Innovation in Agricultural Water Pricing Systems in China Based on Irrigation Benefits

Abstract

The comprehensive reform of agricultural water prices is an important component of China’s agricultural water conservation strategy and is highly important for ensuring national water security and sustainable agricultural development. Given the difficulty in raising water prices due to the limited carrying capacity of farmers in the reform, there is a pressing need to consider the implementation of agricultural water price sharing as a potentially viable strategy. Based on the grain production data from 2000 to 2018, the proportion of agricultural water prices borne by farmers and governments in different regions were calculated via the C-D production function method and the “Mitchell scoring + Expert scoring” method in the study. The results revealed that the average sharing coefficient of irrigation benefits for grain crops in China is 0.245. The sharing proportion of agricultural water prices for farmers in seven major geographical regions are ranked as follows: Northwest China (0.467) > Central China (0.427) > Southwest China (0.389) > Northeast China (0.358) > North China (0.319) > East China (0.312) > South China (0.163), while the sharing proportion of the government is 0.533, 0.573, 0.611 0.642, 0.681, 0.688, and 0.837. We proposed a systematic approach that directly ties cost distribution to the benefits received, and determined the proportion of agricultural water prices shared by farmers and governments, which is in line with the farmers’ economic interests and psychological demands. Furthermore, suggestions were proposed regarding the implementation of a rational agricultural water price-sharing policy.

1. Introduction

In 2020, the Food and Agriculture Organization of the United Nations released a report stating that the world is currently facing a growing water crisis [1]. Improving water use efficiency in agriculture is considered one of the most effective ways to address the water crisis [2]. Over 60% of China’s annual water resources are allocated to agricultural production, and there is considerable scope for water conservation in this sector. The advancement of water-saving agriculture serves as a crucial strategy to overcome the challenge of water scarcity in China. Unfortunately, China has long implemented a low water price policy, which is considered a major factor leading to low irrigation efficiency and water waste in agriculture [3].

The Chinese government innovatively initiated a comprehensive reform of agricultural water pricing in 2016, aiming to guarantee the operational and maintenance requirements of irrigation projects by optimizing the agricultural water pricing system, thereby facilitating agricultural water conservation and ensuring sustainable agricultural development [4,5]. In recent years, the reform area of China has been continuously expanding, with a total area exceeding 46.7 million hectares. These reformed areas showed positive trends in terms of water conservation, improved production efficiency, and increased farmer income [6]. However, numerous challenges that have hindered reform are exposed, especially a contradiction between the strong demand for higher agricultural water prices and the insufficient carrying capacity of farmers.

The low price of agricultural water in China does not cover the cost of water supply, which has led to the inadequate maintenance and management of agricultural irrigation projects, further giving rise to project damage and water waste [7]. As indicated by government data, 77.78% of large and medium-sized irrigation areas, 54.17% of small irrigation areas, and 21.05% of well irrigation areas in China have tariffs that do not cover the cost of water supply [5]. Clearly, China urgently needs to raise the price of agricultural water.

However, several obstacles hinder the increase in agricultural water prices during the reform process, such as the long-standing policy of low water prices, which led to farmers’ unwillingness to pay higher water tariffs [7,8]; and net returns from China’s three major grain crops were mostly negative, and farmers are struggling to afford higher water prices [9]. Furthermore, numerous studies reported that elevated water prices may reduce the cultivation of grain crops by farmers, which compromises food security [2,10,11,12]. Consequently, there is limited potential for further increases in agricultural water prices for famers in China [13,14,15].

In response to the contradictory status mentioned above, scholars have proposed an institutional innovation centered on the concept of agricultural water price sharing [4,16,17,18]. Nevertheless, the relevant research still remains at the level of theoretical assumptions, and the questions of who should share, how they should share, and to what extent they should share have not been resolved. This paper aims to develop an innovative research methodology that directly ties irrigation benefits and agricultural water price allocation and seeks to propose a rational scheme for agricultural water price sharing. Herein, the agricultural water price to be shared is the cost of the water supply, and the primary stakeholders engaged in the sharing of agricultural water prices are farmers and the government.

The study developed and applied an innovative methodology that combined an expert evaluation method with an irrigation benefit sharing coefficient method (Figure 1). The methodology was grounded in the principle of balancing rights and obligations [19], and for the first time it quantitatively determined the proportion of agricultural water price shared by the government and farmers. The irrigation benefit sharing coefficient reflects the contribution degree of irrigation to increased grain production [20]. The calculation methods include the comparison test method [21], the water production function method [22], the energy value analysis [23], the residual value method [24], and the C-D production function method [25]. The C-D production function method was selected in this paper based on considerations of data accessibility and methodological convenience. The Mitchell scoring method was employed to construct the evaluation index system [26], and the rights of the government and farmers were determined by expert scoring. The utilization of a mixed-method approach has been proven to enhance the comprehensiveness and credibility of the results obtained. The findings might be a substantial innovation in the domain of agricultural water price policy research, and they will provide a solution to the practical challenges inherent in an agricultural water price reform.

