Efficient allocation of water resources among competing users: economic, environmental and organizational considerations [rapport final]

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14 January 2014

It is now well recognized that an efficient management of scarce water resources is crucial for guaranteeing the sustainability of agriculture. Fresh water is one of the most limiting factors for agricultural production in both Israel and France. As competition with other sectors (urban, industrial and environmental) increases, the Israeli farmers find themselves relying more and more on the utilisation of recycled and saline water. In France, an increase of irrigated areas in the last two decades has led in case of drought to severe degradation of the environment and to inefficient administrative banning on water uses. Thus new policies and approaches need to be designed to improve water management strategies. Our principal objective is to formulate policy recommendations in both countries by evaluating the consequences of new alternatives for the allocation of this scarce resource, in order to guarantee economically efficient water sharing subject to several environmental constraints. Therefore the project is aimed at developing and implementing agro-economics models which describe the economic, environmental and organizational aspects involved in sharing different types of water (i.e. fresh, recycled etc.) among few potential consumers: the agricultural sector (with different types of irrigated cultures and crop mix), the environmental sector and the urban and industrial sector, at the regional or water basin levels. The models evaluate and compare several schemes of cost and profit allocation between the economic entities involved: (i) direct negotiation by utilizing a mechanism design model; (ii) allocation via an agreed upon objective/neutral middle-man by using different approaches from game theory and (iii) allocation via an adequate pricing system. We developed our agro-economic models/approaches based on the relevant state of the art literature, especially the literature that deals with water pricing practices in the world under uncertain conditions. For the Israeli part, a model determined the optimal crop mix and the optimal allocation of the limited (fresh and recycled) water and land resources among all potential water users. The selected region (the Sharon region, in central Israel) includes 4 economic entities: a city (the wastewater producer), two groups of farmers and a river authority. The objective here is to maximize the regional social welfare, which is composed of the sum of the agricultural and environmental net benefits while taking into consideration the impacts of salinity and nitrogen on the commercial yields of the various crop and the environmental damage associated with irrigation with recycled water over an aquifer. The model suggests economic and environmental improvements to the potential wastewater consumers: the farmers might be able to increase their irrigated areas and benefits and that the river authority is expected to increase its stream flow and benefits. On the practical side, the work shows that in Israel, cooperation between all the economic entities in the selected region is profitable to each entity and also improves the environmental conditions. In France, we studied an original pricing scheme aiming at the improvement of the ecological state at the river, by guaranteeing a minimum water level in the river, and an increase in farmer’s profit so that they would accept to adopt such a pricing system, while a constraint was the budget equilibrium of the water user association. Our result is very encouraging, since we see that locally there is a real demand of such analytical results, obtained with a thorough analysis of the properties of such pricing systems, in order to accompany the ad hoc tentative essays of the water user association. Practically too, we show that the economic efficiency of the agricultural water may be considerably enhanced, while the environmental conditions may be improved, with a pricing system that field studies showed acceptable. The cooperation of French and Israeli teams consists in exchanging on the economic and mathematical tools (we both use mathematical programming, game theory and mechanism design approaches) when developing the models. We discussed the difficulties involved in implementing our models in our respective countries (taking into account the quality of water in Israel and the uncertainties of water supply in France) while taking into consideration the current experiences and possible solutions currently applied in both countries. These two kinds of contributions (on the theoretical part for solving the model difficulties, and on the practical applications) showed the scientific interest of the cooperation. This cooperation was concretised by the writing of a first scientific paper accepted for the 13th World Water Congress, two papers were already been submitted to ranked journals (a French economic review and the Journal of Agricultural Economics) and we expect to submit three more manuscripts to scientific reviews during the next months. Moreover, discussions on the use of waste water in Israel showed there was some interesting work to do on comparable contract design for sludge disposal in France. This cooperation was carried out through meetings with French and Israeli partners in Aix en Provence (2006), Paris (2007), Montpellier (2007), and through e-mail exchanges. Future works would be very interesting in order to 1/ extend our scientific research in the fields of irrigation and waste water agro-economics, notably in France in order to explore other possibilities of our first results displayed 2/ extend our joint research to other fields of interest such as investigating sludge allocation among competitive users both in France and in Israel, 3/ work on the links between the ‘pricing’ and the ‘planning’ approaches into a unique project such as developing pricing mechanism to wastewater in Israel, and working on the implementation on the European Union Water Framework Directive in France.