Accepted Manuscript
Water Trading Opportunities and Irrigation Technology Choice: An example from South India Susan Varughese , K.V.Devi Prasad PII: DOI: Reference:
S2212-6082(16)30031-6 10.1016/j.wrr.2017.02.002 WRR 39
To appear in:
Water Resources and Rural Development
Received date: Revised date: Accepted date:
29 July 2016 20 February 2017 26 February 2017
Please cite this article as: Susan Varughese , K.V.Devi Prasad , Water Trading Opportunities and Irrigation Technology Choice: An example from South India, Water Resources and Rural Development (2017), doi: 10.1016/j.wrr.2017.02.002
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Water Trading Opportunities and Irrigation Technology Choice: An example from South India Susan Varughese#, Prof. K. V. Devi Prasad Affliation: Department of Ecology & Environmental Sciences, Pondicherry University,
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Corresponding Author E-mail id:
[email protected]
#
Current Address: Research Associate (MoES-CWC Project),
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R V Nagar, Puducherry, India – 605014
Ashoka Trust for Research in Ecology and the Environment (ATREE),
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Royal Enclave, Srirampura, Jakkur Post, Bangalore, Karnataka, India
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Abstract:
Farmers as well as rural and urban consumers in India are facing water shortages. There is a
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need to increase efficiency in the supply and use of water. In this context, we consider the potential of a market in water, for improving water management in a small river basin wherein
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sixteen villages are the primary beneficiaries of a reservoir on the Varaha River.
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Using secondary data and observations from a household survey, we estimate the financial
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implications to farmers of shifting from traditional methods of cultivation, in four different scenarios (shifting to a better technology for cultivation, shifting to a dry land crop, shifting to short term cash crops, or leaving the land fallow). Our model suggests investing in better technology and less water intensive crops would not only benefit the farmers, adding to their income by selling the “saved” water, but also provide a cost efficient alternative water supply option to the government. Given that informal water markets already exist in the study area, formal transactions in water within the ambit of
ACCEPTED MANUSCRIPT markets will not require a completely new institution and would be a „win-win‟ situation for both the Government and the participating farmers.
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Keywords: water transactions, Varahanadi basin, Tamil Nadu, Puducherry
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1. INTRODUCTION
Increasing urban water demand in a climate change scenario is worsening the existing water availability, leading to an increase in the competition for limited water supplies (Scheierling, 2011). Urban population in India is projected to grow much faster than in rural areas, escalating demands on water, resulting in an increasing pressure to transfer water from agricultural to
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urban use (Moench et al., 2003) with potential implications for food security. In India, the scarcity of water resources, coupled with increasing demand, has resulted in
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overexploitation of aquifers (Singh, 2007). In recent years, the number of aquifers reaching unsustainable levels of exploitation has increased considerably (World Bank, 2010). Subsidized power and easy availability of credit for installing bore wells encouraged an
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increase in the number of wells (Shah, 2002), particularly in areas where water was already
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scarce (Shiferaw et al., 2008).
It is often claimed that even a small portion of water saved from agriculture would be sufficient
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to meet most of the urban demands (Rogers et al., 2000). The frequency of water being shifted out of agriculture has increased with the growing population pressure and its low economic value in agriculture. Several authors have examined inter-basin water transfers, their hydrological impacts, and conditions affecting the willingness to participate in water transfers, water price equilibrium and their effect on the concerned stakeholders (Rosen and Sexton, 1993; Dinar and Wolf, 1994; Garrido, 2000; Celio et al., 2010). In an economic sense, water is valued higher in the industrial and domestic sectors than in agriculture (Rogers, et al., 2000). However, since food is a basic need and agriculture is vital to rural livelihoods, societies assign equal or higher value to agriculture (Meinzen-Dick and Appasamy, 2002).