2. Materials and Methods

2.1. Share Coefficient of the Irrigation Benefit

2.1.1. C-D Production Function

The C-D production function is an economic model that shows the relationship between inputs and outputs, aiming to ascertain the contribution rate factor of input to output [27]. This method was employed [25,28] to calculate the share coefficient of irrigation benefits. The function can be expressed as:

Y = A(t)L^αK^βμ

(1)

where Y is the total output, A(t) is the comprehensive technical input, L is the labor input, K is the capital input, α is the coefficient of elasticity of the labor output, β is the coefficient of elasticity of the capital output, and μ is the random disturbance term (μ ≤ 1).

2.1.2. Selection of Indicators

Table 1. Production factors used in grain crops production assessments in the relevant literature.

Author	Grain Crops Production Factors	Publication Year
Zhang Qiuping [25]	Water Resources Consumption, Chemical Fertilizers Consumption, Pesticides Consumption, Machinery Consumption	2008
Huang Zhen [29]	Chemical Fertilizers Consumption, Machinery Input, Labor Input, Irrigation Area, Areas Covered by Natural Disaster, Sown Area of Grain Crops	2014
Wang Jing [30]	Sown Area of Grain Crops, Water Resources Consumption, Chemical Fertilizers Consumption, Machinery Consumption	2017
Liu Weizhe [31]	Seed Cost, Chemical Fertilizers Cost, Irrigation Cost, Machinery Cost, Labor Cost, Other Expenses	2018
Gao Zhiyue [32]	Irrigation Area, Total Power of Agricultural Machinery, Volume of Effective Component of Chemical Fertilizers, Cultivated Area	2018
Hai Yang [33]	Total Power of Agricultural Machinery, Volume of Effective Component of Chemical Fertilizers, Climatic Condition; Irrigation Rate of Cultivated Land	2019
Zhang Yu [34]	Sown Area of Grain Crops, Irrigation Area, Number of Diesel Engines for Agricultural Irrigation	2019

displays the choice of factors in the assessment of grain production via the C-D production function in the relevant literature. The grain production factors utilized in this study were identified with reference to literature and data availability. These variables include the following: the area of grain crops (1000 hectares), the irrigation area (1000 hectares), the use of agricultural pesticides (10,000 tons), the total power of agricultural machinery (10,000 kW), and the volume of effective components of chemical fertilizers (10,000 tons).

2.1.3. Construction of a C-D Production Function for Grain Crops

The C-D production function model for grain crops is established by selecting five production factors of sown area (S), irrigation (W), pesticides (P), chemical fertilizers (F), and machinery (M) input, as follows:

Y = c S^βs W^βw P^βp F^βf M^βm

(2)

where β_s, β_w, β_p, β_f, β_m are the coefficients of output elasticity for the different factors, respectively, Y is output of grain crops (10,000 tons).

By taking logarithms of both sides of the function, the original function can be converted to a logarithmic linear function:

lnY = lnc + β_s lnS + β_w lnW + β_p lnP + β_f lnF + β_m lnM

(3)

2.1.4. Scale of Research

In this study, China was divided into seven regions according to the currently commonly used geographical division method, and grain crops production data from 31 provinces from 2000 to 2018 were used to calculate the coefficient of the irrigation benefit (there are no data available for Hong Kong, Macau, and Taiwan). Regression analysis using data in the temporal and spatial dimensions of the dualistic dimension increases the data volume and data structure, thus reducing the influence of external factors. The data on grain crops production factors (Y, W, P, F, M) used in this study are sourced from the National Bureau of Statistics of China.

2.2. Calculation of Agricultural Water Price Shares

The irrigation benefit share coefficient is accurate for measuring the contribution of irrigation to grain crop production. The greater the direct economic benefits of irrigation are, the greater the proportion of the water price that will be borne by the farmer. However, it does not take into account how socioecological benefits are distributed between farmers and government departments. It is generally believed that rights and obligations are consistent and equivalent, and the more rights and interests enjoyed by stakeholders around the agricultural water tariff, the higher the obligations are; that is, the higher the share of the agricultural water price should be. Consequently, the Mitchell scale for benefit evaluation was utilized to determine the proportion borne by farmers and the government.

