of the total water use benefits function, TB, with respect to additional total use, X. It is defined by Eq. (A11) and equals to price for discretionary uses (Pdu) defined by Eq. (A12) as below: linear s;p quadratic s;p MBs;p X agr;t agr;t ¼ bagr X agr;t þ 2bagr

ðA11Þ

s;p Pes;p agr;t ¼ MBagr;t

ðA12Þ

where bs are parameters and their superscripts denote the linear and quadratic terms, respectively, for the beneficial use of water (X) at each of the agricultural water use nodes (agr) in any given period (t). However, the prices for both subsistence and discretionary uses set up below average cost (AC) under an average cost pricing (BACP) arrangement. The average cost is calculated as:

AC s;p agr;t ¼

TC s;p agr;t X s;p agr;t

ðA13Þ

where TC includes delivery costs of the quantity of water supplied at each use node and time. Denoting dc as the energy, operation, maintenance, and monitoring cost, both per unit of pumping or diversion, total delivery cost for water use-related nodes is: s;p s;p p p TC s;p agr;t ¼ Rpump ðdc agrpump ÞX agrpump;t þ Rdiv ert ðdc agrdiv ert ÞX agrdiv ert;t

ðA14Þ

Net revenue from crop irrigation at any use node is total revenue, TR, minus total costs, TC, equal to:

A. Nikouei, F.A. Ward / Journal of Hydrology 503 (2013) 29–46 s;p s;p NRs;p agr;t ¼ TRagr;t  TC agr;t

ðA15Þ

To protect financial sustainability in which total revenues over both tiers are at least as high as total costs, the model implements a constraint defined as:

NRs;p 8 p 2 TTP agr;t  0

ðA16Þ

This constraint instructs the optimization model to raise price just enough on discretionary (unsubsidized) use to make up for financial losses on subsidized use. Higher existing levels of discretionary use reduce the amount by which the price must be raised on each unit of that use. A.4. Policy goals Important goals of water resources management include: (a) equitable distribution to satisfy food security, (b) economic efficiency, and (c) sustainable use of water. Studies show that there are several criteria to measure ability of water management policies and planning in the way of noted goals (e.g., Gorantiwar and Smout, 2005; Nikouei, 2012; Ward and Pulido-velazquez, 2008). This study measures food security, FS, on subsidized water use as the total production of food staples by farms, times the number of calories for each produced staples crops (Cal), by:

FSs;p agr;size;t ¼

Yieldapplyagr;j;t

Ls;p applyagr;j;size;t Calj

Scaleagr;size;t HSagr

8 j 2 stable

ðA17Þ

where HSagr shows the average farm household size in each agricultural district (agr). This equation presents a simple implementation of our objective of food security. Achieving this mission assures that the affordable and accessible grain food subsistence is secured. Economic efficiency is measured as: s;p s;p EEs;p age;t ¼ TBagr;t  TC agr;t

ðA18Þ

This states that economic efficiency, EE, is equal to the net benefits of water use, and is the difference between total use benefits, TB, and total use costs, TC. This dependent variable characterizes the performance of each water pricing system to achieve economic efficiency for the whole river Basin over all time periods. Financial sustainability is ensured by stating that revenues from water supplied must exceed or at least equal costs over all nodes in the Basin (cost recovering). It is defined by:

CRsp agr;t ¼

s;p TRagr w ;t s;p TC agr;t

!  100

ðA19Þ

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