WATER RATES AND THE RESPONSIBILITIES OF DIRECT, INDIRECT AND END-USERS IN SPAIN

Abstract

Irrigation is the main user of water in Spain, and the price paid for this resource has long been lower than its cost. The recent EU Water Framework Directive requires that all costs be recovered, but application has had perverse effects. In some cases, farms have become economically unviable, while in others, cultivation has intensified and water consumption has increased. This paper applies a slightly modified version of the computable general equilibrium model developed by the International Food Policy Research Institute (Lofgren et al., 2002), to a SAM (Social Accounting Matrix) of the province of Huesca in north-eastern Spain. The model disaggregates the agricultural sectors into irrigated and unirrigated farming, taking into account the improvements in irrigation efficiency. Within this framework, we analyse different payment scenarios affecting direct users, exporters and end-users in order to examine user responsibilities, the impact of international markets and macroeconomic effects on agriculture and industry in Spain.

Keywords:

• CGE
• User responsibility
• End-user
• Water rates
• Virtual water

Notes

¹ Lofting and McGauhey (1968) were the first to include water as an input in an Input–Output model. Meanwhile, input–output tables, or Social Accounting Matrices (SAM), and Computable General Equilibrium Models (CGEM) based on them, have become a common instrument in the analysis of water use and demand over the last decade (see, for example, Lenzen, 2009, and Lenzen and Peters, 2010, for Australia; and Duarte et al., 2002, Velázquez et al., 2006, and Cazcarro et al., 2010, for Spain).

² To date, over 56,630 hectares have been modernized or are in the process of modernization. In recent years, the profitability of irrigated crops like alfalfa and corn has been above average for Spain. Meanwhile, the transformation process has generated improvements in water productivity of around 150% and similar land productivity gains. Current irrigation water use efficiency is over 60%, approximately 5% of which is attributable to the partial modernization already completed. Hence, the expected improvement will be between 10% and 15% at the end of the process. See DGA (2011).

³ We account only for blue water use, and we identify ‘water use’ with ‘physical consumption plus returns’. Thus, ‘virtual water’ means the embodied water use, not the embodied physical consumption. More details will be found in Cazcarro et al. (2010).

⁴ As explained in Cazcarro et al. (2010), the 2002 SAM for Huesca was built in two steps. The first was the 1999 SAM for Aragon, and then the 2002 SAM for Huesca was obtained using the GRAS method described by Junius and Oosterhaven (2003) to update and regionalize data.

⁵ Key modifications of the IFPRI model are shown in the Appendix.

⁶ The figure of €40 million includes modernization of general networks, 50% of energy costs and one and one half times the payment made to Government (see Table 3). The latter payment is due to the current low level of payments, which has been sharply criticized by the green lobby because the amounts collected do not cover real costs or the cost of additional flow regulation requirements. According to these criteria, the exact payment based on Table 3 and the 183,142 hectares of Irrigated farming in Huesca in 2002 would be: (183,142/122,248) × 4,236,133 × (16.48/5.46 + 20.49/(2 × 5.46)) + 1.5) = 40,582,162.

⁷ According to Table 3, equivalent consumption associated with hydroelectric plants will be a percentage of irrigation uses obtained as: (17.53/4)/(70.03/2) × 100 = 12.52. Irrigation uses in Huesca's economy are around 1,355,069.33 Dm³, so equivalent consumption will be: 0.1252 × 1,355,069.33 = 169,654.68 Dm³. Energy products uses (not hydroelectric plants) are 31,223 Dm³ according to the available data, so equivalent consumption by hydroelectric plants is 543% of real Energy products uses (not hydroelectric plants). Consequently, we multiply the virtual water payments in scenarios 3 and 4 by 6.43 (i.e. 1 + 5.43), to approximate the payments made by hydroelectric power plants.

⁸ One would expect Livestock sector prices to raise as a consequence of dependence on Irrigated farming. However, we have to take into account that the Livestock sector also depends on Unirrigated farming (a similar volume to the Irrigated farming demand), Chemicals, Metal products and machinery, Construction and engineering and Transport and communications, whose prices fall. Moreover, Huesca's Livestock sector demands a relevant part of the livestock feed from the rest of Spain, the EU and the rest of the world, whose prices in the model are constant.

⁹ Water savings are defined in Appendix b.

¹⁰ We also estimated water savings taking all uses (domestic and imported water) into account. Both the total figures and percentages found are slightly higher than in the case of domestic water uses alone, but the qualitative conclusions are the same (see Table 10).

¹¹ Total water use in Huesca's economy is around 1,525,910 Dm³, and efficiency gains from Irrigated farming produce a saving of 135,506.93 Dm³.

¹² CES technology is used for the Irrigated farming account because it facilitates the estimation of changes in productivity. However, we also estimated changes in Irrigated farming on the basis of Leontief technology, obtaining qualitatively similar results.