2.2.1. Constructing an Irrigation Benefit Evaluation Index System

Both the “Mitchell scoring method” and the “Expert scoring method” were employed to conduct research on the evaluation of irrigation benefits.

Table 2. Stakeholder evaluation index system for agricultural water prices.

Primary Index	Secondary Index	High	Medium	Low	None	Weight
Legitimacy	Decision-making power (L1)	9–7	6–4	3–1	0	0.092
	Administration authority (L2)	9–7	6–4	3–1	0	0.105
	Ownership or use of economic benefits (L3)	9–7	6–4	3–1	0	0.076
	Water resources ownership/allocation/use right (L4)	9–7	6–4	3–1	0	0.096
	Other rights (L5)	9–7	6–4	3–1	0	0.052
Authority	Influence on agricultural water prices (A1)	9–7	6–4	3–1	0	0.142
	Influence on agricultural water charges (A2)	9–7	6–4	3–1	0	0.159
Urgency	The importance of ideas and the degree to which they are adopted (U)	9–7	6–4	3–1	0	0.279

lists the system of irrigation benefit evaluation indicators based on the definitions of legitimacy, authority, and urgency for stakeholders in the Mitchell scoring method [26]. In addition, the experts will score the interests of the farmers and the government on the basis of their own experience and judgment.

2.2.2. Data Statistics

The expert ratings were used to calculate the mean, median, and weighted average, respectively. These values were subsequently averaged to assess the interests of stakeholder i and indicator j as R_ij.

$$R_{ij}={\displaystyle \frac{Avg\left(r_{ij}\right)+Mid\left(r_{ij}\right)+0.5 Mode\left(r_{ij}\right)+0.3Max\left(r_{ij}\right)+0.2Min\left(r_{ij}\right)}{3}}$$

(4)

where r_ij is the score of each expert on indicator j of stakeholder i, Avg(r_ij) is the average of the expert scores, Mid(r_ij) is the median of the expert scores, and 0.5Mode(r_ij) + 0.3Mode(r_ij) + 0.2Min(r_ij) is the weighted average of the expert scores.

The coefficient of the variation method is used to determine the weight W_j of each index. The formula is as follows:

$$W_j={CV}_j/{\sum }_{i=1}^n{CV}_j$$

(5)

$${CV}_j=\overline{R_j}/{SD}_j,{SD}_j=\sqrt{{{\sum }_{i=1}^n\left(R_{ij}-\overline{R_j}\right)}^2/(n-1))}$$

(6)

where CV_j is the coefficient of variation, $\overline{R_j}$ is the average value of the indicator, and SD_j is the standard deviation of the indicator.

The benefit evaluation results D_i of the farmers and the government are as follows:

$$D_i={\sum }_{j=1}^m{W}_j{R}_{ij}$$

(7)

2.2.3. Calculation of Agricultural Water Price Shares

The formula for calculating the proportion of agricultural water price borne by farmers and the government are as follows:

$$N_i={\beta }_{wi}/\overline{\beta }\times D_n/(D_n+D_g)$$

(8)

G_i = 1 − N_i

(9)

where N_i is the proportion borne by farmers, G_i is the proportion borne by the government, β_wi is the share coefficient of the irrigation benefit, $\overline{\beta }$ is the average of the irrigation benefit sharing coefficient of China, and D_n and D_g are the benefit evaluation results of farmers and the government, respectively.

3. Results and Discussion

3.1. Irrigation Benefit Sharing Coefficients for Grain Crops in Seven Geographical Regions of China

The data processing was standardized via SPSS 22.0 software, the C-D production function via Eviews 10.0 software was calculated, and the irrigation benefit sharing coefficients for grain crops in seven geographical regions of China were obtained. As displayed in Table 2, all estimated coefficients for irrigation benefits are significant (95% confidence level or higher), suggesting a marked correlation between irrigation and grain yield.

As shown in

Table 3. Irrigation benefit sharing coefficients for grain crops in seven geographical regions of China.

Geographical Regions	Province	Share Coefficient of Irrigation Benefit	Probw	Calculated Results in the Literature [30]
Northwest China	Guansu, Shaanxi, Ningxia, Xinjiang, Qinghai	0.329 ± 0.050	0.0000	0.192–0.415
Central China	Henan, Hubei, Hunan, Jiangxi	0.301 ± 0.117	0.0124	0.120–0.247
Southwest China	Xizang, Sichuan, Chongqing, Yunnan, Guizhou	0.275 ± 0.061	0.0000	0.229–0.661
Northeast China	Liaoning, Jilin, Heilongjiang	0.252 ± 0.076	0.0016	0.138–0.298
North China	(Beijing, Tianjin), Hebei, Shanxi, Inner Mongolia	0.225 ± 0.072	0.0028	0.200–0.453
East China	Shandong, Zhejiang, Jiangsu, Anhui, Shanghai, Fujian	0.220 ± 0.070	0.0021	0.095–0.470
South China	Guangxi, Guangdong, Haina	0.115 ± 0.055	0.0402	0.088–0.274

Note: Prob_w < 0.05 indicate statistical significance, ± followed by a number indicating the standard deviation.

