The role of Water Economics in Food Security

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Title-slide (44 pt green text on

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Coffee morning

Petra Hellegers

CTA, 13 April 2012

The role of Water Economics

in Food Security

Story in four parts

1. Trends that affect future water demand

2. Water productivity gains from specialisation,

basin cooperation and water reallocation

3. Water allocation is a societal question

4. Limited role of economic instruments

Trends that affect future water demand

Population growth, urbanisation, dietary change

Climate change

Rising energy prices

Population growth

Projected growth: from 7 billion people today

to more than 9 billion in 2050

Urbanisation

By 2050 more than 70% of the population

is expected to be urban

Dietary change

More vegetables, fruits, meat, dairy and fish

Possible impacts of climate change on water

Rising temperatures

Irrigation requirements of crops increase

Affect size of snowpack & timing of release

Changing precipitation patterns

More frequent & intense droughts/floods

Sea levels rise

Salt water intrusion

Other, e.g. pollution

Global water cycle

Rising energy prices

- Triggers demand for alternative energy sources:

hydropower and biofuels

- Makes extraction, conveyance and purification costly

Many water problems could be solved,

if only energy would not be so costly

Availability of water

We only make use of a tiny

portion of the available water

Who is the main user of water?

40% of our food is produced on irrigated land,

which is 17% of the world’s cropland

Agriculture is responsible for 70% of all water

used and 90% of all water consumed

Global water gap 2030– assuming no efficiency gains

Unit costs ($/m3) of measures to bridge the gap

Demand versus Supply of water

Demand for water with a low water productivity increases

The value of water for staple crops varies 0.05 - 0.15 $/m3

Costs of making water available increase with quantity supplied

Desalination for irrigation of staple crop is currently not feasible

The current costs of desalination are 0.50 $/m3

Alternative efficient coping strategies

To import cereals

Importing countries are vulnerable to rising global market prices

To acquire foreign land for own food production

Countries have descended on fertile plains across Africa.

The contracts are not only about land, but also about water

Securing food by securing water

The contracts are not only about land, but also about water!

Part 2 Water productivity gains from specialisation,

basin cooperation and water reallocation

Globalisation and trade liberalisation

Offers opportunities for specialisation in

low-value staple crops in rainfed areas and

in high-value cash crops in irrigated areas

When countries in the Nile Basin cooperate,

the Basin can be food self-sufficient in 2025

However, if irrigated area in Sudan expands by 1 million ha

20 BCM less water for Egypt

30% less land use revenues in Egypt

10% less hydropower revenues

Less revenues for the basin as a whole

due to low water productivity in Sudan

Christian Siderius

By combining remote sensing and economic analysis able to

assess the water productivity (in terms of kg/m3 and Rand/m3),

downstream water availability, employment, food security etc.

WIBIS tool to assess implications of a socially desirable allocation

Spatial planning and integrated policy required

Role of water economics

Provides insight into the water productivity gains

($/m3) of reallocation water among regions,

users, generations and population groups

Part 3 Water allocation is a societal question

Other criteria apart from economic criteria

Various social objectives:

Poverty alleviation

Equitable distribution of income and risk

Food self-sufficiency

Sustainability

Economists show foregone benefits of achieving such objectives

Water is often allocated in a socially desirable way

Economists analyse problems –

Politicians eventually decide

Difference between financial and socio-economic value

Water for staple crops has a low financial value, but

a high socio-economic value

Higher wheat price can trigger revolution: Arab Spring

Concluding remarks

Water becomes more scarce

Economics can show the water productivity gains from

specialisation, basin cooperation and water reallocation

but also the foregone benefits of not allocating water in

the most efficient way

Part 4 Limited role of economic instruments

Water markets fail, due to special characteristics of water

Water is part of a system

Usage can be consumptive and non-consumptive

Costs of water re-allocation can be high

Property rights to water are often unclear

Externalities of usage

Water is a public good->consequences for water pricing

It is important to distinguish between

The value of water

The cost of water

The price of water

The value of water

The demand curve for water reflects the maximum

willingness to pay by a consumer for a given water use

Quantity (m3)

Value ($)

The costs of water

The supply curve for water reflects the costs

incurred by the supplier in the provision of water

Quantity (m3)

Costs ($)

The price of water

The tariff actually paid for water use by a user

The market-clearing price is where cost of provisions are equal

to the benefits of usage

The price can also be set by the government at a lower level for

instance for social reasons like access to water

Quantity (m3)

Price ($)

Price < Costs: No full cost recovery

Costs < Value: Profitable to irrigate

Price << Value: Significant increase in price required to reduce demand

Comparison of the price, costs and value of irrigation water

Role of water pricing as an instrument to:

Trigger technology adoption

To give a signal not to waste water

For cost-recovery

But not as “the solution” to balance supply and

demand for water (use other instruments instead)

Thank you very much!

© Wageningen UR

Exchange ideas about the kind of water

related projects CTA is working on

So strategies to cope with water scarcity and climate

change will affect food production in terms of what,

when, where and by whom food will be produced

The competition for water is taking place in the world

grain market and it seems that people that are financially

the strongest will fare best in this competition