Economic Valuation of Jordan’s Water Resources
in the Agricultural, Industrial and Tourism Sectors
Summary Statement of Proposed Work
By Octavio A. Ramirez
Detailed surveys of agricultural water use by farmers from the Mafraq (Azraq) and Disi-Mudawwara aquifers, two main underground reservoirs in Jordan, were conducted during the first year of this project. During the second year, the three extensive datasets resulting from these surveys were analyzed. These analyses provided a wealth of useful information for the formulation of effective agricultural water policies and extension programs, and allowed for a fairly accurate estimation of the economic value of water when used for agricultural production in these two basins.
The government of Jordan has determined that these two aquifers are essential to maintain an adequate supply of water to support population and economic growth in that country during the reminder of this century. At the present rate of extraction for agricultural use, however, it is estimated that the aquifers will be depleted within a few decades. As a result, a policy debate is ensuing about the need to substantially reduce current agricultural extraction and save that water to support future growth in population and in other productive sectors of the Jordanian economy.
A key piece of information needed to make sound decisions about water transfers across economic sectors is the per unit value of the water when is used as a productive input in each of those sectors or as a consumption good by the country’s population. In the absence of a free and open market for all the water available to the country, wide disparities in those per unit values point to the need to reallocate this scarce and partly non-renewable resource if the government wishes to maximize overall social welfare.
Therefore, it is important that the research conducted during the first two years of this project is expanded to estimate the economic value of water in other sectors of the economy, specifically the industrial and tourism sectors. Economically, the value of water in a productive activity can be calculated on a marginal or an average basis. The marginal value of water is the increase in the value of production that results from being able to apply an additional unit of water. The average value of water is obtained by dividing either the gross or the net returns from a productive activity by the total amount of water used to attain that production.
Both the marginal and the average value of water can be useful in assessing the need for reallocating water resources across the productive sectors of an economy. Computation of the marginal values, however, requires a substantial amount of detailed data that might not be available for most sectors of the Jordanian economy. Fortunately, reliable data on the specific inputs and outputs related to the agricultural, industrial and tourism sector is available, which makes the calculation of average values possible. Therefore, the focus of this research will be to estimate the average value of water across these three sectors.
In addition to estimating the average value of the water being used in each of these four sectors, this research will compute the values corresponding to the major sub-sectors within those sectors. This is important because water value might vary significantly across sub-sectors. In the case of agriculture, for example, the water is expected to have a much higher value when used to produce fruits or vegetables for export than when used to grow grains for internal or animal consumption. Within the industrial sector, water should be substantially more valuable when used for the production of high-tech rather than for low-tech goods.
When necessary, location and quality will be considered as well. In the tourism sector, for example, the water used for the operation of high-end resorts on the Dead or the Red Sea will likely have a much higher value than the water used in other tourism-related activities. Drinking water should be more valuable than treated wastewater than might only be acceptable for use in agriculture or certain types of industrial production. This, of course, implies that water reallocation decisions might need to be made at the sub-sector rather than at the sector level, with location and quality considerations within sub-sectors when needed.