United Nations
Commission on Sustainable Development

Background Paper

                                 FOR OTHER USES
                       MARK W. ROSEGRANT, CLAUDIA RINGLER


     Water in its multiple uses--for irrigation, household, industrial,
and environmental uses--is essential to a healthy and productive life,
as well as for the expansion of economic opportunity.  The competition
for limited water resources between agriculture and more highly valued
domestic and industrial water demands is rapidly increasing, however, and
will likely require a reallocation of water from agricultural uses to
meet these demands.   This paper examines the impact of the shift of
water resources from agricultural to other uses on the household, on
local, national and global food production scenarios, and on global food
security.  National and global impacts are explored using the IMPACT
global food model to create alternative scenarios.  The baseline scenario
shows that effective food demand in 2020 will be met with slowly
declining food prices and significantly increased food imports from
developed to developing countries, as well as little improvement in food
security in poorer regions.  An alternative scenario, simulating a large
reallocation of water from agricultural uses without countervailing gains
in water use efficiency and productivity, demonstrates the potentially
dramatic macro-level impacts of water reallocation on national and global
food markets.  Under this scenario--in contrast with the baseline
scenario--prices of staple foods increase sharply, consumption is
depressed in low-income regions, and malnutrition increases.

     The reallocation of water from agriculture can also negatively
impact rural economies, causing loss of income, decreased food production
and overall social disruption.  On closer examination, however, the
actual impacts are mixed.  Reallocation tends to have negative impacts
for rural communities in particular circumstances: when the transfers are
so large that they eliminate farming or other economic opportunities in
the area of origin, when farmers have no incentive to sell but water
resources are transferred anyway, and when institutions and secure
legislation to adequately compensate sellers or third parties are absent. 
Conversely, the reallocation of water from agricultural uses can have
positive impacts.  Such water transfers can stimulate economic growth in
both rural and urban areas, especially under certain scenarios: when
farmers sell only a portion of their water, when sellers are compensated
for the water resources sold, when sellers have a stake in the economic
development of the urban area, or when sellers' water rights are
adequately protected by institutions and organizations.

     Appropriate policies to sustain food security and agricultural
productivity growth, especially in local economies losing water resources
through such reallocation, will vary from region to region.  Important
elements of policy reform will therefore include the establishment of
secure water rights, the decentralization and privatization of water
management functions to appropriate levels, the use of incentives for
water conservation including reduction in water subsidies and
establishment of markets in tradable property rights, and the
introduction of appropriate water-saving technologies.  In addition,
specific compensatory measures should be taken for the poorest water
users in the rural communities, those who would be the most harshly
affected by water transfers.

1.   Introduction

     Population and economic growth in developing countries will pose
serious challenges for humanity in simultaneously meeting food
requirements and water demands.  Competition for limited water resources
increasingly occurs between different stakeholders and at different
levels: between farmers within an irrigation system; between irrigation
systems in the same river basin; between the agricultural sector and
other rural uses, such as fisheries or domestic water supply and drinking
water; and more and more between agricultural and urban and industrial
users and uses; and environmental uses (for example, instream flows and
recreation).  Agriculture still accounts for the majority of global water
withdrawals, and is often responsible for 80 percent or more of total
withdrawals for consumptive uses in developing countries, but, as this
paper will show, it is likely that significant amounts of water will be
reallocated from agricultural uses to higher valued domestic and
industrial water demands.  The impacts of the shift of water from
agricultural to other uses on household, local, national, regional, and
global food production and food security have not been studied in an
integrated manner; this paper reviews and synthesizes the available

     The paper focuses on the implications of water reallocation at the
sectoral level, in particular, on the transfer of water out of
agriculture to meet urban and industrial demands, to provide an overview
of the issues involved in water reallocation and to assess the potential
local, sectoral, and global impacts.  The following sections examine
recent food supply and demand trends as well as projections of global
food production based on IFPRI's global food model; describe the role of
irrigation in global food production; and examine recent trends and
projections in water demand.  The paper then addresses the potential for
meeting future water demands through expansion of water supplies;
provides an account of the potential impacts of reallocation on global
food production and on local and regional rural economies; and examines
the potential for water policy reform and demand management to save water
and minimize adverse impacts when water is reallocated from agriculture,
followed by some concluding observations.

2.   Recent Trends in and Projections of Global Food Supply and Demand
2.1. Recent Trends in Global Food Supply and Demand

     The world population is expected to grow to 7.7 billion in 2020,
from 5.3 billion in 1993 (UN, 1996), raising serious concerns about how
food demand will be met in the next decades.  In addition, the global
urban population is expected to increase to about 5.1 billion by 2025,
from 1.5 billion in 1975, and 2.6 billion in 1995.  The majority of the
population is projected to live in urban areas by 2025 (61 percent), up
from 38 percent in 1975 and 45 percent in 1995.  Almost all urban
population growth, about 90 percent, will occur in developing countries,
where roughly 150,000 people are added to the urban population every day
(WRI, 1996).  These developments will have serious impacts on global food
supply and on the structure of water demand.

2.2. Projections of Global Food Supply and Demand to 2020

     Projections of global food supply and demand have been made using
an updated version of IFPRI's International Model for Policy Analysis of
Commodities and Trade (IMPACT).  The model covers 37 countries and
regions and 17 commodities, including cereals, roots and tubers,
soybeans, and meats, and is specified as a set of country-level supply
and demand equations, with each country model linked to the rest of the
world through trade.  Food demand is a function of prices, demand
elasticities, income and population growth.  Growth in commodity
production in each country is determined by prices and the rate of
productivity growth, which in turn is influenced by advancements in
public and private agricultural research and development, extension and
education, markets, infrastructure and irrigation.   Irrigation expansion
directly affects area harvested and yields. The world price of each
commodity is determined as the price that clears world markets.  A full
description of the model is beyond the scope of this paper, but see
Rosegrant, Agcaoili-Sombilla and Perez (1995) for the detailed model
structure; and Rosegrant et al. (1997) for a detailed presentation of the
baseline results summarized below.

     The baseline analysis using IMPACT projects that real world prices
of food will decline, but more slowly than in the past two decades. 
Cereal prices on average are projected to drop by about 10 percent by
2020, and meat prices by 6 percent.  Projected real prices of cereals
will be nearly constant through 2010, but the continued slowdown in the
population growth rate after 2010, together with declining income
elasticities of demand for cereals, will reduce demand growth enough to
cause cereal prices to fall.  The tighter future price scenario implies
that shortfalls in meeting water demand for agriculture could put serious
upward pressure on food prices.  This issue will be explored below.

     In developing countries, especially in Asia, rising incomes and
rapid urbanization will change the composition of cereal demand.  Per
capita food consumption of maize and coarse grains will decline as
consumers shift to wheat and rice, livestock products, fruits and
vegetables, and processed foods.  The projected strong growth in meat
consumption, in turn, will substantially increase cereal consumption as
animal feed, particularly maize.  Growth in cereal and meat consumption
will be much slower in developed countries.  These trends will lead to
an extraordinary increase in the importance of developing countries in
global food markets: 82 percent of the projected increase in global
cereal consumption, and nearly 90 percent of the increase in global meat
demand between 1993 and 2020 will come from developing countries. 
Developing Asia will account for 48 percent of the increase in cereal
consumption, and 63 percent of the increase in meat consumption.  The
composition of food demand growth across commodities will change
dramatically.  Total cereal demand is projected to grow by 717 million
metric tons (mt), or by 40 percent, of which 35 percent will be maize;
31 percent, wheat; 18 percent, rice; and 16 percent, other coarse grains.

     How will the expanding cereal demand be met?  Expansion in area will
contribute very little to future production growth, with a total increase
in cereal crop area of only 39 million hectares (ha) by 2020, from 700
million ha in 1993, 88 percent of which will originate in developing
countries.  The projected crop area growth represents the net effect of
slow expansion in irrigated area (see section 3.3); slowly increasing
crop intensity on existing irrigated areas; declining commodity prices
that limit the profitability of investment in land expansion; and gradual
loss of land to soli degradation and urbanization. The slow growth in
crop area places the burden to meet future cereal demand on crop yield
growth.  Although yield growth will vary considerably by commodity and
country, in the aggregate and in most countries it will continue to slow
down.  The global yield growth rate for all cereals is expected to
decline from 1.5 percent per year in 1982-94 to 1.1 percent per year in
1993-2020; in developing countries, average crop yield growth will
decline from 1.9 percent per year to 1.2 percent per year; and in
developed countries from 1.3 percent per year to 0.9 percent per year. 
Even with these reduced growth rates, yield growth will account for 80
percent of growth in cereal production in developing countries, and for
94 percent in developed countries.

