Water market institutions in Colorado with possible lessons for South Africa

Abstract

State provision of water is subsidised in both South Africa and Colorado and some costs are recovered through rates. Irrigation water in South Africa is not volumetrically priced and little scarcity value is attached to water. However, administrative pricing of water at opportunity costs is unlikely to be successful as opportunity cost varies according to location, reliability, season, use and quality. In a water market, water is not priced by administrators but the market attaches an opportunity cost price to water and thus promotes the highest valued use of the water. This is the case in Colorado. In Colorado an active market for the usufructuary rights of water has developed while water itself remains public property (as is the case in South Africa). The transfer time of Colorado Big Thompson (C-BT) water is short while transaction cost is small. There are two reasons why agricultural water markets do not release water in South Africa. The first is that the only water trades that have taken place are between non-users (sleepers) of water and intensive users.

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