Valuing the Water Used in Peri-urban Regions of Hyderabad, India and in Western Sydney, Australia

Abstract

Economic theory suggests that resources should be employed in different sectors to the point where their marginal values are equal. Yet what has been observed in many instances is that the marginal values of a resource tend to differ, depending on what they are used for. While this occurs for a variety of reasons, it is argued in this paper that the observable relative differences in the marginal values of a resource are a measure of the pressures forcing a reallocation of those resources within a region. This issue is most acute in peri-urban regions (those places where cities and the rural environment meet) as the competition between a declining agricultural sector and the growing domestic and industrial sectors is most intense. The argument arises as to what extent is the pressure to transfer resources between these declining and expanding sectors. To answer that question it is necessary to value the resource in question in a consistent and comprehensive manner across all sectors. Once done, the forces exerted on the resource can be gauged by observing the relative differences in the values placed on it in each use. The purpose of this paper is to present the results of a method that has been used to undertake this task with respect to the allocation of water resources. However, analyzing this question in the water sector has been stymied by the fact that the value of water deployed cannot be compared easily with that allocated to other sectors. The approach taken is an extension of the Residual Method that is used to calculate the marginal value product of water used in each crop and then aggregated to obtain the total value of water allocated to the agricultural sector as a whole. These results are then compared to the more conventionally obtained values of water used in other sectors. The results presented in this paper were drawn from research that has been published on two very different peri-urban sites, in Western Sydney, Australia and in Hyderabad, India. It can be concluded that despite the differences in the circumstances, conditions and concerns of stakeholders, the approach is robust enough to be used in a variety of situations where the competition for water between sectors exists. It was found that the value of water used for domestic purposes is significantly greater than that deployed to the agricultural sector in both peri-urban regions. In addition, it does not matter that the quantities used in the urban areas for domestic and industrial uses are relatively small when compared to those in the agricultural sector (as is the case in Hyderabad) or not (as in the case in Western Sydney). Just like other resources (principally land) it is inevitable that in peri-urban regions water will be and should be allocated to the use that it is most valued; towards urban expansion and away from agriculture.