, the irrigation benefit sharing coefficients for grain crops in seven geographical regions of China are between 0.115 and 0.329, and the sequence is “Northwest China > Central China > Southwest China > Northeast China > North China > East China > South China”. After calculating the average, the irrigation benefit sharing coefficient of China is determined as 0.245. The outcomes of prior studies reported the recorded values of 0.18–0.336.

In general, the results of the study appear to be as expected and do not conflict with the results of previous findings [29,30,34,35]. The regional coefficients are significantly related to the water resources, weather conditions, geological characteristics, crop varieties, and degree of agricultural modernization of the region.

The irrigation benefit sharing coefficient for grain crops in Northwest China is the highest, reaching 0.329. This region has limited water resources and an arid climate with annual precipitation of less than 400 mm. Irrigation plays a crucial role in local agricultural production, contributing significantly more to enhanced yields.

The irrigation benefit sharing coefficient for grain crops in Southern China is the lowest, with 0.115. This region is characterized by a humid climate with high precipitation. Agricultural production is less dependent on irrigation, and the contribution of irrigation to grain production is substantially lower than that in other regions.

The irrigation benefit sharing coefficient for grain crops in Central China is the second highest, which is closely linked to the high proportion of rice cultivation [25]. The proportion of rice cultivation accounted for more than 70% of the total sown area in the region. Despite the ample rainfall and humid climate of the region, the coefficient is relatively high.

The irrigation benefit sharing coefficient for grain crops in Southwest China ranks third, which is due to the unique and complex topography. Approximately 92% of the region comprises mountains and hills, leading to a limited soil water storage capacity [36]. Consequently, agricultural production is often affected by drought disasters and is highly dependent on irrigation [37].

The irrigation benefit sharing coefficient for grain crops in Northeast China is 0.252. Maize planting accounts for 57.31% of regional grain crops, 94% of which are rainfed [38], with a low degree of dependence on irrigation. Simultaneously, the region serves as a premium rice-producing region, representing 23% of the grain crops sown area and hence yielding a higher irrigation benefit sharing coefficient than North China.

The North China region has a lower coefficient, which is in line with the regional water management strategy that emphasizes the promotion of agricultural water conservation. The region is focused on technological advances and crop restructuring, aiming to promote the conservation of agricultural water resources while ensuring the vital function of grain production. It achieves the goal of minimizing the correlation between irrigation and grain production. Notably, in order to avoid the adverse effects of the scale of grain cultivation and the structure of the industry, this region excludes data from both Beijing and Tianjin from the calculation of the coefficients.

The coefficient of East China is greater than that of South China, which is ascribed to the abundance of local water resources, higher rainfall, and lower dependence of agricultural production on irrigation in East China than in North China.

3.2. Proportion of Agricultural Water Prices Borne by Farmers and the Government

In this study, 30 experts from research institutes, water institutions, government departments, and water conservation companies were selected to complete the scoring sheet (Table 2). The results of the 22 valid expert scores were calculated via Equations (4)–(7), yielding scores of 3.81 for farmers and 7.14 for the government (

Table 4. Expert scoring results and indicator weights.

Classification		L1	L2	L3	L4	L5	A1	A2	U	Overall Score
Government	Central	0.746	0.772	0.401	0.737	0.311	1.073	1.045	2.162	7.24	7.14 (AVG)
	Local	0.652	0.830	0.432	0.650	0.282	1.082	1.131	1.981	7.04
Farmers		0.164	0.203	0.299	0.324	0.167	0.608	0.912	1.135	3.81
Weight		0.092	0.105	0.076	0.096	0.052	0.142	0.159	0.279

).

