Water’s Contribution to Agricultural Productivity over Space

After recent projections for food and agricultural production for the next three decades, water is at the centre of the discussion. Given the increase in population growth, food demand will increase and the agricultural sector will likely have to expand the use of irrigation water to meet this rising demand. However, water scarcity leads to significant water management issues in the agricultural sector. With agriculture playing an important role in the water crisis as it is by far the largest user of water, the emphasis is finding ways to allocate this scarce resource more efficiently and to produce increasing quantities of food with decreasing quantities of water. The improved effectiveness of water conveyance, the efficiency in its use, and the associated impact on non-water input and output choices have the potential to impact the economic well-being of the farming community and promote the sustainability of agricultural production. The objective of this paper is to contribute toward productivity-enhancing policies by estimating the magnitude of gains from the more effective use of water in agriculture. The effectiveness of these policies depends on the proper measurement of water’s contribution to agricultural efficiency and productivity. This paper develops a measure of water’s contribution to total factor productivity (TFP) change that accounts for spatial water quantity and quality adjustments. This spatial model is a first attempt to estimate the contribution of water use to agricultural productivity and to capture differences in farm-level productivity due to head versus tail disparities in water allocation and water quality. Water policy strategies should aim toward internalizing the spatial externalities and encouraging productivity-enhancing techniques allowing the farmers to produce more output with the same or even less water and to improve the quality of water used in the agricultural sector by deploying sustainable management practice and promoting community engagement.