Comparative analysis of agricultural water pricing between Azarbaijan Provinces in Iran and the state of California in the US: a hydro-economic approach

Iranian water authority has recently announced that one of the effective ways to avoid unprecedented high water consumption in Iran’s agriculture sector is to increase water price. This paper analyzes the feasibility of this policy by using a hydro-economic approach with the aim to consider the role of water pricing in agricultural water management. Such an analysis was conducted through comparing price of water consumed for producing selected agricultural crops (i.e. wheat, sugar beets, onion, tomato, barley, potato, corn, alfalfa hay and watermelon) in a case study on two provinces (East Azarbaijan and West Azarbaijan) in Iran to that in the state of California (CA) in the USA. According to the paper, the method uses the Purchasing Power Parity (PPP) Index for the first time to analyze the water prices of agricultural crops in the case study due to the specific regional circumstances in the Case Study (i.e. severe fluctuations and continuously changing currency) that prevent using the norm of Nominal Exchange Rate Index (NERI). The results show there is no significant difference between the water price for producing the selected crops in West Azarbaijan (W.AZ) and East Azarbaijan (E.AZ) provinces and that in the state of California if PPP Index is applied. Water price for producing each kilogram of some crops such as wheat, sugar beet, onion and watermelon (except potato and barley) is estimated to be between 60–80 percent of that in the state of California. However, this ratio is ironically equal to 116% for alfalfa hay and 105% for corn. As a result, considering the obtained results, one may realize that the whole problem can be hardly attributed to the low price of agricultural water in our case study and raising agricultural water price would never be effective for reducing water consumption in the studied area unless price adjustment accompanies developing necessary infrastructures. Unlike the views that advocate raising water prices, there are two distinct views: The first declares that agricultural water should be free of charge to the farmers because it returns to the hydrological cycle. The second view stipulates that instead of raising water prices in agriculture sector, the cost of water supply for agriculture should be reduced by new technologies. It is advised that before adjusting agricultural water price, institutional reforms are required based on the experiences of other countries and establishing local water distribution cooperatives