ACCEPTED MANUSCRIPT Peninsular India is identified as water deficient. In the 1960s, high yielding varieties of seeds were promoted under the Green Revolution, for which control over water was an essential prerequisite. This led to an era of groundwater irrigation. Over the years, unrestrained use of groundwater has led to a decrease in the water level with over exploitation of aquifers. Tamil Nadu is considered a water scarce state. Its per capita water availability is 600 m3 annually, as compared to the national average of 4000 m3 (Karthikeyan, 2010). Canals
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(reservoirs), tanks (system and non-system) and wells (groundwater) are the three distinct types of command areas in Tamil Nadu. The state, over the years, has observed a decline in the area under tanks and an increase in the area irrigated by wells (Palanisami et al., 2001). Tamil Nadu now depends primarily on groundwater for irrigation. Chinnasamy and Agoramoorthy (2015) report groundwater depletion at the rate of 21.4 km3 yr−1 for the state. The Government of India
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– Groundwater Resource Estimation Committee (2003) categorized 138 of the 385
„administrative blocks‟ in Tamil Nadu as over-exploited. Thirty-seven blocks are identified as critical and 105 as semi-critical. Only 97 are considered as safe, with extraction rates at less than 70% of estimated recharge (Foster and Garduno, 2004).
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Water utilities usually favour supply augmentation approaches by constructing new water supply projects, desalination plants or purchasing/transferring water rights from agriculture
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(Srinivasan et al., 2010). The pumping of water from the sea and the transfer of desalinated water involves high costs to the government and to consumers (Meinzen-Dick and Appasamy,
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2002). Further, the environmental costs - in terms of disposal of concentrated waste water, and the potential impacts on livelihoods, and on the ecology of the coast, must also be considered
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(Chandrasekar, 2011).
One of the options to meet the increasing water demand is the inter-basin transfer of water.
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Water transfers largely benefit rural communities, provided the farmers have secure water rights, receive substantial compensation for transfers, sell only a part of their water, are encouraged to conserve water rather than abandon farming, and an effective institution is in place to address any third-party effects (Rosegrant and Ringler, 1998). An important judgment of the Supreme Court of India with respect to inter-basin transfers was the directions for interlinking of rivers, citing the benefits of flood control and drought moderation by transferring water from a surplus to a water deficit area (Dogra, 2012).
ACCEPTED MANUSCRIPT There can be problems associated with inter-basin water transfers, as environmental or land acquisition problems or issues with the communities located along the canals or pipelines, asking for a share of the water (Prasad and Ramachandraia, 1999; Meinzen-Dick and Appasamy, 2002). Though a rising population and a growing economy have increased water demands, further development of water resources is constrained due to availability, environmental concerns, financial bottlenecks and political and legal obstructions in inter-regional water transfers
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(Saleth, 2005). With increasing water scarcity, there is a need to increase the efficiency of water supply for both domestic use and irrigation. Water markets may be one institution protecting the rural population in such a scenario.
Dinar et al., (1997) in their World Bank policy report, state that a transfer of water between agriculture and the urban sector may benefit the environment by inducing a shift towards
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improved water management and efficiency in agriculture, and farmers may afford to
internalize externalities and reduce irrigation-water-related pollution. However, water transactions between agriculture and the urban sector can reduce return flows, impacting a third
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party or impairing certain ecosystem functions.
In this paper, we develop and empirically apply a simple econometric model of water trade,
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from agriculture to the domestic sector and try to establish the feasibility of a formal water market. Our goal is to explore the alternative of procuring water from the agricultural hinterland with a particular reference to the scenario in which the Puducherry government buys
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water from the farmers in the Veedur village of Tamil Nadu. Using data collected in a survey of households, we show the economic implications of such inter-sectoral water reallocation.
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Farmers can be persuaded to sell water within the constraints of the model we present.
2. MATERIALS & METHODS
2.1
Study Area
Our study area includes part of the Varahanadi watershed (watershed code: PNYR021) of the Pennar Basin. The watershed lies on the drainage basin of the Gingee River, also known as “Varahanadi”, which crosses Puducherry, a Union territory of India diagonally from northwest
ACCEPTED MANUSCRIPT to southeast. The Varahanadi is first intercepted by the Veedur dam in the Villupuram district of Tamil Nadu, situated near the Veedur village. The reason for choosing this village lies in its proximity to the dam with good availability of surface water, to meet its irrigation needs. The drainage through the Varahanadi from its catchment is likely to be the principal source of groundwater recharge in Puducherry. Our study area has been predominantly in agriculture, and informal water transactions have occurred for more than 30 years. Many farmers have abandoned agriculture in the last few
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years, due to reasons pertaining to labour, water, and declining profits. Some have sold their land to real estate owners for better profit.
