Get access

Macro–micro feedback links of water management in South Africa: CGE analyses of selected policy regimes

Authors

  • Rashid Hassan,

    Corresponding author
    1. Centre for Environmental Economics and Policy in Africa (CEEPA), Department of Agricultural Economics, Room 2-6 Agric Annex, University of Pretoria, South Africa
      Corresponding author. Tel.: 27-12-4203317; fax: 27-12-4204958.
      E-mail address: Rashid.hassan@up.ac.za (R. Hassan).
    Search for more papers by this author
  • James Thurlow

    1. World Institute for Development Economics Research, United Nations University, Katajanokanlaituri 6 B, Helsinki 00160, Finland
    2. International Food Policy Research Institute, Washington, DC, USA
    Search for more papers by this author

Corresponding author. Tel.: 27-12-4203317; fax: 27-12-4204958.
E-mail address: Rashid.hassan@up.ac.za (R. Hassan).

Abstract

The pressure on an already stressed water situation in South Africa is predicted to increase significantly under climate change, plans for large industrial expansion, ongoing rapid urbanization, and government programs to provide access to water to millions of previously excluded populations. This article employs a general equilibrium approach to examine the economy-wide impacts of selected macro and water-related policy reforms on water use and allocation, rural livelihoods, and economy at large. The analyses reveal that implicit crop-level water quotas reduce the amount of irrigated land allocated to higher-value horticultural crops and create higher shadow rents for production of lower-value water-intensive field crops, such as sugarcane and fodder. Accordingly, liberalizing local water allocation within irrigation agriculture is found to work in favor of higher-value crops, and expand agricultural production and exports and farm employment. Allowing for water trade between irrigation and nonagricultural uses fuelled by higher competition for water from urbanization leads to greater water shadow prices for irrigation water with reduced income and employment benefits to rural households and higher gains for nonagricultural households. The analyses show difficult trade-offs between general economic gains and higher water prices, which place serious questions on subsidizing water supply to irrigated agriculture, i.e., making irrigation subsidies much harder to justify.

Get access to the full text of this article

Ancillary