Demand for Irrigation Water from Depleting Groundwater Resources: An Econometric Approach Dissertation to obtain the Ph. D. degree in the International Ph. D. Program for Agricultural Sciences in Goettingen (IPAG) at the Faculty of Agricultural Sciences, Georg-August-University Göttingen, Germany presented by Tinoush Jamali Jaghdani born in TEHRAN / IRAN Göttingen, December 2011 D7 1. Name of supervisor: Prof. Dr. Bernhard Brümmer 2. Name of co-supervisor: Prof. Dr. Stephan v. Cramon-Taubadel Date of dissertation: 09.02.2012 Contents 1. Introduction1 1.1. The importance of groundwater and economic studies............1 1.2. Research motivation..............................3 1.3. Outline of the chapters.............................6 2. Demand for Irrigation Water from Depleting Groundwater Resources in Pis- tachio Production9 2.1. Introduction...................................9 2.1.1. Groundwater scarcity rent and Gisser-Sanchez Paradox....... 11 2.1.2. Water demand estimation in industry and agriculture........ 13 2.1.3. Groundwater resources demand and influential factors........ 16 2.1.4. Groundwater demand estimation in Iran............... 18 2.2. The conceptual framework.......................... 19 2.3. Field study and data.............................. 23 2.3.1. Study area................................ 23 2.3.2. Pistachio production.......................... 28 2.3.3. Field work................................ 30 2.3.4. Description of data........................... 34 2.4. Empirical model and estimation........................ 46 2.5. Results..................................... 50 2.6. Discussion.................................... 64 2.7. Conclusion.................................... 67 i 3. Participation of Tree-crop Farmers in Spot Water Markets in Semiarid Areas 69 3.1. Introduction................................... 69 3.2. Literature review................................ 72 3.3. Methodology.................................. 74 3.4. Study area and data.............................. 76 3.5. Results...................................... 80 3.5.1. Description of results.......................... 80 3.5.2. Analysis of results........................... 80 3.6. Discussion.................................... 85 3.7. Conclusion.................................... 87 4. Willingness to Pay for Irrigation Water from Groundwater in Spot Water Market by Self Selectivity 88 4.1. Introduction................................... 88 4.1.1. Water valuation and water pricing................... 88 4.1.2. Water market and water property rights............... 91 4.2. Literature Review................................ 94 4.3. Methodology.................................. 98 4.4. Study area and data.............................. 101 4.5. Results...................................... 104 4.6. Discussion and conclusion........................... 108 5. Summary 110 Bibliography 116 A. Appendix 130 ii List of Tables 1.1. The top 20 groundwater irrigating countries.................4 2.1. Demographic structure and agricultural operating units structure in the area covering Rafsanjan aquifer........................ 24 2.2. Area of planted crops in Rafsanjan aquifer (ha)............... 25 2.3. General information about the Rafsanjan aquifer............... 26 2.4. The land and water ownership pattern in the 157 farm sample....... 33 2.5. Descriptive summary of the variables..................... 34 2.6. Parameter estimates of translog cost function in SUR and SAR...... 54 2.7. SUR and SAR estimation of Shephard’s lemma equation for sand-manure- fertlizer..................................... 56 2.8. SUR and SAR estimation of Shephard’s lemma equation for water.... 56 2.9. SUR and SAR estimation of Shephard’s lemma equation for pesticide de- mand...................................... 57 2.10. SUR and SAR estimation of Shephard’s lemma equation for machine de- mand...................................... 57 2.11. SUR and SAR estimation of demand elasticities on the mean of sample cost shares.................................... 58 2.12. SUR and SAR estimation of shadow prices for the average of sample.... 59 2.13. SUR and SAR estimation of shadow prices for the average of positive and negative groups................................. 60 3.1. General information about the Rafsanjan aquifer region........... 77 3.2. Pumping unit and farm participation in water market............ 78 iii 3.3. Descriptive summary of variables....................... 79 3.4. Land ownership status of study participants in spot water market..... 82 3.5. Water quota per hectare and participation in water market......... 82 3.6. Logistic regression coefficients of factors affecting the decision to buy ground- water....................................... 