Managing water in the Dak Lak Plateau of Viet Nam: demand, efficiency, and welfare analyses

Abstract

The Dak Lak Plateau of Viet Nam is dominated by intensive smallholder coffee production. The Plateau has sustained decades of rapid economic and population growth and now faces challenges of water scarcity. The water supply economy of the Dak Lak Plateau is mature and the potential for developing more economically viable large-scale water supply infrastructure is limited. In contrast, the implementation of demand side water management policies and integrated water resource planning in the Dak Lak Plateau is at best in a formative stage, in spite of demand side and integrated water management being at the core of Viet Nam's ten year old Law on Water Resources. The implementation of demand side water management and integrated water resource planning in the Dak Lak Plateau is partly held back by a scarcity of information about the economic value of water, and of regional social preferences for in-situ water allocation for public good purposes. This lack of information is confounded by a limited understanding of how the surface and groundwater systems of the Plateau would respond to water reallocation, and circumscribed knowledge of the sectoral water use efficiencies of the Plateau. The bulk of research undertaken in this thesis aims to shift the national water policy of Viet Nam from principles towards implementation in the Dak Lak Plateau. The research of this thesis achieves this aim by closing key information gaps that have historically barred the development of effective demand side and integrated water resource management in the Plateau. The research of the thesis • estimates the marginal economic value of water in smallholder irrigated coffee production, dry season irrigated rice production, and household usage; •estimates monetised preference strengths for the in-situ allocation of water in the Dak Lak Plateau; • quantifies the scope for increasing short run irrigation water use efficiency on the coffee and rice smallholdings of the Plateau; • measures household willingness to pay to support public programs to strengthen the resilience, stability, and productivity of the hydro-agro-environmental ecosystem of the Dak Lak Plateau; and • measures the change in aggregate social welfare in the Plateau that would result from the reallocation of scarce water from lower to higher valued uses during the annual dry season. The thesis research is based on frameworks and methods drawn from neoclassical economics, non-market valuation, production economics, cost-benefit analysis, New Institutional Economics, and the integrated hydrologic-agronomic­ economic modelling literature. The thesis makes unique contributions to the disciplines of stochastic production frontier analysis, simulation-optimisation modelling of irrigated agriculture, the contingent behaviour and contingent valuation methods of non-market valuation, and to integrated hydroeconomic modelling. The work of this thesis demonstrates that 1. coffee and rice smallholders of the Plateau could achieve considerable increases in the technical and allocative efficiency of irrigation water input, on average. Moreover, increasing the technical and allocative efficiency of irrigation water input in the coffee and rice smallholder sectors would reduce the aggregate water demand of these sectors substantially. a. the stochastic production frontier analysis of smallholder coffee production undertaken in this thesis shows that the adoption of yield per tree from an average of 4.3 kilograms to 4.9 kilograms. Moreover, the simultaneous adoption of the allocatively efficient water input by coffee smallholders would reduce the annual irrigation input per tree from 4,000 litres to 1,700 litres, on average. Based on the 2005-06 Robusta farmgate price, a shift to the technically and allocatively efficient irrigation schedule of coffee would increase the operating surplus of the average coffee smallholder by 20 percent. Further, the 2,300 litre decrease in the average annual water input per coffee tree would reduce the aggregate irrigation water demand of coffee smallholders in the Plateau by 340,000 ML per annum. As a point of comparison, this annual demand reduction is equivalent to 30 percent of the average annual rainfall recharge to the unconfined aquifer of the Plateau. b. the technical and allocative efficiency of dry season rice irrigation could be increased by shifting from continuous submergence (CS) irrigation to alternate wetting and drying (AWD) irrigation. In normal climatic conditions, an average rice smallholder shifting out of CS into AWD would reduce irrigation water input by 2,300 cubic metres per hectare and increase operating surpluses by approximately 10 percent. Achieving this per hectare reduction on all irrigated rice smallholdings in the Plateau would release around 38,000 ML of water for other uses during the annual dry season. 2. household water demand in the Plateau is inelastic, at least for the range of water prices evaluated. The marginal economic value of municipal water in household usage varies between urban and peri-urban households, principally as a function of whether the household has access to substitute private household well water, and also as a function of in-household water supply infrastructure. The inelasticity of short run household water demand shows that municipal water pricing cannot be used to affect short run urban and peri-urban water consumption. 3. households of the Dak Lak Plateau have positive monetised preferences for the in-situ allocation of water in the Plateau. These preferences are largely based in existence and bequest motivations, and in the socioeconomic characteristics of the household. Showing that households in the Dak Lak Plateau are willing to pay for public programs that will likely return positive hydro-agro-environmental externalities establishes a clear signal to Provincial authorities about the capacity for such a public program to self-finance, and also to increase social welfare in the Plateau. 4. increasing technical and allocative irrigation water use efficiency on the coffee smallholdings of the Plateau would generate potential Pareto improvements. The potential Pareto improvements have two main bases; Firstly, reducing irrigation water input on farms translates directly into a reduction in on farm irrigation costs. Secondly, increasing technical and allocative water use efficiency on coffee smallholdings would reduce the seferity and geographic extent of binding water shortages imposed on coffee smallholders in the Plateau. This relaxation of the water scarcity constraint on production enables coffee smallholders to increase annual coffee yield. 5. the subcatchments of the Dak Lak Plateau fare differently in the size of the welfare wedge that is generated by regulating what is currently an open access shallow groundwater resource. 6. increasing irrigation water use efficiency on coffee smallholdings of the Plateau appears to only marginally improve the hydrologic balance of the Plateau. This result provides only weak support for an argument that Plateau would also increase the resilience, productivity, and stability of the hydroecosystem of the Plateau.