Pricing Mechanism as a Tool for Water Policy using a Linear Programming Model

Water shortage is a serious problem in most countries in the Middle East. In Jordan, Irrigation water consumes about 70 percent of the available fresh water resources. Unlike, many other more fortunate countries such as Malaysia, water is real and critical natural resource in Jordan. This paper discusses the impacts of pricing policies on the irrigation water demand in the Jordan Valley. It suggests what solutions are optimal that can maximize the total net income of farmers subject to several other resources constraints. The study used a linear programming model to derive farmersʹ demand for irrigation water. Optimal cropping pattern in the Jordan Valley was also generated from the model. Water demand elasticity was also estimated in the study area. The results shows the effectiveness of the use of pricing mechanism as a policy tool in dealing with water in irrigated agriculture under the current water management institution in the Jordan valley. The results also show that the optimal planted area in the Jordan Valley is about 211 thousand dunum representing about 69 percent of the total available area in the Jordan Valley. This optimal cropping pattern would generate 37.97 Million Jordanian Dinar (JD) at the prevailing water price of 0.025 JD/CM. A reduction in the total net income occurs when the prices of water were increased. It was found that the water demand for agriculture reacts to increasing water prices in a quite inelastic manner over a long period. The results demonstrate that pricing policies are effective as doubling of irrigation water from the prevailing water price of 0.025 JD/CM to 0.05 did have any impact on the cropping pattern, the planted area or the net income. At the prevailing water price of 0.025 JD/CM, the profitability of one dunum is 180.1 JD, and of one cubic meter is 0.177 JD