Policy Options to Improve Water Allocation Efficiency: Analysis on Egypt and Morocco

Abstract

Because of political risk, economic feasibility, and cultural concerns, it has been a great challenge for economists to provide palatable remedies to governments to promote water allocation efficiency. Considering the limitation of water pricing to irrigation water, this research addresses questions of which strategic policy alternatives to water pricing might improve irrigation water allocation efficiency. An empirical framework is provided to compare irrigation policies for allocating scarce water to agricultural production in Egypt and Morocco. Partial-equilibrium agricultural sector models specific to Egypt and Morocco were employed for policy tests. Consumer and producer surplus from agricultural based commodities is maximized subject to various resources, technical, and policy constraints. Positive Mathematical Programming (PMP) was used to calibrate the model. Water pricing policy, water complementary input factor tax policy, and output tax policy are tested using these two agricultural sector models. Results suggest that effective policy depends on the social, economic, and environmental contexts of specific regions. For countries like Egypt where most agricultural land is irrigated, taxes on Nitrogen (N) fertilizer and energy and output tax on water-intensive and low profit crop production may be more effective than others. For the Moroccan case, taxation on crop inputs and outputs not only affect water use in the public irrigation sector, but also private irrigation sector and rain-fed as a whole. Water pricing and output tax policies are better suited and effective than water complementary input factor taxation. Findings from Morocco might be generalized to other countries with similar irrigation characteristics and diversity in irrigated (public and private) and rain-fed land. The results for both countries demonstrate that some of the strategic irrigation policies can work towards directing cropping decisions to less water intensive crops and also generating revenues for governments in situations where governments choose not to price water.