Estimating Economical Value of Agriculture Water Using Production Function and Gardner Method (A Case Study in North Khouzestan District)

Considering the role of water in agricultural activities in low water plain of the country, appropriate use of water is the best choice to have constant agricultural activities in the future. Generally in logical pricing of water, total cost of water and purchasing power of group of consumers should be considered because correct and proper pricing shows the consumers exact cost of water and how it should be consumed. As the water supplies are limited in most parts of the country (specially the area which is under study), the important role of water pricing in agriculture and its expansion seems to be necessary. Irrigation network in agriculture section and its development is one of the most important irrigation networks of the Khouzestan province. The company of utilizing irrigation networks in Khouzestan was established in 1991 to utilize a huge irrigation network. It started working in 1993. One of the purposes of this company is improvement in structure of manpower and economizing the activities that has been continued with effort of managers and employees of the company. On one hand performing the irrigation and drainage plans in different regions of Karkhe and Shavour that most of their members are local and poor farmers, does not only have economical profits but also includes economical advantages such as job creation, prevention from immigration to other professions, per capita income increase and finally improvement in local people’s standard of living. After pricing and determining economical value of agriculture water in irrigation network of North Khouzestan, an appropriate economical management of water supply can be planned efficiently to prepare a background for saving this important resource and to prevent from wasting and polluting it. The most important role of water price can be its proper distribution among applicants based on different utilizations. In fact, one of the best policies and methods to protect water supplies is making appropriate pricing policy in different parts to apply an optimum model in water consumption. As a result, looking at water as an economical material, it should have proper pricing, just like other materials.

This study calculates the total cost of agricultural water based on cost of funding, utilization and maintaining installations. In addition, it determines the economical value of consuming water in production of main crops such as wheat, corn and, cucurbits in 2017 in Dezful via production function and also demining production elasticity of agriculture water using results of estimated demand function in each group and region and determining water price by Gardner method. Water production elasticity shows farmers sensitivity to water price variation and it can be used in policy making. Any change in the form of production function that influences the calculated parameters also affects the calculated economical value. In this case, it is essential to choose a proper form to determine real cost of each input such as water input. Thus, after estimating various functions, the best form of the function is identified using tests and econometric criteria. Moreover, to compute provision cost of one cubic meter agricultural water following relation is used, Total consumed irrigation water/ ( depreciation cost of yearly profit of fund+ depreciation cost if installations and networks + depreciation cost of dams + utilization and protection cost) = provision cost of one cubic meter irrigation water. In parallel with the method mentioned above, Gardner method is applied to calculate irrigation water price, in the following relation: (F-Cᵤ)/(Lᵤ-Cᵤ)=X (1) In this equation Cu is the entire water cost in each cubic meter irrigation water, Lu is the final output of irrigation water,(upper bound of water price), X is the difference between upper bound of water cost in each cubic meter water and F is water price. In fact, water price is calculated with Gardner method. It should be mentioned that total water rent that farmers receive is equal to: (Lu -F)/ (Lu -Ctr) (2) In this equation (Lu-Ctr) shows water rent and difference between lower and upper limit of water price and water rate, (Lu-F) is extra water that devoted to farmers. In this study, upper limit of water price is the shadow price or value of final output of water and lower limit of water price is utilization price and preservation of water installations in different regions. In this path, final cost is combination of final output of water for production of agriculture products and costs of water preservation behind the dam and other costs which are related to the organization. To make a connection between two sections (final output of water and preservation and transformation costs) Gardner method is used.

To show the effect of choosing different models on amount of economical value of water in production of wheat, corn and cucurbits, five types of production function were selected, including Cobb-Douglas, generalized quadratic Translog , Transcendental, and generalized Leo Leaf to explain the relation between production elements and amount of crops and then they were computed using collected data statistics. The results of the surveys in the Transcendental function for wheat production, economical value of water and water production elasticity were calculated 1957/33 Rials and 0/1263 respectively. And the generalized Leo Leaf function for corn production economical value of water and water production elasticity were calculated 2128/05 Rials and 0/4777 respectively. In transcendental function for cucurbit production, economic value of water was calculated to be 1485/14 rials and water production elasticity was equal to0/3533. The guarantied price of wheat, corn and average price of cucurbits in 2017 was reported to be 14300,11502 and 7003 Rials respectively. At the end shadow price of water or on the other words economical value of water on average of other consumed reserving of wheat corn and cucurbit production for each cubic meter water was determined 1957/33, 2128/05 and 1485/14 Rials respectively. While paid prices by farmers of each product (wheat, corn and cucurbits) are 142/1, 201/3 and 457 Rials respectively. In the method of calculating entire price of agriculture water- considering funding costs and cost of dams utilization, maintaining installations and amortization, without considering the fact that what products the farms are producing - provision cost of one cubic meter agriculture water was calculated to be 1026 Rials. This is the minimum price of water. If 20% gross profit is expected compared with final price, water price (based on costs of water organization of Khuzestan Province) will be 1231 Rials. In Gardner method, if we consider equal water payments for farmers and the organization (that is X= 50), final prices of water for each product, wheat, corn and cucurbits are 1594/2, 1697/5, 1358/07 Rials respectively. The results of this study shows that the paid price by farmers has a great difference with the real water cost in production process of the main crops of the region. This means that the matter of low price of water is one of the most important factors in non optimized use of water sources in the understudied area. As water price increase, farmers show different reactions. Price increase of this input can lead to its consumption reduction for producing products. As a result function of product reduces per unit area. In addition, farmers may invest on new irrigation techniques enhances irrigation efficiency and the important fact is that each unit of water will be used efficiently. The results of the study shows that real price of farming water is considerably more than its common water price. The difference between final water price and paid price by farmers cause loss of motivation among farmers for investment in order to increase irrigation output and using new irrigation technologies. Consequently, traditional irrigation systems are still used and a huge amount of water is lost in the farms. Therefore, it is recommended that not only water cost should be adjusted based on economical value of water but also conditions for proper utilization of water should be prepared so that agriculture production system improved and stabilized. This policy in a short term might dissatisfy farmers and has negative effects on their production because there is a big difference between real water price and paid water price by farmers, but as a long term policy in can creates motivation to use water saving technologies and eliminate low efficiency methods for irrigation and water transfer that lose considerable amount of water. In conclusion it is suggested that this policy applies in a way that first, it does not unmotivated farmers from farming and second, improves farmers cooperation for accomplishment. Considering the results of price calculation of each cubic meter water, price difference of each cubic meter stored water can paid to compensate profit reduction due to water consumption reduction. To enhance irrigation efficiency, motivation for beneficiaries is created and direct them through economization.