2.3. Food Demand and Supply Gaps and World Trade in Food

     Two types of food gaps can be identified.  The most devastating is
the gap between actual food consumption and the quantity and quality of
food required to sustain a healthy and productive life.  By this measure,
there will be little improvement in food security for the poor in many
regions.  Sub-Saharan Africa will have only small increases in per capita
calorie availability as income growth will be only slightly in excess of
population growth, and the number of malnourished children is projected
to increase by 12 million in 1993-2020.  Thus, even with relatively
abundant food in the world, there will not be enough growth in effective
per capita demand for food in Sub-Saharan Africa to improve the food
supply situation.  More progress can be seen for South Asia, home to more
than one-half of the world's malnourished children, but nearly 70 million
children will still be malnourished in the region in 2020.

     The second type of food gap is the difference at the national level
between food production and food demand as reflected in food imports. 
Growing imports are not a problem if they are the result of strong
economic growth generating the necessary foreign exchange to pay for the
food imports.  In the case of some Middle Eastern countries facing
extreme water scarcity and sharp population increases, the strategy of
substituting food imports for irrigated agricultural production paid for
by (water-based) urban and commercial growth has been called imports of
"virtual water" (Allan, 1996).  However, even when rapidly growing food
imports are primarily a result of rapid income growth, they often act as
a warning signal to national policymakers concerned with heavy reliance
on world markets, and can induce pressures for trade restrictions that
would damage growth and food security in the longer term.  More serious
food security problems arise when high food imports are the result of
slow agricultural and economic development that fails to keep pace with
basic food demand growth driven by population growth.  Under these
conditions, it may be impossible to finance the required imports on a
continuing basis, causing a further deterioration in food in the ability
to bridge the gap between food consumption and food required for basic

     World trade in food is projected to increase rapidly, with trade in
cereals projected to increase from 186 million mt in 1993 to 349 million
mt in 2020, and trade in meat products to increase from 8 million mt to
23 million mt.  Expanding trade will be driven by the increasing import
demand from the developing world: net cereal imports in developing
countries are projected to rise by nearly 150 percent, from 94 million
mt in 1993 to 229 million mt in 2020, and net meat imports are expected
to increase from less than 1 million mt in 1993 to 11 million mt in 2020. 
Trouble spots for food trade gaps are Sub-Saharan Africa, and potentially
West Asia and North Africa (WANA).  Cereal imports in Sub-Saharan Africa
are projected to increase from 12 million mt in 1993 to 29 million mt in
2020.  It is highly unlikely that this level of imports could be financed
internally, but instead would require international financial or food
aid.  Failure to finance these imports would further increase
malnourishment in this region.  In WANA, cereal imports are projected to
increase from 38 million mt in 1993 to 65 million mt in 2020, with most
of this increase expected to occur in the nonoil-producing countries.

3.   The Role of Irrigated Agriculture in Global Food Production
3.1. Contribution of Irrigation to Global Food Production

     Worldwide, the agriculture sector is the largest consumer of water. 
During the 1950s to the 1980s, irrigation expanded rapidly and currently
accounts for about 72 percent of global water withdrawals, and about 90
percent of water use in the lowest-income developing countries.  Such a
major role for irrigation had been justified by the contribution of
irrigation systems to stabilizing, then expanding national and world food
supplies during the Green Revolution, especially in Asia (Svendsen and
Rosegrant, 1994).  Dramatic increases in yield during and after the Green
Revolution were largely based on the introduction and successful adoption
of high-yielding varieties of wheat and rice that depend heavily on
timely nutrient and pest control management as well as irrigation
applications to secure and control soil moisture (FAO, 1996).  Irrigated
agriculture was a major factor in achieving the yield growth rates
described above.  

     In the mid-1990s, irrigated agriculture contributed nearly 40
percent of world food production on 17 percent of the cultivated land. 
In India, for example, irrigated areas (one third of total cropped area)
account for more than 60 percent of total production.  Over the next 30
years, as much as 80 percent of the additional food supplies required to
feed the world may depend on irrigation (IIMI, 1992).  Irrigation also
furthers stability through greater control over production and scope for
crop diversification.  In many developing countries, irrigation
constitutes an important element of rural development policies, as it
provides higher rural incomes and employment and allows for increased
agricultural and rural diversification through secondary economic
activities derived from extended and more varied agricultural production
(as compared to rain-fed agriculture).  In addition, in arid and semi-
arid areas, alternatives to irrigated agriculture are rare, and water
reallocation can lead to rural-urban migration and abandonment of plots
(Fereres and Cen~a, 1997; Raskin, Hansen and Margolis, 1995; Wolter,
1997).  Thus, irrigation plays a vital role in achieving food security
and sustainable livelihoods in developing countries, both locally,
through increased income and improved health and nutrition, and
nationally, through bridging the gap between production and demand.

3.2. Recent Trends in Irrigated Area

     The development of new irrigation has slowed considerably since the
late 1970s, due to escalating construction costs for dams and related
infrastructure, low and declining prices of staple cereals, declining
quality of land available for new irrigation, and increasing concerns
over the environmental and negative social impacts of large-scale
irrigation projects.  Lending for large-scale irrigation projects from
international donors declined sharply after the 1970s: loans from four
major donors, the World Bank, the Asian Development Bank, the U.S. Agency
for International Development (USAID), and the Japanese Overseas Economic
Cooperation Fund (OECF) peaked in the late 1970s, but by the late 1980s
were just over 50 percent of the 1977-79 level (Rosegrant, 1997).  These
declining expenditures are reflected in the declining growth in crop area
under irrigation.  Globally, the growth rate in irrigated area declined
from 2.16 percent per year during 1967-82 to 1.46 percent in 1982-93. 
The decline was slower in developing countries, from 2.04 to 1.71 percent
annually during the same periods, but the lagged effect of declining
investment in irrigation will be increasingly felt through future
slowdowns in expansion of irrigated area.

     Declining investment in irrigation has been accompanied by a decline
in the quality and performance of existing irrigation systems.  Although
data are limited and definitions of damaged area vary between sources,
estimates of annual global losses of agricultural land due to
waterlogging and salinization range from 160,000-300,000 ha (Tolba, 1978;
Barrow, 1991) to 1.5 million ha (Kovda, 1983).  Most of the waterlogging
and salinization have occurred in irrigated croplands with high
production potential.  Global estimates of the total area affected by
salinity but still in production also vary considerably.  El-Ashry
(1991), Barrow (1991), Rhoades (1987), and Kayasseh and Schenck (1989)
estimate that salinity seriously affects productivity in 20 to 46 million
ha of irrigated land.  However, with expansion of irrigation into new
areas likely to be slow, the future contribution of irrigation to food
production must come mainly from improvement in the productivity of the
existing irrigated land base.  This implies both the need to increase the
efficiency of water use and the need to improve the quality of the
resource base in irrigated areas, reversing the trends towards increased
degradation through waterlogging and salinization of soil, as well as
degradation of water quality and groundwater mining (Rosegrant and
Pingali, 1994).

