Abstract:
The pressure on an already stressed water situation in SA is predicted to increase
significantly under climate change, plans for large industrial expansion, observed rapid
urbanization, and government programs to provide access to water to millions of
previously excluded populations. The present study employed a general equilibrium
approach to examine the economy-wide impacts of selected macro and water related
policy reforms on water use and allocation, rural livelihoods and economy at large. The
analyses reveal that implicit crop-level water quotas reduce the amount of irrigated land
allocated to higher-value horticultural crops and create higher shadow rents for
production of lower-value water-intensive field crops, such as sugarcane and fodder.
Accordingly, liberalizing local water allocation within irrigation agriculture was found
to work in favor of higher-value crops, and expand agricultural production and exports
and farm employment. Allowing for water trade between irrigation and non-agricultural
uses fuelled by higher competition for water from industrial expansion and urbanization
leads to greater water shadow prices for irrigation water with reduced income and
employment benefits to rural households and higher gains for non-agricultural
households. The analyses show difficult tradeoffs between general economic gains and
higher water prices which place serious questions on subsidizing water supply to
irrigated agriculture, i.e. making irrigation subsidies much harder to justify.
