Water pricing and the value-add of irrigation water in Vietnam: Insights from a crop choice model fitted to a national household survey

Abstract

Vietnam is one of several countries that suffer from climate change and is encountering increased frequency and severity of droughts. Its climate risks have led to concerns about water security, prompting policymakers to assess the value-add of water in irrigation. Here, we measure the value-add of irrigation water for non-compulsory food crops in Vietnam by formalising a crop choice model and fit it to data from a national household survey. Our results indicate that irrigator profits would fall, on average, by 0.56 US$ (2016 value) if water diverted for irrigation were reduced by one cubic meter per irrigator. We also find that some 16% of surveyed irrigators could reduce the water they divert for irrigation without reducing their profits. As a response to water scarcity, effective water pricing could reduce irrigation water extractions by around 84% while the average profit per farmer would be reduced by some 17%. Our findings highlight the importance of water pricing as a possible policy option and show that setting an appropriate volumetric price for irrigation water extractions offers the possibility of welfare-improving water reallocations.