Abstract:
South Africa is a water-stressed country where water availability is an important constraint to
economic and social development, and will become even more so in the future if this scarce
resource is not managed effectively. In order to manage this scarce supply of water, we need to
value it. This study focuses on the value of water in the agricultural sector, in particular the
marginal revenue of water for six irrigation commodities namely avocados, bananas, grapefruit,
mangoes, oranges and sugarcane. A quadratic production function was fitted with an SUR
model specification in a panel data study from 1975 to 2002 to obtain marginal revenue functions
for each of the six commodities. We found that mangoes are the most efficient commodity in its
water use relative to revenue generated (marginal revenue of water equals R25.43/m³ in 2002)
and sugarcane the least efficient (marginal revenue of water equals R1.67/m³ in 2002). The
marginal revenue of water is not an indication of the true “market” price. Neither is it an
indication what the administered price should be. The marginal revenue of water is rather a
guideline for policy makers to determine which industries or commodities within an industry can
generate the largest revenue per unit water applied.
