Water Pricing for Agricultural Production in the South of Iran

Appropriate water resource allocation in dry land area is very important for farm management. Although very few systems for water distribution have efficient pricing, water resources should be allocated so that the marginal cost equals the marginal value product of water for all uses and users. When the marginal values are not equal, it is always possible to find a reallocation of water that increases net social benefits. Microeconomic techniques used for estimating the value of water and determining farmers’ willingness to pay include: net-back analysis, hedonic models, and optimization models. The main objective of this study was to compare marginal value product of irrigation water applied to grow the selected crops in the southern Iran. We used net-back analysis to evaluate agricultural water value in the Hormozgan province (southern Iran). The empirical information is drawn from the agricultural service agencies and survey from farmer’s respondents. Data set is included quantity of output, prices, and costs of selected crops and water. The calculated net-back value for each product indicates the maximum ability to pay (MATP) or the shadow price of water used in irrigation. That is, if a farmer pays that amount for water he gets neither benefit nor loss. The results indicated that among selected crops, cucumber and lime had the highest return for water use. The most important management implication of this study is the reallocation of irrigation water according to the economic value of water in various crops.