Economic value of water for irrigation in Sao Francisco River Basin, Brazil

Agriculture is the economic activity which uses water the most in Brazil, particularly in Sao Francisco River Basin, where water withdrawals for irrigation granted by water authorities amount to 22.3 billion m(3) per year, a number which is close to 81% of the total withdrawal. On the other hand, bulk water in Brazil is underpriced. Water charges for agricultural users neither reflect the economic value of water nor induce a rational and efficient use of water resources, two key concepts of the Brazilian water law. Even so, it is common for irrigators to complain about the water prices charged for their use of bulk water. To throw some light on the real impact of charging water in the agriculture sector, this article evaluates the economic value of irrigation water in the Sao Francisco River basin through the shadow price approach, calculated by using the Residual Value Method. The analysis was performed for the top ten major Sao Francisco River basin crops in water use terms, namely corn, soybean, mango, beans, coffee bean, banana, cotton, sugar cane, papaya and rice. Results for the 2019 harvests show that except for sugar cane, all water shadow prices were positive, notably mango, beans and papaya. This paper also evaluated water shadow prices interannual variation from 2014 to 2019 for six crops. Except for sugarcane, the other crops have been profitable most of the time in the last 6 years. A wide fluctuation in the shadow price of water was observed over these years due to variations in sales prices and costs of production.

Automated summary

Agriculture is the largest economic activity in Brazil, but water fees paid by agricultural users do not reflect the economic value of water or encourage rational and efficient use of water resources. This article evaluates the economic value of irrigation water in the Sao Francisco River basin using the shadow price approach, and finds that most crops have a positive water value. Additionally, the profitability of these crops has fluctuated over the past 6 years due to variations in sales prices and production costs.