Methodology
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2.2
We collected information using focus group discussions and individual questionnaires. We conducted household surveys using random and snowball sampling frameworks, starting from 2009 to 2010. The study was limited to those who were either cultivating their own land or
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cultivating land taken on lease from other farmers. All respondents were informed about the goals of the study and their informed consent to record their responses was sought. Our
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household/questionnaire survey covered details such as land area cultivated, number of borewells owned, whether they sell/buy water for irrigation, as well as details about the crops cultivated, cost of production and profit per unit of land. For further details please consult
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Varughese (2014).
For the model building exercise, we conducted a rapid questionnaire survey during early 2012
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in the head end villages. Questions pertaining to the sale of water were asked (whether willing to sell water, what factors influence their choice, price for water). The farmers chosen were
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from among the respondents who were already interviewed during the household survey, with the condition that they have their own bore or open well.
2.3
Theoretical Framework
We present a simple linear model describing water transfers, based on the modelling framework of a farmer‟s water demand function, by Garrido (2000). Equation (1) presents the
ACCEPTED MANUSCRIPT maximum profit a farmer would receive under a “no-transaction” scenario. See Varughese (2014) for further details. max {sx,wx, jx}
π° = x
∑ [sx.px.fx(jx,wx) – v.jx– pw.wx – cx(sx)]
subject to ∑ sx .wx<= Ω x
(1)
(2)
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where π° is the profit function; sx is the land area under the crop „x‟; px is crop x‟s price; fx is the yield response of crop x; wx is the water needed for crop x per unit area; jx are the other variable inputs applied to the crop x per unit area; v is the unit price for applying these variable inputs; pw is the cost of applied water per unit, therefore, the total cost of water applied is pw.wx; cx(sx) is a cost function associated with crop x, excluding jx and wx and Ω represents the available
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water. In our case we assume surface flows are common goods, are not tradable and hence, for us, Ω would be the sustainable yield of aquifer. Equation (2) imposes a constraint on the total water available for the crop, which should be less than or equal to the sustainable yield of the aquifer. This constraint would prevent the over-exploitation of the aquifer from water transfers. In the second case of a water transaction, the profit from farming under alternative scenario, to
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the farmer, is given as:
π‟ = ∑ [sx‟. px‟. fx‟ (jx‟,wx‟) – v‟.jx‟ – pw‟.wx‟ – cx‟(sx‟)] x‟
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(3)
where, π’ is the profit to the farmer under alternative scenario; x’ is the alternate crop or
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technology.
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technology being used; and wx’ is the water needed under alternative crop / alternative
If MPW is the farmer‟s acceptable price per cubic metre for selling water, then the profit from water sale will be equal to W. MPW, where W is the „saved‟ water (wx - wx’) available for sale.
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The acceptable price is the least a farmer would be ready to accept such that he does not suffer a loss by shifting from paddy. Equation 4 gives the overall profit to the farmer if he sells water after his irrigation needs. This overall profit from the water transaction is equal to the acceptable price multiplied by the available water for sale MPW (wx - wx’) and subtracting this with the loss in profit (π° - π’) by shifting to the alternate crop or technology. ∏ = MPW (wx - wx‟) – (π° - π‟)
(4)
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subject to
The government currently depends on groundwater for its domestic water supply for the Puducherry city. For supply augmentation, the government have options of either transferring from surface water sources or desalination of sea water. Here, we propose a third alternative of intra-basin water transfer, wherein the government buys water for a period from farmers in the Veedur village of Tamil Nadu. The present model compares the two alternatives, intra-basin
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transfer versus the desalination method, and does the cost-benefit analysis for the government under both the scenarios.
Let „tc’ be the transaction cost involved in the transfer of water from the desalination unit to the consumers. Therefore, the equilibrium price (P*) i.e. the expected cost at which the
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government would be ready to buy water from farmer is given by equation (5): P* = W. MPW . tc subject to
P* < Ca
(6) (7)
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P* < ZPW
(5)
Where, Ca is the per unit cost of water by desalination and ZPW is the government‟s maximum
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acceptable price for buying water from the farmers.
