The Role of Agricultural Water Markets in the Allocation and Pricing of water resources Case study: Mojen Water Market

Water markets are instrumental in efficient allocation and pricing of scarce water by enhancing allocative and price efficiency of water use. The prerequisites for water market formation are tradable water rights independent from ownership of the land, extensive water canals, water use associations, and adequate market regulations. Mojen water market has been facilitating exchange of alternative water rights for more than 40 years accommodating among other things 30% of total farmers water demand. The total volume of water exchanged through the marker over the 3 year period of 1381-1383(2002-2004) are 38, 54,and 88 Q3, with average price of 555, 651, and 664 IR/Q3, respectively. The purpose of this research is to estimate water demand function and identify the roles that market plays in pricing and efficient allocation of water. The estimated demand price elasticities for single and joint production of potato and wheat are significant and negative. The differential among the absolute value of the estimated elasticities reveals that potato and wheat are the major and the minor crop choice in the farmers’ production plan. Producers are less sensitive to variation of water price when they produce potato and wheat jointly compared to their single plantation. The price elasticity of demand for the former joint outputs is -0.256 compared to that of potato and wheat alone which are -0.276 and -0.477, respectively. The difference between the average products of water for the said crops enforces the obtained elasticities results. Key Words: Water market, Water Price, Agricultural Water Demand, Water User’s Associations, Tradable Water Rights, Mojen Irrigation Corporation.