Understanding and valuing the economic, social and environmental components of System Harmonisation

Understanding and valuing the economic, social and environmental components of System Harmonisation

The aim of the Products and Markets component of the System Harmonisation project is to value the economic and environmental outcomes from an irrigation scheme that is operated by and in the interests of society. In this conceptual note the thinking underlying this component of the project are outlined. The aim of this note is to provide elements for debated.

The nature and requirements of System Harmonisation demands that a 'systems approach' be taken throughout the project. What becomes important within this approach is how the different elements within a system are isolated and yet linked with one another. In many instances the extent and nature of irrigation systems are defined by the relevant Regional Irrigation Business Partnership (RIBP) under investigation.

It is recognised that society has multiple uses for the water (agriculture, industry, households, recreation and the environment) as well as non-use (intrinsic) values for which it derives benefits from and incurs costs in distributing the water in any select manner. Further, it is assumed that the irrigation schemes are run for the benefit of society as a whole. Thus, there is a necessity to evaluate both the private and public costs and benefits associated with irrigation schemes.

In order to identify what society values from an irrigation scheme, it is argued that a social matrix approach is needed. This analysis allows for a clustering of the issues people feel is important to them regarding the use of an irrigation scheme. Such an analysis will allow identification of the perceived most and least beneficial activities connected to water allocation, economic modelling of the most productive activities, evaluation of externalities and Cost Benefit Analysis.

The net economic benefits that arise from irrigation need to be evaluated. The sectors where benefits are derived can be segregated into agriculture, households, the environment, recreation and industrial uses. The largest of these, by pure scale of the use of water, is agriculture.

A gross margins approach is used to evaluate the returns for water in the agricultural sector. In the industrial and household sectors, a simple evaluation approach is used where the quantity of water demanded is multiplied by the price paid in each sector. Non-market valuation techniques are used to evaluate the recreational and environmental uses of water.

The difficulty that arises in this analysis is how to evaluate the performance of irrigation schemes, where the outcomes are multifaceted. A 'meta' model approach is suggested in which the different elements from the project are brought together and assessed using a technique derived from the theory surrounding production possibility frontiers. This technique can be used to hypothesise a value for the ecosystem services derived from an irrigation scheme.

The performance of an irrigation scheme is evaluated in terms of the suggestions raised to change it. Cost Effective Analysis is to be utilised to evaluate this performance. Then two issues need to be addressed. First, it is necessary to converse with those from other components, particularly those involved in the hydrological programs, to determine the nature of the schemes to be investigated. Second, it is necessary to implement the approach in each of the RIBPs. This work needs to commence with the evaluation of the social values in each region.

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