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Equation (6) limits the equilibrium price of water sourced from the farmers to less than per unit cost of water by desalination. The constraints applied by equation (7) allow the equilibrium
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price to vary between the acceptable price of the farmer and the maximum acceptable price to the government. The transfer of water between the farmers and the Government would be feasible and would occur only if the value lies between the acceptable price of farmers and
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government and if it‟s less than the unit cost of desalination.
3. Analysis
Puducherry, is entirely dependent on ground water for its drinking and agriculture needs. With the growing urban and rural population, it is already feeling the pressure of water insufficiency
ACCEPTED MANUSCRIPT and has witnessed a substantial fall in ground water levels due to over-extraction. The Government of Puducherry has formulated schemes for augmenting the existing drinking water supply (CGWB, 2007). As a city vulnerable to saline water intrusion, the situation becomes precarious (Pethaperumal et al., 2010). As reported by Varughese (2012), informal water transactions have been a regular phenomenon in the study area for several generations. The government, therefore, has the option of buying water from farmers. Of course, as there is no surplus now, there needs to be some motivation to
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the farmers to create a tradable surplus and enable trade in a fair market. We proceed on the assumption that the farmer does not have a saleable surplus, while cultivating paddy
traditionally, as water is seen to be a limiting resource in this part of Peninsular India and any surplus would have led to an increase in planted area. Moreover, there have been several attempts by the government to reduce water requirements for paddy through innovations such
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as the System of Rice Intensification (SRI).
The results of the household survey reported paddy is the primary crop, followed by sugarcane and casuarina. Farmers have largely moved away from their historical crop choices of coarse cereals and millets for a variety of social and economic reasons (Varughese, 2014).
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To create a saleable surplus the farmers could choose one of the following options: 1) abandoning agriculture and leaving the land fallow, selling their entire water allocation, 2)
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shifting to technologically more advanced paddy cultivation e.g. SRI or drip irrigation allowing surplus of water for sale; or 3) shifting to crops that demand less water and sell the surplus available. Several crops may be available, but we consider only cultivating millet or flowers in
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lieu of paddy. This is dictated by the recent history of millet cultivation and recent forays in flowers as a cash crop by some enterprising farmers in the Puducherry region. Hence, this
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option would be sociologically acceptable. We apply the model developed above to the Puducherry government - Veedur farmer interaction. We insert values available for empirical
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parameters that can be evaluated a priori from field data we have collected, and we test whether a trade is feasible, within the constraints of the model. We use data from the Chennai desalination project for the parameter Ca in equation (6). Our principal focus involves determining if the constraints of equations 6 and 7 can be met, and if so, the net benefit to the buyer vis-à-vis the alternative. The values inserted for paddy, pearl millet and marigold flowers are derived from survey results. The paddy variety used in the model is ADT 37 - the most common variety encountered in the field site. ADT 37 has duration of 110 days and requires 900 mm of water
ACCEPTED MANUSCRIPT for a season (9 million litres per hectare). The cost of production is from the farmer's responses we received during the survey and includes labour, fertilizers, seeds and other inputs. Profit to the farmer is calculated using equation 1, multiplying production with output price and subtracting the cost of production.
Table 1 presents the costs to the government utility for the construction of a typical
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desalination plant. The values have been taken from the 100 mld desalination plant at Nemmeli in Chennai (CMWSSB, 2011). The cost of treated water from this plant is about $0.60 per m3 (Lakshmi, 2012). Desalination of seawater using reverse osmosis consumes approximately 5.25 MW of power (Central Electricity Regulation Commission, 2013). As mentioned in Table 1,
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the Nemmeli desalination plant would require 3 to 3.5 MW of power (Ravindranath, 2013).
