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Is It Possible To Realize The Win-win Ourcomes For Water Price Reform In Agricultural Sector? Evaluation Of One Pilot Water Price Reform In Hebei Province In China

Congress: 2015
Author(s): Jinxia Wang (Beijing, China, Peoples Republic), Jikun Huang, Lijuan Zhang, Yumin Li
Center for Chinese Agricultural Policy, Chinese Academy of Sciences1

Keyword(s): Sub-theme 10: Management of water resources,
AbstractWater is one of the most important factors that could threaten China's food security. Faced with the challenge of water scarcity, China's government recently has begun to promote the strictest system of water resource management, the Three Red Lines policy. The Three Red Lines policy was created to establish clear and binding limits on water quantity usage, efficiency, and quality. As the largest water use sector, how to increase the irrigation efficiency has become one of key issues relevant to whether the efficiency policy objective can be realized. While investment in water-saving technology is necessary for increasing irrigation efficiency, the adoption rate of irrigation technology is low in China. There is rising evidence that lack of adopting water-saving technologies in agriculture is mainly due to lack of incentives for farmers to save water in irrigation. Therefore, how to establish effective incentive mechanism through applying economic instruments (such as price policy) has attracted attention from policy makers and scholars. Despite water price reform in the industrial and domestic sectors has been implemented smoothly in recent years in China, no obvious progress has been made in agricultural sector. The major concern by policy makers is that rising water price in agriculture increases water fee paid by farmers whose income are already much lower than urban residents. Therefore water price is not only an economic policy but also a political issue. Is there economic solution to this political issue in the real world? Fortunately, the pilot irrigation price reform (namely "Increase Price and Provide Subsidy" reform) in Hebei province in China has provided rich experience and lessons to this question. The reform mainly focuses on groundwater irrigation problems since groundwater is the major irrigation sources in this region. The overall goal of this paper is evaluate the effectiveness of the pilot irrigation price reform on realizing the win-win reform strategies on increasing irrigation efficiency and not reducing farmers' income. In pursuit of the overall of goal, we have specified the following four objectives. First, we examine how the reform has been designed and implemented in Taocheng District, Hebei Province. Second, we evaluate the effectiveness of the reform on reducing groundwater application for three major crops (wheat, maize and cotton). Third, benefits or losses of farmers who participated in the reform also will be estimated. Fourth, the major problems influencing the sustainable implementation of this reform and its extension possibility to other regions will be identified. In order to realize the overall goal and objectives, we organized two round field surveys in Taocheng District, Hebei Province in China in 2009 and 2012. The survey covered 10 villages that participated in the reform and 10 villages that did not participate in the reform. In each village, 4 households have been randomly. The total samples include 80 households in 20 villages in two years. Results show that farmers paid 50% higher water prices after the reform, an institution (Water Use Association) in each reform village was created to collect water fee from farmers based on their water use and pay back farmers based on their irrigated areas. Because water rights and market were not developed so that saved water from irrigation could not be sold to industrial or other uses at higher prices, local government provided the subsidy to farmers with the same amount of income generated from the additional water fee. Our economic analysis indicate that on average, farmers saved 20% of water and paid additional water fee 450 yuan/ha but also compensated by 600 yuan/ha. That is, farmers' income did not been reduced due to the reform and they even earn 150 yuan/ha due to the reform. However, the survey also revealed that 30% of the reform was not implemented as designed, and the real implementation rate is only 70%. In addition, due to lower subsidy of government, some villages did not participate in the reform after 2010. It implies that how to ensure the sustainability of the reform is one important issues that need to be highly considered. Based on our assessment, an improved reform plan that further incorporates water rights and market as well as improved compensation method has been further discussed.
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