Estimating the Cost of Water and the Economic Value of Water in the Farmlands Covered by Man-Made Ponds: A Case Study of the Alborz Project Area in Iran

Abstract

Water pricing is considered as one of the most important management tools of water resources, which can result in optimized allocation in the agricultural sector. In this regard, this study estimated the cost of water and the value of water in the farmlands covered by the selected manmade ponds (MMPs) within the Alborz project area in Mazandaran Province using the engineering economics methods and production function calculation. The required data were collected via a survey conducted in 2013-2014 growing season. Sample size was estimated to be 198 people. After studying various production functions, transcendental production function was chosen as the best functional form. Next, the economic value of water for rice in the basin covered by the selected MMPs was calculated to be 19,065 IRR per m³ using an estimation of the production function. In addition, the cost of water per m³ in the selected MMPs was obtained as to be 868 IRR at the interest rate of 22% and 394 IRR at the interest rate of 12%. Comparing the cost of water with the economic value of water demonstrated that the economic value of water is higher than the cost of water in the selected MMPs, and that both of them had great difference with the price paid by farmers. The implication is that the existing gap between the real price and the price paid by farmers should be filled by the economical pricing of water.