Pricing irrigation water for drought adaptation in Iran Alireza Nikouei a,1 , Frank A. Ward b,⇑ a Isfahan Research Center for Agriculture & Natural Resources, Mailbox 81785-19, Esfahan, Iran b Department of Agricultural Economics and Agricultural Business, New Mexico State University, Las Cruces, NM 88003, USA article info Article history: Received 23 November 2012 Received in revised form 23 July 2013 Accepted 19 August 2013 Available online 22 August 2013 This manuscript was handled by Geoff Syme, Editor-in-Chief, with the assistance of M. Ejaz Qureshi, Associate Editor Keywords: River basin Food security Irrigation Water pricing Cost recovery Integrated water resources management summary This paper examines alternative water pricing arrangements that better manage and more accurately reflect conditions of increased water scarcity experienced during drought in Iran. A comprehensive water balance and crop use model compares the existing below cost water pricing model with an alternative two-tiered pricing approach. The tiers reflect two uses of irrigation water. The uses are (1) subsistence level crop production from farm household production of crops for food security and (2) discretionary cropping. Results of the study offer evidence for a reform of Iranian water pricing principles, subject to caveats described by the authors. Ó 2013 Elsevier B.V. All rights reserved. 1. Introduction Irrigated agriculture is the largest use of water in most dry parts of the world (Biswas, 2007; Brooks, 2007; Varis, 2007). Despite its heavy water use, irrigation makes important contributions to food security in the world’s arid developing countries (Varis, 2007). While irrigation often produces low marginal values of water in these places (Brooks, 2007; Makdisi, 2007), a predicable irrigation water supply creates opportunities for the poor that reduces their vulnerability to climate fluctuations and extreme weather (Tyler, 2007). Drought, water-related shortages, unpredictable water sup- plies, in addition to poor irrigation water shortage sharing rules are major sources of food security risk in those regions (Li et al., 2011; Mainuddin et al., 2011; Waddington, 2010). Problems with existing methods for sharing water shortages occur as a result of several factors. These include (a) imbalances in social power (Phanslkar, 2007; van der Zaag, 2007), (b) large quantities of irrigation water assigned to politically well-connected farms, which can reduce supplies available for subsistence uses by less well-connected farms (Moreddu, 2011; Nickerson et al., 2010; Roe et al., 2005), and (c) weak institutional responses to address growing water scarcities in the face of drought and climate change (Cai, 2008; Jones et al., 2000). Therefore, a difficult and ongoing challenge is how to match the water programs and policies to meet the needs of the world’s poor and/or marginalized irrigation farmers (Namara et al., 2010). Policy reforms could address food poverty in the world’s irri- gated regions (Mu and Khan, 2009; Turral et al., 2010). The need to develop more flexible irrigation water allocation rules can be- come important measures to adapt to impacts of future climate variability to sustain food security and rural livelihoods in the developing world’s dry regions (Ward et al., 2013). Recent studies describe the kinds of irrigation management improvements needed to support growing food security needs (Batchelor, 1999; Lankford et al., 2004; Yang et al., 2003). Non-price rationing is one widespread policy approach to address water shortages (Perry, 2001). Yet, it is widely recognized that this approach can be a poor way to achieve economic efficiency (Zardari and Cordery, 2009), defined for this paper as the use of water so as to maximize the to- tal value of farm income it produces for a basin. Non-price ration- ing is a poor way to achieve that efficiency because it provides no assurance that water will gravitate to its highest-valued use to maximize a basin’s total farm income. Moreover, a growing challenge is the need to ensure food secu- rity, meet water demands for multiple uses, and sustain key eco- logical assets for growing populations (Fang et al., 2007; Lamberts, 2006; Mu and Khan, 2009). 0022-1694/$ - see front matter Ó 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.jhydrol.2013.08.025 ⇑ Corresponding author. Tel.: +1 575 646 1220; fax: +1 575 646 3808. E-mail addresses: anikooie@yahoo.com (A. Nikouei), fward@nmsu.edu (F.A. Ward). 1 Tel.: +98 913 116 2826; fax: +98 311 775 7022. Journal of Hydrology 503 (2013) 29–46 Contents lists available at ScienceDirect Journal of Hydrology journal homepage: www.elsevier.com/locate/jhydrol