Table 1: Expected Cost of desalination to the government
Alternative water supply (desalination) cost of a 100 mld plant 107.65
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Fixed capital costs (million $)
0.21
Total cost (million $)
208.83
Consumption of power (MW) #
3.5
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Conveyance costs (million $) for 7yrs
Per unit cost of providing water ($/m3) + (*)
2.2 (0.98)
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$1.00 = Rs. 49.54(10 Feb 2012); # Ravindranath (2013); +Government of India (2012) circular no. W.11015/04/2012-WQ; *Minjur desalination plant, Chennai (Planning Commission Report, 2012)
The construction, maintenance and conveyance costs associated with a desalination plant are substantial. In addition, there are other problems related to desalination. In Soolerikattukuppam village under the Nemmeli panchayat, severe coastal erosion has been reported due to the laying of pipes for the desalination plant many kilometres into the sea (Chandrasekar, 2011).
Given the high costs involved in desalination of sea water, in Table 2 we assess the second option of shifting to an alternative crop or a better technology, and we evaluate the performance of the model under different scenarios.
ACCEPTED MANUSCRIPT The traditional flood irrigation method of growing paddy consumes large amount of water. Shifting to an advanced method of cultivation such as the System of Rice Intensification (SRI) has shown considerable improvement in terms of water efficiency and crop production (V&A Programme, 2009). Narayanmoorthy (2006) in his study on the potential of micro-irrigation techniques in India reported, the initial capital cost and the availability of free electricity and free supply of canal water as the reasons for the slow adoption of SRI. In our study area, we did not encounter any respondent who had adopted SRI. We came across
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only 2 farmers who were using drip irrigation for sugarcane. These farmers informed that they shifted to drip irrigation due to the subsidies that the Government was providing for the same. Farmers, who received support from the government and from non-government organizations,
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are the ones who have implemented SRI in the state.
Table 2: Profit to farmers by shifting from traditional method of paddy cultivation under different scenarios. Paddy* Paddy (System Pearl Marigold* Crop millet*
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of Rice
Intensification)#
110
104
110
90
Water requirement per season (mm)
900
612
400
650
Water requirement in m3 /ha (season)
9,000
6,120
4,000
2,630
5,560
7,117
2,780
3,629
Cost of production($/ha)
748
730
168
7,300
Output price@ ($/kg)
0.2
0.2
0.18
0.1
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Duration (days)
Production rate (kg/ha)
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364
Profit ($/ha season)
693
332
623
$1.00 = Rs. 49.54(10 Feb 2012); * Values are taken from survey data; #Thakkar H., SANDRP (2005); @ Minimum support price 2010-11 as on 15/04/2011, source: http://agritech.tnau.ac.in/
A shift from the traditional method of paddy cultivation to other options would yield higher
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profits to the farmer, except in case of a shift to millet from paddy. However, a shift to millet would enable the farmer to save a substantial amount of water, the sale of which would result in a higher profit (Table 3). The SRI method not only yields highest profit but also results in less consumption of water as compared to traditional methods. As per the model, flower
cultivation is the next highest generator after SRI. Even though marigolds flower for only three
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months, they give a monthly profit of $249 per ha. When land is left fallow, farm profit is reduced. However, all of the water (9000 m3) is available for sale, resulting in an overall higher income. Nonetheless, this may not be a favourable solution. Instead, the government can allocate the land for payment of ecosystem services, such as growing fruit trees or native tree
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varieties, generating higher profit to the farmer and benefit to the environment in the long run.
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The farmer can be given cash incentives to compensate for the loss in farm income.
In many parts of India, farmers are accustomed to selling water from their agricultural bore wells to supply the drinking water requirements of urban dwellers. The amount paid in return
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to farmers varies with location. Chennai is one of the cities where water tankers are a common sight with both private and Chennai Metro Water Board tankers supplying drinking water to
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domestic consumers. The amount paid by private tankers and those paid by Metro water board differ. For our model, we take the price range prevalent in Chennai city obtained through
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previous literature. We choose Chennai due to its proximity to the study area and similar socioculture.
Values from three sources were taken for the „acceptable price‟ to farmers, i.e., the Chennai Metro Water Board, private tankers operating in the city and from field survey. From each source, the median and maximum amounts are taken for consideration. Profit is calculated as the income to farmers based on equation (4), taking into consideration the loss incurred by farmers due to a shift from the traditional method of paddy cultivation.