3.3. Projections of Irrigated Area to 2020

     Rosegrant, Ringler, and Gerpacio (1997) assessed future expansion
in irrigated area, consistent with the underlying assumptions in the
global food projections.  The projections indicate a continued decline
in irrigated area growth.  In developed countries, irrigated area is
expected to increase by only 3 million ha between 1995 and 2020, at an
annual rate of growth of just 0.2 percent, compared to 0.8 percent
annually during 1982-93.  In developing countries, an additional 37
million ha of irrigated area is projected by 2020, at an annual rate of
increase of 0.7 percent, compared to 1.7 percent per year during 1982-93. 
For the world as a whole, irrigated area is projected to grow at 0.6
percent per year, compared to 1.5 percent during 1982-93.  The largest
increase is expected in India with 17.3 million ha by 2020, as public
investment in irrigation has remained relatively strong and private
investment in tubewells has been very rapid.  However, even in India, the
projected 1995 to 2020 rate of growth in irrigated area of 1.2 percent
per year is well below the rate of 2.0 percent per year during 1982-93. 
Area under irrigation will remain very low in Sub-Saharan Africa, despite
a potential increase of 50 percent to 7.4 million ha in 2020. 
Simulations suggest that increased investment in irrigation can make a
significant contribution to food production growth in Sub-Saharan Africa,
although the amount of land under irrigation and the potential area
exploitable relative to total crop area may not be large enough to
generate revolutionary increases in crop production (Rosegrant and Perez,

4.   Recent Trends in and Projections of Water Demand
4.1. Recent Trends in Global Water Demand

     Given the current global use of water of around 3,700 billion cubic
meters (BCM), the estimated 9,000-14,000 BCM of reliable annual
freshwater runoff would be adequate to meet growth in demand in all
sectors for the foreseeable future, if supplies were distributed equally
across the world's population.  But freshwater is distributed unevenly
across the globe.  Per capita water availability is highest in Latin
America and North America, while Africa, Asia, and Europe have far less
water per capita.  However, these regional figures hide the huge
variability in water availability.  Freshwater is poorly distributed
across countries (Canada is blessed with 120,000 cubic meters (cu m) per
capita per year of renewable water resources; Kenya has 600 cu m; and
Jordan, 300 cu m); across regions within countries (although India has
adequate average water availability of 2,500 cu m per capita, the state
of Rajasthan has access to only 550 cu m per capita per year); and across
seasons (Bangladesh annually suffers from monsoon flooding followed by
severe dry season water shortages) (Rosegrant, 1997).  Moreover, with a
fixed amount of renewable water resources supplying an increasing
population, per capita water availability has declined from 9,600 cu m
to 5,100 cu m in Asia, and from 20,000 cu m to 9,400 cu m in Africa
between 1950 and 1980 (Ayibotele, 1992).

     Tightening supplies have been accompanied by rapid growth in the
demand for water.  Between 1950 and 1990, water use increased by more
than 100 percent in North and Latin America, by more than 300 percent in
Africa, and by almost 500 percent in Europe (Clarke, 1993).  Global
demand for water has grown rapidly, at a rate of 2.4 percent per year
since 1970.  In 1995, annual per capita domestic withdrawals ranged from
a high of 240 cu m in the U.S. to only 11 cu m in Sub-Saharan Africa, a
level that is just over one-half of the 20 cu m per capita estimated by
Gleick (1996) as required to meet the most basic human needs.  China,
India, and other South Asian countries are all at or just above this
basic human needs level.  Southeast Asia, Latin America, and WANA cluster
at 56 cu m per capita to 65 cu m per capita.  For developing countries
as a group, per capita water demand was 33 cu m in 1995, less than one-
fourth the amount in developed countries.  In addition to the basic water
requirements for sanitary and other domestic uses, estimates of minimum
water requirements for basic food needs range from 400 cu m per capita
per year (Postel, 1996) to 1,000-2,000 cu m per capita annually (FAO,
1989).  However, actual minimum requirements are often higher, especially
in urban areas, due to increased living standards.

     Expansion of high quality freshwater supply to domestic users is
essential to the development of improved health and well-being.  Unsafe
drinking water, combined with poor household and community sanitary
conditions, is a major contributor to disease and malnutrition,
particularly among children.  The World Bank (1992) has estimated that
access to safe water and adequate sanitation could result in 2 million
fewer deaths from diarrhea among young children.  However, it is
estimated that 1 billion people in the developing world do not have
access to potable water, and that 1.7 billion have inadequate sanitation
facilities.  Pollutants from disposal of untreated sewage and poor
sanitation are becoming a very serious problem in domestic water supply,
especially in and downstream of major cities.  In addition, contaminated
wastewater is often used for irrigation, creating significant risks for
human health and well-being.

     Environmental demands also gain higher priority with rising incomes. 
In a growing number of developed countries, environmental uses are even
becoming the first claimant on available water resources; in developing
countries, these demands are increasingly acknowledged, but honored
usually only if local economic development is not hindered.  However, the
latent demands are expected to be served as incomes grow (Burton and
Chiza, 1997; Franks, Shahwahid and Lim, 1997; Grossman and Krueger,

4.2. Projections of Water Demand to 2020

     Taking into account long-term growth in income, industrial
expansion, and irrigation development, Rosegrant, Ringler, and Gerpacio
(1997) project that global water withdrawals will increase by 35 percent
by 2020, to 5,060 BCM, with growth in developing countries much faster
than in developed countries.  Developed countries as a group will
increase water demand by 22 percent to 1,710 BCM, more than 80 percent
of which will be for industrial uses.  The demand pressure on water
resources will be much higher in the developing world, where water
withdrawals are projected to increase by 43 percent, from 2,347 BCM in
1995 to 3,350 BCM in 2020.  In sharp contrast to past growth patterns in
developing countries, the projected absolute increase in domestic and
industrial water demand of 589 BCM from 1995 to 2020 will be greater than
the increase in agricultural water demand of 415 BCM.  With these
differential rates of growth, the combined share of domestic and
industrial water demand in total water demand in developing countries
will more than double, from 13 percent to 27 percent. 

5.   Potential for Meeting Future Water Demands Through Supply Expansion

     Can the rapid growth in water demand, particularly in the domestic
and industrial sectors, be met without massive transfers of water out of
agriculture that could derail the projected growth in crop yield and area
described above?  This section examines the potential for expansion of
water supplies through traditional and non-traditional means. 

5.1. New Investment in Irrigation and Water Supply

     Development of irrigation and water supplies has become increasingly
expensive.  In India and Indonesia, for example, the real costs of new
irrigation have more than doubled since the late 1960s and early 1970s;
costs have increased by more than 50 percent in the Philippines; they
have tripled in Sri Lanka; and increased by 40 percent in Thailand
(Rosegrant and Svendsen, 1993).  In China, Pakistan and Indonesia,
irrigation has absorbed over half of all agricultural investment, and
about 30 percent of all public investment in India.  In addition, once
established, irrigation projects become some of the most heavily
subsidized economic activities in the world, both directly and
indirectly.  In the mid-1980s, it was estimated that average subsidies
to irrigation in six Asian countries covered 90 percent or more of the
total operating and maintenance costs (Repetto, 1986).  The cost of
supplying water for household and industrial uses is also increasing
rapidly.  In Shenyang, China, the cost of new water supplies will nearly
triple from US$0.04 to US$0.11 per cu m between 1988 and 2000 because
pollution of the current groundwater source will require a shift to water
conveyed by gravity from a surface source 51 kilometers (km) from the
city.  In Mexico City, water is currently being pumped over an elevation
of 1,000 m into the Mexico Valley from the Cutzamala River through a
pipeline about 180 km long, at an average incremental water cost of
US$0.82 per cu m, almost 55 percent more than the previous source, the
Mexico Valley aquifer (World Bank, 1993).

     Because of the high costs and increasing concerns about economic,
environmental, and social impacts, it will be difficult to justify
construction of large-scale dams and water supply systems, despite the
fact that a review of the World Bank's experience with irrigation shows
that there are in fact economies of scale in irrigation projects: the
rates of return to large projects have been higher than returns to small-
scale projects (Jones, 1995).  However, these estimates do not take into
account the full range of negative externalities generated by these
projects, and also do not account for the economic, environmental, and
social consequences if the projects are not developed.  The heightened
national and international concern over the broad environmental and human
effects of large irrigation projects will make it very difficult to
proceed with many of these projects. 