The proportion of the agricultural water price borne by farmers and the government in each region were determined via Equations (8) and (9). The results are as follows:

Figure 2a shows that the proportion of agricultural water prices borne by farmers in seven different geographical regions ranges from 0.163 to 0.467, following the descending order of Northwest China, Central China, Southwest China, Northeast China, North China, East China, and South China. The benefit-sharing coefficients for irrigation are greater in the northwestern, central, and southwestern regions than in the other regions, demonstrating that local irrigation contributes significantly to increasing crop yields. In these regions, local farmers are psychologically and financially prepared to shoulder a greater proportion of agricultural water prices. At the national level, farmers located in water-rich and economically prosperous areas pay a relatively lower proportion of the agricultural water price, whereas those located in water-scarce, rice-growing, and economically disadvantaged regions pay a relatively higher proportion.

Figure 2b displays the proportion of agricultural water prices for grain crops borne by governments in seven different geographic regions, which ranges from 0.553 to 0.837. All of the governments hold a greater proportion than the farmers, which has significant implications for reducing high grain production costs and maintaining food security. Currently, the major grain crops (including wheat, rice, and corn) in China have negative net returns, and the farmers’ willingness to plant is declining. High agricultural water prices have exacerbated this problem, with the potential to ultimately threaten food security [39,40]. Therefore, it is recommended that green water-saving technologies, efficient irrigation projects, and reasonable crop layouts to promote water conservation are utilized instead of simply raising the price of water.

Farmers bear the highest proportion of agricultural water prices in Northwest China and Central China, both exceeding 40%. Due to factors such as climate and type of crop cultivation, the level of dependence on irrigation for agricultural production in these two regions is significant, and the benefits of irrigation are considerable. Farmers are strongly inclined toward grain production and a willingness to bear irrigation costs. Moreover, the government’s sharing proportion of the agricultural water price is the lowest, which is also in line with the affordability and aspirations of these regions.

South China and East China have the lowest proportion of agricultural water prices borne by farmers. In particular, the proportion is less than 20% in South China. Both regions benefit from a humid climate, plentiful precipitation, a dense river network, and uncomplicated water accessibility, which reduces their reliance on irrigation projects. Moreover, the economic gains from cultivating grain crops are considerably lower than those from other crops and industries in these regions, and excessive expenses for agricultural water prompt farmers to abandon grain production. Correspondingly, the government share of both regions is the highest proportion in country, which is consistent with local circumstances. A well-developed economy strengthens the government’s economic carrying capacity, and the regional production of food is more advantageous for local governments than charging for water. The local governments in these regions are capable and willing to bear a greater portion of their agricultural water costs to sustain enthusiasm for grain production and ensure food security.

The farmers in Northern, Northeast, and Southwest China share a relatively low proportion of agricultural water prices. The terrain, water resources, and economic development of these regions result in a greater dependence on grain production and irrigation, and farmers have a relatively high psychological tolerance for water prices. Nevertheless, the costs associated with irrigation and water supply in the region are significant, impacting numerous major grain-producing areas with extensive irrigated grain acreage. It thus falls upon the government to alleviate the burden on farmers associated with water costs, thereby ensuring the continued viability of cultivated land and overall grain production. Notably, it may create a predicament whereby local governments are faced with a significant and onerous responsibility, coupled with an insufficient economic capacity to meet it. We recommended that the central government extend the concessions of the water price-sharing policy.

In consideration of the policy on agricultural water pricing practices, a number of recommendations can be put forward [5].

• Financial funds can be allocated directly to the management units of irrigation projects to balance agricultural water fees and operational/maintenance costs.
• The agricultural water price can be moderately raised to encourage farmers to conserve water. Farmers may be subsidized through the rewarding of water-saving behavior or the selling of saved agricultural water rights.
• The government can attract social institutions to participate in irrigation projects by giving them the right to operate irrigation projects or the right to use land, etc. Specialized division of labor can improve management and care efficiency, save project operation and maintenance costs, and reduce government pressure.

4. Conclusions

The average value of the irrigation efficiency sharing coefficient for grain crops in China is 0.245, suggesting the contribution of irrigation to increased grain production is significant. In China, it is still necessary to strengthen the construction and management of irrigation projects, which is important for ensuring national food security and agricultural water conservation.

A notable disparity exists in the impact of irrigation on the enhancement of grain yield across the diverse geographical regions of China. This paper has made it a key factor in determining farmers’ proportion of the agricultural water price, aiming to tie cost distribution directly to the benefits received.

To avoid overemphasizing environmental factors, this paper proposes a more equitable and predictable approach that integrates irrigation benefits with expert evaluations, ensuring that farmers’ shares closely reflect the benefits derived from irrigation. Conclusively, the proportion of agricultural water prices borne by farmers demonstrates a trend of “Northwest China (0.467) > Central China (0.427) > Southwest China (0.389) > Northeast China (0.358) > North China (0.319) > East China (0.312) > South China (0.163)”, while the government’s share presents the opposite characteristics.