83 3.7. Calculated probabilities of factors affecting the outcome according to the logit model (percent).............................. 84 4.1. Pumping unit and farm participation in spot water market......... 101 4.2. Descriptive summary of variables....................... 104 4.3. Heckman model................................. 107 iv List of Figures 1.1. Share of groundwater from total irrigation water and all water uses....5 2.1. The map of study area............................. 23 2.2. Rafsanjan Hydrograph (1984-2009)...................... 26 2.3. Rafsanjan aquifer water quality EC graph.................. 27 2.4. Global top five pistachio producers...................... 29 2.5. Geographical position of wells and farms................... 32 2.6. Histogram of the ownership pattern of pumping units and EC of ground- water...................................... 33 2.7. Irrigation water use and water quota per hectare for the sample...... 36 2.8. Electricity tariffs for normal hours in different sectors............ 37 2.9. Electricity tariffs for off-peak hours in different sectors........... 38 2.10. Electricity tariffs for peak hours in different sectors............. 38 2.11. The histogram of pistachio production per hectare as an average of bearing and non-bearing years............................. 40 2.12. the average pistachio production per hectare for the bearing year 2008 and the non-bearing year 2007........................... 41 2.13. The relation between the age of the wells and the number of well reposi- tioning up to 2008 in the sample........................ 44 2.14. Histogram of the average age of the trees on sampled farms and tree density per hectare................................... 45 2.15. Spatial neighborhood.............................. 48 2.16. Boxplot of the share of variable costs..................... 51 v 2.17. Boxplot of the energy share of the variable pumping costs......... 52 2.18. The difference between the depth of water levels and the depth of the wells 52 2.19. Moran’s I test results on the residuals of the water equation and translog cost function................................... 55 2.20. The relation between shadow price for extra water in farm to the water quota per hectare in SUR and SAR...................... 61 2.21. The relation between the shadow price for extra tree in farm and tree density per hectare............................... 61 2.22. The plot of the relation between the available stock of capital for well and estimated shadow price for extra unit investment in well repositioning in SUR and SAR.................................. 62 2.23. Relation between EC level, and shadow price for EC............ 63 2.24. Relation between EC level, and shadow price for EC larger than 6000... 63 3.1. Geographical position of wells and farms................... 78 3.2. Irrigation water quality at water pumping units............... 80 3.3. Relative shares of bought water as a percentage of water used, water quota and related to farm size............................ 81 4.1. Histogram of the variable pumping costs and the price paid within the spot water market during 2007-2008 agricultural year in the sample of observations102 4.2. Spatial distribution of water prices (rials/m3) in the aquifer during 2007- 2008 agricultural year in the sample of observations............. 103 vi List of Abbreviations CGE Computable General Equilibrium CVM Contingent Valuation Method DEA Data Envelopment Analysis EC Electric Conductivity FMS Fertiliser-Manure-Sand GLM Generalised Linear Model GM Generalised Method GSE Gisser and Sánchez Effect IWRM Integrated Water Resources Management IWRMC Iran Water Resources Management Company KRW Kerman Regional Water Corporation kWh Kilowatt hours LPM Linear Probability Model MLE Maximum Likelihood Estimation MOE Ministry of Energy NKEPD Co. North Kerman Electrical Power Distribution Company OLS Ordinary Least Square vii RIWA Rafsanjan Irrigation Water Authority SUR Seemingly Unrelated Regression USDA United States Department of Agriculture VMP Value Marginal Products WFD Water Framework Directive WRS Basic Water Resources Studies WTP Willingness to Pay viii Acknowledgments Many thanks especially to Prof. Dr. Bernhard Brümmer for supervising me as a PhD student. It is a great honor for me to have him as my primary supervisor and it is a great pleasure for me to do the PhD study with his guidance. I am very grateful for his comments, assistance, support, and patience during the development of this research and my PhD study in the past years. I have benefited a lot from his wide methodolog- ical and theoretical knowledge and guidance. Many thanks go to Prof. Dr. Stephan v. Cramon-Taubadel for being the second supervisor of this thesis and his support during the past years. Thanks to Prof.