     Small-scale irrigation projects can have considerable advantages
over large-scale projects.  However, in many cases the bureaucratic mode
of implementation has effectively eliminated the potential advantages,
and big and small systems often share a number of common characteristics:
high capital costs per ha and per farmer; bureaucratic, costly, and
inefficient management; low technical efficiency, low settler incomes,
and zero or negative returns (Adams, 1990).  Farmer-owned and -controlled
systems, on the other hand, have a better performance record.  Experience
indicates that it is not so much the size of the irrigation system that
determines its success, but a host of institutional, physical, and
technical factors.  Every river basin is different, and the appropriate
choice of system size and operational characteristics in any given basin
is likely to be determined by conditions unique to that basin.  A
pragmatic approach to project design should be taken that ensures
quantification of full benefits, including not only irrigation benefits,
but also health, household water use, and catchment improvement benefits
(Jones, 1995) and full assessment of, and compensation for, negative
environmental and resettlement costs.  Selective development of new
surface water must still play a role in future water resource

     Sustainable development of groundwater resources offers significant
opportunities for some countries.  The massive expansion of private
sector tube well irrigation in Bangladesh, India, and Pakistan is the
most successful example of private sector irrigation development in the
developing world.  However, extensive investigation is required to
determine the characteristics of aquifers (including geometry,
continuity, boundaries, hydraulic characteristics, spatial and temporal
variability), sustainable exploitation rates, and the potential adverse
environmental and other impacts of these water sources.

5.2. Desalination

     The supply of freshwater through desalination is in essence
infinite, but expensive.  However, although desalination capacity
increased 13-fold from 1970 to 1990 to more than 13 million cu m per day,
desalinated water accounts for just one-tenth of one percent of
freshwater use (Engelman and LeRoy, 1993; Gleick, 1993).  Nearly 60
percent of the desalination capacity in the world is in the oil-rich,
water-scarce Persian Gulf, and much of the rest is on island nations and
in other arid countries (Postel, 1992).  Although 'raw' production costs
for desalination are comparable to the costs of new supplies in some of
the most arid areas of the world, a wide diffusion of this technology is
unlikely considering the often substantial transportation costs to pump
the desalinated water inland, the high capital and energy costs, and the
potential environmental damages from generated wastes.  Growth of
desalination capacity will likely be confined to coastal regions that are
both very water scarce and relatively wealthy.

5.3. Recycling and Wastewater Reuse

     After being used once, freshwater can be used again in the same home
or factory (usually called recycling) or collected from one or more
sites, treated, and redistributed and used in another location (generally
called wastewater reuse) (Postel, 1992).  The greatest potential for
water saving is likely to be industrial recycling, although wastewater
reuse can offer significant and increasing savings as the scarcity value
of water increases.  Only a small fraction of industrial water used for
cooling, processing, and other activities is actually consumed.  Although
the rest of the water may be heated or polluted, it can often be recycled
within a factory or plant, thereby getting more output from each cu m
delivered to that operation.  In developed countries, pollution control
laws have been a primary motivator for industrial water recycling. 
Japan, for example, produced industrial output of US$77 per cu m of water
supplied to industries in 1989, compared with US$21 per cu m in 1965 (in
real terms).  In the U.S. between 1950 and 1990, total industrial water
use fell 36 percent while industrial output increased nearly fourfold
(Postel, 1992).  Similar conservation efforts have also begun in water-
scarce developing country cities.  In Beijing, China, for example, the
water recycling rate increased from 61.4 percent in 1980 to 72.3 percent
in 1985; between 1977 and 1991, total industrial water use declined
steadily while output increased by 44 percent in real terms (Nickum,

     The rate of expansion of wastewater reuse depends on the final
quality of the wastewater and on the public's willingness to use these
supplies.  In California, which has the highest reuse of wastewater in
the U.S., this water is reused for barriers against salt water intrusion,
dust control, groundwater recharge, industrial cooling, wetlands, and
irrigation of parks, golf courses, and certain types of crops.  Even in
California, however, wastewater reuse accounts for less than 1 percent
of the state's developed water supplies (Frederick, 1993).  Worldwide,
about 500,000 ha of cropland is irrigated by treated municipal
wastewater, amounting to only two-tenths of 1 percent of the world's
irrigated area.  In water-scarce developing countries, wastewater reuse
for agricultural irrigation can provide a strong economic impetus because
it can help to conserve resources (including water and soil nutrients)
and protects the environment by preventing river pollution, protecting
water quality, and preventing seawater intrusion in coastal areas
(Shuval, 1990).  Israel undertakes the largest wastewater reuse effort
in the world, treating 70 percent of the nation's sewage to irrigate
19,000 ha of cropland.  Reclaimed wastewater is projected to supply more
than 16 percent of Israel's total water needs by the start of the next
century.  Most of this would be used in agriculture to replace freshwater
reallocated to nonagricultural uses (Postel, 1992). Wastewater can be
used for crops that tolerate low water quality and could potentially
contribute much to reforestation and revegetation activities. However,
given the relatively high cost of wastewater treatment and transport to
agricultural areas, it is likely that wastewater can make up an important
share of agricultural water supply only in arid regions where the cost
of new water supplies has become very high.  In order to generate
substantial increases in wastewater use, major technological improvements
in  wastewater treatment and  reuse would be required to reduce the unit
cost of wastewater reuse.

5.4. Water Harvesting

     Water harvesting, the capture and diversion of rainfall or flood
water to fields to irrigate crops, has been used for centuries in
traditional agriculture.  The improvement and expanded use of such
techniques can increase production and farm income in some environments. 
In semi-arid areas of India and Pakistan, low earthen banks are
constructed to hold back the monsoon floods and submerge and saturate the
fields.  Crops are then planted when the floods recede.  In Bihar, India,
as many as 800,000 ha of land are planted under this system (Clarke,
1993). Stone bunds, terracing, and vegetative barriers can also be used
for water harvesting.  Vetiver grass, native to India and known there as
khus, has been used in both Africa and Asia.  When densely planted along
the contours of a sloping field, the grass forms a vegetative barrier
that slows runoff, allowing rainfall to spread out and seep into the soil
more easily (Postel, 1992).  Water harvesting can provide farmers with
improved water availability, increased soil fertility, and higher crop
production in some local and regional ecosytems.  Water harvesting can
also provide broader environmental benefits through reduced soil erosion. 
However, given the limited areas where such methods appear feasible, and
the small amounts of water that can be captured, water harvesting
techniques are unlikely to have a significant impact on global food
production and water scarcity.

5.5. Integrated Watershed Management

     The watershed, or river basin, is the logical hydrologic unit that
includes the key interrelationships and interdependencies of concern for
land and water management as represented, for example, in the linkages
between upstream and downstream water users.  Upland watersheds are
source areas for surface and groundwater recharge while downstream
agriculture and urban development are directly dependent on water
supplies from the upper watershed. In many regions,  poor management of
watersheds through deforestation, the eradication of perennials, and
other human interventions in upland areas often leads to soil erosion and
decreases in agricultural productivity, siltation of reservoirs and
irrigation systems, adverse impacts on fisheries, wildlife, river habitat
and recreational water uses, water pollution, flooding of lowland areas,
and reductions in water supply for irrigated agriculture, hydropower,
industrial and urban uses. The magnitude of these negative on- and off-
site effects and their interdependencies have yet to be estimated in a
comprehensive manner, but they appear to be large in many regions.  

     Integrated watershed management requires an interdisciplinary,
intersectoral and watershed-wide approach to the identification of
sustainable resource utilization and management practices that allow for
a more effective and sustainable exploitation of water and other natural
resources.  Such management approaches can improve the food supply
situation in the region.  Measures to improve integrated watershed
management include development and dissemination of appropriate
technology, such as erosion control practices and fragile lands
protection, active mountain, forest range and prairie management, and
adaptation of farming systems to hillsides (Easter and Hufschmidt, 1985). 
Policies to counteract watershed degradation should be targeted towards
zones of high risk and could include public investments in research,
technology development, extension services, and rural infrastructure, in
order to stabilize or reverse degradation.  Above all, broad  policy and
institutional reform should address watershed degradation through, for
example, the establishment of property rights to land and forests,
utilization of market incentives for appropriate resource management, and
reform of regulatory, tax and subsidy policies that often encourage
excessive rates of exploitation of forests and adoption of
environmentally damaging farming systems.