ACCEPTED MANUSCRIPT The study conducted on the sale of water by Ruet et al. (2007) in Chennai showed that private vendors paid $0.50 to $0.80 per tanker of 6,000 liters for filling water from the bore-wells owned mostly by farmers. The Chennai Water Board paid $0.50 per hour to each farmer who had to give 400,000 litres in 18 h, and also for electricity at the rate of $9.60 per day per well to the Electricity Board. The Water Board had no investment costs for wells, other than for supplying pipelines and meters. The farmer‟s net income from the agreement was found to be $2,355 per year, as compared to $69 per season by cultivating paddy. Ramalingam (2005)
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reported tankers receiving $0.30 per m3 from the Chennai Water Board, while paying just above $0.06 per m3 to the farmers.
The model results suggest shifting to SRI method of paddy cultivation as the most economical, not only by saving water, but also providing a better income to the farmer. It is noted that
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keeping the land fallow and selling the full quota of water would provide the maximum benefit to the farmer but may not be socially acceptable. Although in such a case there is a danger of the farmer leaving agriculture which may lead to other repercussions.
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Table 3: Overall profit to farmers by water sale through a shift from traditional paddy cultivation Acceptable price to farmers ($/ m3)* Chennai Metro Private Tankers Survey Water Median Max Median Max Median Max 0.08 0.1 0.13 1.11 1.51 5.05 364 364 364 364 364 364 Paddy (Control) Overall Paddy (System 560 617 704 3,526 4,678 14,873 profit of Rice $ /ha Intensification) per 368 468 618 5,518 7,518 25,218 Pearl millet season) Marigold 459 509 584 3,034 4,034 12,884 356 536 806 9,626 13,226 45,086 Fallow land *The acceptable price is calculated using the median and the maximum values from among the set of values for the price of water available from the literature and from survey results.
Shifting to pearl millets or cultivating flowers lead to profits as well, but this is more pronounced at a higher acceptable price range. If the government‟s minimum support prices for
ACCEPTED MANUSCRIPT pulses increase and farmers are given incentives to grow more dry land crops, the profit for millet will have a positive shift.
Based on the results shown in Table 3, it is estimated that the government would spend around $6,055 per day to buy water at an estimated cost of $0.10 per m3, which would be less than what the government would need to pay for water from desalination. Also, from the range of acceptable prices, a price of $0.10 per m3 would result in a profit to farmers by shifting to any
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of the alternatives provided.
Any inter-basin water transfer will require both Puducherry and Tamil Nadu to work closely with their stakeholders and government authorities, and plan the transfer in a way that leads to a long term solution of the already mounting water crisis in both the states. It should also be
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taken care that the farmer‟s interests and livelihood and the food security are not threatened.
4. CONCLUSION
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The increasing use of groundwater for irrigation can pose a problem for the drinking water sector, especially in areas where groundwater is used for both irrigation and drinking. Regional
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analysis of water availability and demand is essential to identify the policies and investments needed to ensure food and water security.
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Our model shows that instead of depending on energy intensive approaches such as desalination or buying water from agricultural bore wells, water transfers can be a better option
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available to policymakers. Though desalination of sea water may seem an easy option of augmenting water supply, the cost is considerable. The advanced method of rice cultivation as SRI was found to be the most profitable for farmers. Growing dry land crops and flowers were also found to be profitable. Rather than leaving agriculture, farmers can shift to improved irrigation methods and less water intensive crops. Farmers economize in the use of water, which can then be transferred to the domestic users. This in turn will reduce the over exploitation of groundwater reserves and prove to be a more sustainable solution than the ongoing farming practices.
ACCEPTED MANUSCRIPT We have demonstrated an opportunity to build a positive synergy between enhancing rural livelihoods and income, while meeting the urban domestic water needs. Enabling water marketing can motivate improvements in water management, while providing farmers with the opportunity to increase net revenue.
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Acknowledgements: This work is a part of the first author‟s Ph.D. thesis and was partly funded by the Pondicherry University- UGC PhD grant. We are thankful to Mr. Alexander for his assistance with the survey and to Pondicherry University for funding the research. We appreciate the helpful comments of the reviewers.
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