Analyzing alternative policy instruments for the irrigation sector : an assessment of the potential for water market development in the Chishtian Sub-division, Pakistan

The increasing scarcity of water and financial resources has made the economic dimension of water an important element of irrigation sector policies. Water pricing is the means traditionally used to incorporate economic issues into irrigation sector policies. More recently, water markets have been proposed as an alternative to water pricing. From a theoretical point of view, water markets are expected to lead to an efficient allocation of water among water users, as well as to improve water use economic efficiency. However, the discrepancy between theoretical requirements and the existing characteristics of the irrigation sector is significant. Therefore, the potential for water markets in managing water resources is questioned.In Pakistan, consideration has recently been given to water markets as a means to improve the performance of irrigated agriculture. The present study investigates issues related to water markets in Pakistan using the example of the Chishtian Sub-division, an irrigation system located in the South-Punjab. Within the framework of an integrated approach that combines hydraulic, soil and economic issues, the study analyses the functioning and impact of existing surface and groundwater markets that have developed spontaneously within the tertiary units of the irrigation system. Although constraints remain on the functioning of these markets, water transactions significantly improve the flexibility in managing water resources without threatening significantly the sustainability of irrigated agriculture.This study also discusses elements related to the technical feasibility of water markets at higher spatial scales in the irrigation system, and their potential impact on agricultural production and the physical environment. The potential for reallocation of surface water in terms of increased farm gross income is the highest within and between tertiary units. Also, the impact of reallocation on farm gross income is higher when volumes of surface water are transacted independently of the time of the year, as opposed to yearly reallocations that would affect proportionally the supply of canal water received each month. Constraints related to the existing conveyance infrastructure are not seen as a major obstacle to water transactions. Changes in the operational rules required to develop water markets at higher spatial scales, however, may represent an important constraint to water market development. Also, the absence of storage facility limit the potential for temporal reallocation of surface water, thus the overall impact of potential water markets.The thesis concludes by emphasizing the importance of a combination of interventions to manage the irrigation sector, as well as to improve its performance in terms of agricultural production and sustainability. The need to analyze, compare and combine interventions, further stresses the relevance of an integrated approach that integrates disciplines, links decisional and bio-physical processes, and investigates the heterogeneity of these processes within the irrigation system.