5.6. Interbasin Water Transfers

     Interbasin water transfers have often been proposed as the best
solution to solve acute water shortages in adjacent basins or sub-basins,
particularly in arid and semiarid regions and where a large shift of
water from agricultural to urban and industrial users is necessary. Plans
for interbasin transfers was widespread in the 1960s and 1970s: the
Soviet Union planned to divert Siberian rivers to reduce water shortages
and the shrinking of the Aral Sea, at least since 1973; Chile planned to
divert water from other basins for the Maipo River, to compensate for
increasing water uses by the capital, Santiago, in the 1980s; the Middle
Eastern countries had plans of Nile water diversions to replenish the
Jordan river as early as 1902; and the U.S. planned to transfer large
water quantities from Canada to the semiarid southwestern states in the
1960s.  However, most of the larger-scale proposals never materialized
due to huge capital costs; substantial scope for less capital-intensive
alternative water savings; and increasing concerns about negative
economic, environmental, and social impacts in the exporting basin, such
as the potential cutting off of future development opportunities, social
disruption, irreparable environmental damage, and rural-urban migration. 
China is an exception in that it realized several large interbasin
transfers (in 1980, for example, roughly 10 BCM were diverted from the
Chang into the Huai basin, and 8 BCM from the lower Huang into the Hai
and Huai [Nickum, 1997]), and recently decided to carry out the proposed
middle route of the South-to-North Water-Transfer Project for
agricultural development on the North China Plain and for the city of
Beijing.  Another noteworthy transfer example is Libya, which in 1996
inaugurated the first phase of the Great Man-made River, transferring
water from the arid south to the coastal region.  Once completed, the
network will have 5,000 km of underground pipelines with a capacity of
6.1 million cu m, providing a 50-100 year's supply, at a cost of US$25
billion (Garay and Sugheiar, 1997).

     Micro-level basin transfers over short distances have proven to be
viable options in some regions.  Several states in the U.S. have drafted
interbasin legislation in recent years  (London and Miley, 1990) and
Texas, for example, currently has about 80 active interbasin transfer
permits, typically to serve the rapidly growing cities.  However, as with
large-scale transfers, the potential economic and social costs in the
area of origin must be taken into account. A case where the constraints
on future development in the exporting basin were not considered is the
purchase of water rights by the city of Los Angeles in the Owens Valley
of Eastern California.  This purchase had a devastating impact on the
Valley, one from which it has never recovered (U.S. Office of Technology
Assessment, 1993).  However, interbasin transfers do not always curtail
production on irrigated lands: the Metropolitan Water District in
California, for example, has a 35-year contract to pay for conservation
projects in the Imperial Valley in exchange for temporary use of the
conserved water.  In this example, the exporting basin retains the water
rights and suffers no reduction in levels of water use (Postel, 1992).

     In summary, a portion of the growing demand for water will be met
through new investments in irrigation and water supply systems, and some
potential exists for expansion of non-traditional sources of water. 
However, in many regions, neither of these sources will be sufficient to
meet the rapidly growing nonagricultural demands for water or to mitigate
the effects of water transfers out of agriculture.

6.   Impacts of Water Reallocation from Agriculture on Food Production
6.1. Global Impacts of Water Reallocation from Agriculture on Food

     This section explores the possible impacts on global food production
of a large transfer of water away from agriculture assuming no reforms
in institutions, policies, and technologies to achieve water savings and
mitigate the impact of the transfer.  The possible ramifications of this
scenario are examined using IMPACT.  This scenario is not presented as
a likely outcome, but rather as an exploration of the potential effects
that significant transfers of water could have on agriculture, if water
savings are not simultaneously achieved through policy reform.

     The transfer of water from agriculture is simulated using the
following assumptions: (1) no increase in irrigated area to the year
2020, corresponding to a cutback in investments and loss of existing
irrigated area due to degradation and urban encroachment to balance any
current pipeline investment.  Under this scenario, there would be 43
million ha less irrigated area compared with the baseline projection; (2)
phased-in reductions in agricultural water use over the projections
period for the 37 IMPACT countries and regions, consistent with the urban
and industrial demand projections described above, assuming no
improvements in water use efficiencies in agriculture and slow
improvements in domestic and industrial efficiencies; (3) declines in
crop area growth, in proportion to the reduction in agricultural water
use; and (4) reduction in crop yield growth, in proportion to changes in
relative water supply, based on the relative water supply/crop yield
function approach (FAO, 1979).

     The projected reductions in agricultural water withdrawals by 2020
are substantial, compared with the baseline 2020 values: for example,
China, nearly 24 percent; India, 21 percent; and WANA, 20 percent;
reductions in other developing countries range from 10 to 35 percent. 
This reallocation of water out of agriculture scenario shows dramatic
impacts on demand in global food markets.  In developing countries, yield
growth for all cereals will slow from 1.20 percent annually in the
baseline scenario to 1.07 percent per year, and area growth from 0.29 to
0.23 percent annually during 1993-2020.  Rice is hit hardest, because it
relies most heavily on irrigation water: rice yield growth will decline
from 1.08 percent to 0.89 percent.  The adverse impacts on production
would be much higher except that, as water is being removed from
production, cereal prices begin to increase rapidly, thereby depressing
consumption and, simultaneously, inducing production increases, that
partially offset the water-induced shortfalls.  The average rice price
is projected to increase by 68 percent between 1993 and 2020, to US$480
per mt and would be 85 percent higher than the projected baseline rice
price in 2020; the price for wheat would increase by 50 percent; maize,
31 percent, and other coarse grains, 40 percent, compared to the baseline

     Rising food prices depress food demand and worsen food security
through widening the food supply and demand gaps described above.  At the
local and regional level, price increases of this magnitude would cause
a significant decline in the real income of poor food consumers. 
Malnutrition would increase substantially, given that many of the poorest
people in low-income developing countries spend more than half their
income on food.  Higher international prices also hurt at the national
level, as poor countries will have to spend increasing resources to
import a large portion of their food.  Sharp price increases can fuel
inflation in these countries, place severe pressure on foreign exchange
reserves, and can have adverse impacts on macroeconomic stability and

     Developing country imports will increase significantly overall,
putting greater pressure on foreign exchange.  In China, projected wheat
imports will increase from the baseline value of 22.4 million mt in 2020
to 36.1 million mt; the country would shift from an exporting position
in rice to becoming a rice importer; and total cereal imports by 2020
will increase by 76 percent, from 41.3 million mt to 72.8 million mt. 
In WANA, total cereal imports would increase from 65.1 million mt to 74.8
million mt.  An exception is Sub-Saharan Africa, where imports by 2020
would actually decrease, because high cereal prices will severely depress
demand.  Although these imports of -virtual waterş would help to fill the
demand gap created by reduced production due to water transfers from
agriculture, the general rise in food prices will slow demand growth. 
This shows that a strategy of virtual water imports will have limited
success if there is a general cutback in water supply to agriculture
worldwide without countervailing improvements in water use efficiency and

6.2. Micro-Level Impacts of Water Reallocation

     Many economic studies suggest that the negative local impacts of
properly managed water transfers from agriculture will be minimal, but
popular perceptions (such as "draining the lifeblood of farmers") are
typically more pessimistic.  Transferring water out of agriculture can
have impacts on a wide range of stakeholders, particularly if effective
institutions to manage water transfers are not in place.  Reallocation
can decrease agricultural productivity and irrigated area, and change
cropping patterns.  In addition to direct impacts on agricultural
production, water transfers can negatively affect business activities,
local government fiscal capacity, and the quality of public services in
areas from which water is being transferred, because of the reduction in
irrigated area or production and associated reductions in agriculturally
linked economic activities and in the tax base.  In addition, permanent
transfers of water rights may limit future economic development in the
area of origin and induce out-migration (Rosegrant, 1997).  Whereas the
buyer and seller of water presumably gain from the transfer if the seller
holds secure water rights, other parties can be negatively affected (and
not compensated) through reductions in water availability and quality,
and instream flows.  Furthermore, the water in irrigation systems is used
for a wide variety of other purposes that are often not accounted for,
such as hydropower generation, fishing, gardens, rural domestic water
supplies, and livestock production, all activities that would be severely
affected by reallocation (Howe, Lazo and Weber, 1990; Meinzen-Dick,

     Microeconomic and regional analyses suggest that the severity of
economic impacts on the area of origin will differ according to (a)
whether or not the destination of transferred water remains within the
same area of economic activity; (b) whether or not transfer proceeds are
reinvested in the area of origin; (c) the economic vitality of the area
of origin; and (d) the strength of backward and forward linkages of the
irrigated agriculture sector (Howe, Lazo and Weber, 1990).  In this
section, the available (but quite limited) case study evidence on
potentially adverse micro-level impacts on the area of origin of water
transfers is reviewed.  Whereas regional or national impacts of water
transfers are usually positive overall, it is the area of origin --
usually rural areas in semiarid regions -- that may face adverse income
and livelihood effects, particularly if water transfers are not
appropriately managed.  However, the evidence shows that the impacts of
water reallocation are mixed and highly complex, and with the limited
evidence available, it is difficult to fully identify the underlying
conditions that determine the direction and the magnitude of these
impacts.  Care must also be taken in sorting out the effects of water
transfers from the broader effects of dynamic change in the rural and
urban economies.  In many cases negative effects may not be attributable
to water transfers, but rather may be the result of declining
competitiveness of agriculture in a given region, with water transfers
occurring as a byproduct of long-term economic change. 

Urbanization and water reallocation to urban areas

     The rapid expansion of urban areas can affect irrigation and food
production in a number of ways, both negative and positive.  Evidence
from Chile, Indonesia, Thailand, the western U.S. and elsewhere clearly
indicates that cities often occupy highly productive (irrigated)
farmland; draw off skilled, young farm labor; compete with irrigation for
the water sources to supply residents, industry, and power; and damage
water quality for agricultural production through municipal sewage and
industrial effluents (Hearne and Easter, 1995; Christensen, 1994; Kurnia,
Avianto, and Bruns, 1998; Howe, 1998).  On the other hand, nearby cities
provide farm households with markets and income that can be used to
purchase more water-efficient irrigation technology and to diversify into
higher-value crops.  In the suburbs of Beijing, for example, both grain
output and overall agricultural output value continued to increase at the
same time that water had been diverted to the urban core and the overall
irrigated area declined (Nickum, 1997). Hearne (1998) reports that one
significant reason for the positive experience with agriculture-urban
water transfers in Chile was that urban areas serve as service centers
for the local agricultural areas, and that most large irrigators have
houses and businesses in these communities and do not want them to be
short of water.

Impacts of water reallocation from agriculture on rural communities

     Reallocation of water out of agriculture can have negative effects
on rural employment possibilities, not only directly in the irrigation
sector, but even more through multiplier effects on agriculturally
related activities.  Idleness of forward and backward linkages of the
agricultural sector can also substantially reduce the rural tax base. 
It is not realistic to assume that idle human and capital resources will
move quickly and without cost to new uses of equal or higher
productivity.  Therefore, costs of water transfer out of agriculture
attributable to the area of origin should be compensated and, in the case
of large transfers, measures should be undertaken for human capital to
adjust (Howe, 1998).  On the other hand, it has also been shown that
careful reallocation of water resources can favor economic growth in both
urban and rural areas, and economically-induced water transfers can
increase the overall living standard of the poor.  Changes in rural
employment possibilities and migration to urban areas are usually based
on a wide array of factors, but abandonment of irrigated farming may
catalyze developments.

     Hamilton, Whittlesey and Halverson (1989) evaluated the minimum
compensation that farmers in the Snake-Columbia river system, Idaho,
would be willing to accept in a long-term option contract with a
hydropower station.  Such an institutional arrangement would switch the
use of water resources from farmers to the utility in dry years.  Results
indicate that estimated hydropower benefits are 10 times greater than
losses in farm income, making these contracts economically valuable.  In
California, indirect economic effects from water transfers using the 1991
California State Emergency Drought Water Bank were relatively small. 
Farmers who sold water to the Bank reduced farm operating costs by
US$17.7 million, or 11 percent, and crop sales by US$77.1 million, or 20
percent.  These reductions adversely affected the suppliers of farm
inputs and the handlers and processors of farm outputs, but the effects
were not large when compared with the agricultural economy in the selling
region or with the direct benefits to farmers from the sales.  Operating
costs, crop sales, and agribusiness revenues dropped 2 to 3 percent in
selling counties because of the Bank (Dixon, Moore, and Schechter, 1993).

     Chang and Griffin (1992), in a study of water trading and
reallocation in the very dynamic Lower Rio Grande river basin, Texas,
find that water transfers have supported the growth in the value of
agricultural production in the basin.  Virtually all water transferred
was from agricultural to nonagricultural uses, and 45 percent of all
municipal rights had been obtained by transfer from the agricultural
sector by 1990.  Net benefits of average agriculture-to-urban transfers
were estimated at around $12,000 per 1,000 cu m of water for the cities
of Edinburg and Brownsville, indicating a sizeable aggregate benefit for
the 94 BCM of water transferred from agricultural to municipal uses prior
to 1991.  Consultations with water sellers indicated that much of the
agricultural water sold would otherwise have been unused by its owners,
(sometimes due to prior conversion of agricultural land to other uses). 
Very rapid urban and economic growth in this area and reallocation of
water over short distances likely helped prevent severe negative impacts
on farm households. 

     A study of the impact of drought-related water reallocation from
agriculture to urban uses in 1987-92 on a rural farming community in
Mendota, California, found that irrigated cropland declined by 14
percent, farms by 26 percent (small farms by 70 percent).  Agricultural
land values decreased by 30 percent.  Increasing reliance on
lower-quality groundwater reduced yields, for example, by 37 percent in
melons, and by 5 percent in staple crops.  Labor demand decreased
over-proportionately as compared to cropland, and farm and packing salary
income declined by 14 percent.  Three out of 7 wholesale produce firm
went out of business in the area.  City tax revenues declined both as a
result of depressed business conditions and declining property values
(Villarejo, 1997).

     Palanisami (1994) finds that farmers in Tamil Nadu, India, view
water transfers from rural to urban areas positively.  He reports that
farmers sell water to urban residents to alleviate diverse labor problems
(34 percent); to achieve higher profits (44 percent); to sell surplus
water (23 percent); and to sell supplies inadequate for irrigation (9
percent).  Thobani (1998) reports new employment possibilities for
farmers who sold their water rights in Chile and Mexico in
water-intensive companies or in the larger, more profitable farms who
bought the rights.  Rosegrant and Gazmuri Schleyer (1994) also find
evidence suggesting that area-of-origin impacts in Chile are small and
that agricultural regions have benefitted substantially from water
trading and sales.  Farmers mostly sell small portions of their rights
and maintain agricultural production with highly efficient on-farm
irrigation technology for orchard or vegetable crops.  However, Hearne
(1998) documents that the sale of water rights by a few farmers still can
have substantial negative impacts: when remaining farmers receive less
canal water as seepage increases, or when canals cannot be maintained due
to the decrease in members drawing water from the canal. 

     Sadeque (1998) illustrates that it is not always the irrigation
sector that suffers from water reallocation.  He shows that in rural
Bangladesh, competition for the scarce water resources during the dry
season has favored a transfer of water from the domestic to the
irrigation sector.  The increasing use of deep water table extraction
technologies for irrigation by relatively wealthy farmers outcompetes the
shallow hand pumps used by the landless for domestic uses,
disproportionately affecting women and children, who are the water
carriers.  With food production being a high priority of the Bangladesh
government the development of deep tube wells for irrigation has been
favored to the detriment of domestic water supply.

Impacts of reallocation on water quality and environmental degradation

     There is substantial evidence on the adverse impacts of reallocation
from irrigation water to industrial uses, and the pollution of water
resources with industrial effluents, poorly treated or untreated domestic
and industrial sewage, agricultural chemical runoff and mining wastes has
become a growing environmental concern.  In the Nam Siaw Basin in
Northeast Thailand, for example, discharge and seepage of wastewater from
rock salt mining made water unfit for human and animal consumption, and
depressed rice yields in fields irrigated from the wastewater
(Wongbandit, 1994).  In China, about 80 percent of the population lives
in areas surrounding seven major rivers and five large lakes.  Untreated
municipal and industrial wastewater of 35.56 BCM is discharged in these
regions; 20-30 percent of the water is polluted, and the economic loss
caused by water quality degradation has been estimated at US$4 billion. 
In the Yellow River and tributaries, wastewater discharge is 3 BCM, and
water quality has fallen below the safe drinking water standard in 60
percent of the basin (Zhang and Zhang, 1995).

     However, the impacts of water reallocation from agriculture to
industrial and other uses are often more complex.  Kurnia, Avianto, and
Bruns (1998) show some of these dynamics in the case of West Java,
Indonesia.  In this very productive agricultural region, water conflicts,
which used to arise between farmers within or between irrigation systems,
have shifted to the level of conflict between various sectors.  A cluster
of 31 textile firms in the Ciwalengke irrigation system in Bandung
District, West Java, for example, has severely compromised the
availability and value of surface and groundwater for irrigation
purposes, fishing, and even domestic uses.  Factories have increased
their water abstraction beyond their permits through illegal installation
of additional intakes or pumps in the permitted intakes.  In the dry
season, factories (illegally) buy or rent additional water from close
upstream farmers who receive some benefits, whereas downstream farmers
suffer.  Yield decreases from 7 to 4 tons per ha have been reported in
rice fields irrigated with polluted water, and some fields have ceased
to be usable.  This development speeds conversion of agricultural land
to other uses.  However, although many farmers lose out in agricultural
production, some members of the farm household work in the factories,
thereby increasing their living standards, and thus do not want factory
activities to cease. 

     Evidence of reduced instream flows due to water reallocation with
impacts on river habitat, instream and out-of-stream recreation and other
effects has been reported in several states of the western U.S., and
environmental demands on water resources are increasingly being
acknowledged.  California, for example, has implemented a new regulation
that reduces exports from the Sacramento/San Joaquin Delta in order to
meet federal water quality standards and to protect endangered species
(Livingston, 1998).  Hearne and Easter (1995), in a comprehensive study
on water markets and water transfers in Chile, find no evidence of
increased environmental degradation related to active water trading.  In
fact, by inducing conservation, institutional arrangements in Chile seem
to help prevent environmental degradation in river basins.  In addition,
they postpone the need of dam and other infrastructure construction
projects and their inherent potential adverse effects, and decrease soil
salinization, (a phenomenon which often stems from over-watering
upstream), and waterlogging through increased water conservation.

     In summary, the evidence of the micro-level impacts on water
reallocation indicates that the experience is negative for rural
communities when the transfers are above the level allowing for continued
farming or other opportunities in the area-of-origin; when farmers had
no incentives to sell, but water was taken anyway; and when institutions
and secure legislation to adequately compensate the sellers and third
parties were absent.  On the other hand, when sellers receive substantial
benefits, sell only part of their water, have a stake in the economic
development of the urban area, can rely on secure rights to their
resource, are protected by adequate institutions and organizations, and
have flexible tools (such as water leases or option contracts), the
reallocation experience can be positive, providing economic growth in
both rural and urban areas.

7.   Water Policy Reforms to Save Water and Manage Reallocation

     The evidence presented here indicates that a shift in the future
allocation of water among competing uses is inevitable, and that the
global trend will be to reduce the share of water for agricultural use. 
Rapid nonagricultural demand growth is unlikely to be only met through
the expansion of supplies, or through nontraditional sources.  The key
question will be how to accomplish the reallocation of water from
agriculture in a rational and equitable manner that minimizes costs and
avoids the potentially large negative impacts of the many ad hoc
transfers today on both the rural economies from which the water is drawn
and on the future growth of food supply and demand.  The potentially
negative implications of intersectoral water transfers can be mitigated
through comprehensive policy reforms that save water in existing uses and
improve the quality of water and soils through improved water demand
management.  In order to achieve this, greater attention must be placed
on the institutions for water allocation and on the rights of water users
and incentives for efficient use.

     The policy instruments available for demand management include: (1)
enabling conditions, that facilitate changes in the institutional and
legal environment in which water is supplied and used.  Policies here
include reform of water rights, the privatization of utilities, and laws
pertaining to water user associations (WUAs); (2) market-based
incentives, which directly influence the behavior of water users by
providing incentives to conserve on water use, including pricing reform
and reduced subsidies on urban water consumption, water markets, effluent
or pollution charges and other targeted taxes or subsidies; (3) nonmarket
instruments, including restrictions, quotas, licenses, and pollution
controls; and (4) direct interventions, including conservation programs,
leak detection and repair programs, and investment in improved
infrastructure (Bhatia, Cestti and Winpenny, 1993).  The precise nature
of water policy reform and the policy instruments to be deployed will
vary from country to country depending on the underlying conditions such
as the level of economic development and institutional capability, the
relative water scarcity, and the level of agricultural intensification. 
The mix of policy instruments will also vary from river basin to river
basin, depending on the structural development of the different sectors
in the region, prevailing rights to natural resources, relative water
shortages, and other basin-specific characteristics.  Therefore, no
single recipe for water policy reform can be applied universally, and
additional research is required to design specific policies within any
given country, region, and basin.  However, some key elements of a demand
management strategy can be identified.  The process of reallocating water
from agriculture can be better managed through the reform of existing
administrative water management organizations, through the use of
incentive systems such as volumetric water prices and markets in tradable
water rights, and through the development of innovative mixed systems of
water allocation.

7.1. Reform of Administrative Management

     Institutional reform of public irrigation agencies holds
considerable promise for long-term progress in improving system
performance.  Possible reforms include reorganization into a semi-
independent or public utility mode, applying financial viability criteria
to irrigation agencies, franchising rights to operate publicly
constructed irrigation facilities, and strengthening accountability
mechanisms such as providing for farmer oversight of operating agencies
(Rosegrant and Svendsen, 1993). 

     Devolution of irrigation infrastructure and management to WUAs has
received particular attention in recent years.  In the past, turnover of
the infrastructure and management of systems has often failed because of
a lack of financial resources at the local level, flaws in internal
structural features or external factors that affect the viability and
sustainability of WUAs in managing irrigation systems.  A recent review
has identified some of the characteristics that appear to be associated
with successful WUAs.  WUAs tend to be stronger if they build upon
existing social capital or patterns of cooperation.  Groups are likely
to be stronger if they are homogeneous in background and assets.  Such
associations must demonstrably improve water control and farm
profitability to ensure that the benefits to farmers outweigh the costs
of participation.  Particularly crucial to success is a supportive policy
and legal environment that includes establishment and adjudication of
secure water rights, monitoring and regulation of externalities and
third-party effects of irrigation, and provision of technical and
organizational training and support (Meinzen-Dick, et al., 1997).  The
goal should not be privatization per se, but to identify the lowest level
in the system at which the devolved management is efficient (subsidiary
principle).  Local management organizations are expected to gain greater
responsibility, decision-making authority, and control over physical and
financial resources.  These alternative organizational forms, which
replace public agency management, include Irrigation Districts, as
introduced recently in Mexico, Irrigation Associations, as are being
rapidly introduced in Turkey, and Irrigation and Drainage Management
Companies, as established recently in Viet Nam.  The critical resource
needed for these organizations to be effective is local managerial
capacity, including skills in interaction and negotiation with government
agencies, leadership, and financial management, in addition to the
standard range of technical skills required for system operation and
management (Svendsen and Meinzen-Dick, 1997).

7.2. Water Rights, Markets, and Prices

     The primary alternative to quantity-based allocation of water is
incentive-based allocation, either through volumetric water prices or
through markets in transferable water rights.  The empirical evidence
shows that farmers are price-responsive in their use of irrigation water. 
The main types of responses to higher water prices are use of less water
on a given crop, adoption of water-conserving irrigation technology,
shifting of water applications to more water-efficient crops, and change
in crop mix to higher-value crops (Rosegrant, Gazmuri Schleyer and Yadav,
1995; Gardner, 1983).  In urban areas, the use of incentive-based policy
instruments, such as higher water prices, secure rights to water, and
devolution of services, can achieve substantial water savings and improve
the delivery of services for both households and industries (Bhatia and
Falkenmark, 1993; Frederick, 1993; Gomez, 1987).

     Attempts to establish administered efficiency prices through
increases in water charges have been met with strong opposition from
established irrigators because this mechanism is perceived as an
expropriation of existing water use rights, that would create income and
wealth losses for established irrigated farms.  This makes it difficult
to institute and maintain an efficiency-oriented system of administered
prices.  The establishment of transferable property rights would
formalize existing rights to water rather than expropriate these rights,
and generate income for the water right holders rather than taxing them,
and is therefore politically more feasible (Rosegrant and Binswanger,

     Devolution of water rights from centralized bureaucratic agencies
to farmers and other water users has a number of advantages.  The first
is empowerment of the water user, by requiring user consent to any
reallocation of water and compensating the user for any water
transferred.  The second is security of water rights tenure provided to
the water user.  If well-defined rights are established, the water user
can benefit from investment in water-saving technology.  Third, a system
of marketable rights to water induces water users to consider the full
opportunity cost of water, including its value in alternative uses, thus
providing incentives to economize on the use of water and gain additional
income through the sale of saved water.  Fourth, a properly managed
system of tradable water rights provides incentives for water users to
internalize (or take account of) the external costs imposed by their
water use, reducing the pressure to degrade resources (Rosegrant, 1997). 
Market allocation can provide flexibility in response to water demand,
permitting the selling and purchasing of water across sectors, across
districts, and across time by opening opportunities for exchange where
they are needed.  The outcomes of the exchange process reflect the water
scarcity condition in the area with water flowing to the uses where its
marginal value is highest.  Markets also provide the foundation for water
leasing and option contracts, which can quickly mitigate acute, short-
term urban water shortages while maintaining the agricultural production
base (Michelsen and Young, 1993).

     Establishment of markets in tradable property rights does not imply
free markets in water.  Rather, the system would be one of managed trade,
with institutions in place to protect against third-party effects and
potential negative environmental effects that are not eliminated by the
change in incentives.  The law forming the basis for the allocation of
water through tradable rights should be simple and comprehensive; clearly
define the characteristics of water rights and the conditions and
regulations governing the trade of water rights; establish and implement
water right registers; delineate the roles of the government,
institutions, and individuals involved in water allocation and the ways
of solving conflicts between them; and provide cost-effective protection
against negative third-party and environmental effects which can arise
from water trades (Rosegrant, 1997).

7.3. Mixed Systems of Water Management

     Centralized, public administrative management on the one hand and
free market allocation of water on the other hand can be seen as the
polar extremes for water allocation mechanisms.  However, as could be
seen even in the brief summaries in the preceding sections, water
allocation systems in the real world will be much more complex and
diverse.  Systems will be mixed both in ownership (combining aspects of
public and private ownership of water supply infrastructure and water
rights) and in overriding water allocation principles (combining
administrative/regulatory approaches with market/incentive-based
approaches).  Decentralization and privatization will increasingly create
systems with public ownership and management down to a certain level in
the distribution system and user-based ownership below that level.  For
water market systems to be efficient and equitable, judicious regulation
will be required.  The process of water policy reform should lead to
mixed water allocation systems that are responsive to local institutions
and conditions.

     The mixed management systems that have resulted from adjudication
of groundwater rights in California offer a promising model for
developing countries.  These diverse and decentralized management systems
developed in direct response to the depletion of groundwater resources
and the degradation of the environment and have resulted in the
elimination of overdrafts, the impoundment of surface and imported water
for aquifer replenishment, and have stopped saltwater intrusion
(Blomquist, 1995).  The adjudication process has resulted in a governance
structure for the water basin that establishes water rights, monitoring
processes, means for sanctioning violations, financing mechanisms for the
governance system, procedures for adapting to changing conditions, and
includes representative associations of water users (Blomquist, 1992). 
Central to the governance structures is a water management program which
employs a combination of instruments to influence water demand, including
pumping quotas (usually based on historical use), pumping charges, and
transferable rights to groundwater.  Key elements for the success of
these governance structures are that they are agreed upon and managed by
the water users; are responsive to local conditions; operate with
available information and data bases rather than requiring theoretically
better but unavailable information; and are adaptive to the evolving
environment.  These attributes make mixed systems highly appropriate for
developing country conditions.

7.4. Conservation Through Appropriate Technology

     If improved demand management introduces incentives for water
conservation, the availability of appropriate technology will be
essential to generating water savings and higher crop production per unit
of water.  As the value of water increases, the use of more advanced
technologies such as drip irrigation (utilizing low-cost plastic pipes),
sprinklers, and computerized control systems, used widely in developed
countries, could have promising results for developing countries.  If the
scarcity value of water is high enough, appropriate use of new
technologies appears to offer both real water savings and real economic
gains to farmers.  Field application efficiencies in flood irrigation in
developing countries are typically in the range of 40-60 percent.  High-
pressure sprinklers save on drainage losses but may not reduce
consumptive use because of the high evaporative losses.  Modern low-
pressure, downward-sprinkling systems, however, can reduce evaporation
considerably (Seckler, 1996).  Surge irrigation can reduce water
applications significantly.  Instead of releasing water continuously down
field channels, surge irrigation alternates between rows at specific
intervals.  The initial wetting of the channel partially seals the soil
and allows water to be distributed more uniformly, reducing percolation,
runoff, and evaporation.  Drip irrigation also has important applications
in developing countries, but it is difficult to estimate the real
potential for savings from this technology.  On the one hand, by
directing water applications directly to the root zones, drip irrigation
can significantly reduce field evaporation losses and can increase the
productivity of water in areas already affected by salinity.  On the
other hand, drip irrigation is usually not economically viable for use
on cereals, which consume by far the largest share of irrigation water
in developing countries, so the scope for real water savings from
introduction of drip irrigation may be limited.

     Technological opportunities to reduce water withdrawals also exist
at the irrigation system level.  In Malaysia's Muda irrigation system,
real-time management of water releases from the dam, keyed to telemetric
monitoring of weather and streamflow conditions, has significantly
improved water use efficiency and reduced drainage to the ocean.  In
North Africa, modern irrigation systems using hydraulically operated
diversion and measuring devices were developed as early as the late
1940s, and were employed in irrigation schemes constructed in the 1950s. 
Modern schemes in this region deliver water on demand to individual
farmers, allowing water users to be charged according to the volume of
water delivered, encouraging conservation and efficient use of water. 
Some of these irrigation techniques have been transferred to the Middle
East, and in pilot projects to other developing countries (World Bank,
1993).  Continued increases in the value of water could make these
capital-intensive irrigation distribution systems more widely feasible
in other regions of the world.  Adoption of high technology irrigation
can have somewhat paradoxical impacts on water savings, and savings on
a per ha basis may be limited.  In the U.S., where detailed data is
available, water withdrawals per ha of irrigated area increased by 35
percent between 1960 and 1975, declined nearly 15 percent from 1975 to
1980, increased again, and in 1990 were still higher than the 1975 level. 
In addition, reductions in water applications will likely be offset by
increased water requirements for higher-yielding crops and increasing
cropping intensities (Raskin, Hansen and Margolis, 1995).  However, real
water savings can be achieved with improved technologies through the
increase in agricultural output per unit of water applied, or conversely,
through reduction in the amount of water used per unit of output.  The
decrease of water (and land) per unit of production can also help to save
on land resources under irrigated production, another major constraint
for future global food production.

8.   Conclusions

     Water demand is projected to grow rapidly, particularly in
developing countries.  The increase in demand will be higher for urban
and industrial uses than for agriculture.  A portion of the growing
demand for water will be met through new investment in irrigation and
water supply systems, and some potential exists for expansion of
nontraditional sources of water supply.  However, supply expansion will
not be sufficient to meet increasing demands.  Therefore, the rapidly
growing urban and industrial water demands will need to be met
increasingly from water transfers out of irrigated agriculture.  The
management of this reallocation could determine the world's ability to
feed itself.  If such transfers take place without mitigating policy
reforms in demand management the prices of staple cereals in global food
markets could increase sharply, resulting in broadly negative impacts on
low-income developing countries and the poor consumers in these

     The reallocation of water can also have substantial negative effects
on rural economies, if supporting policy measures are not adopted.  The
evidence of the impact of transfers of irrigation water to urban and
industrial uses on rural communities is mixed.  In addition,
interlinkages between urban and rural sectors and the importance of
local, basin-level characteristics make it difficult to draw general
conclusions about the impacts of transfers.  However, some observations
can be made: negative effects from water transfers can be mitigated
through (1) the establishment of secure rights to water that are
monitored and enforced by adequate institutions and organizations; (2)
transfers of relatively small amounts from many irrigators, inducing
conservation measures instead of plot abandonment; (3) reinvestment of
gains-from-trade in the rural communities; and (4) adequate compensation
of sellers and affected third parties.  Flexible tools, in particular,
markets in tradable water rights, when established in a participatory and
rational manner, can facilitate and mitigate the potentially adverse
impacts of water transfers, creating win-win situations for both rural
and urban/industrial water users.

     Comprehensive reforms are required to improve the incentives at each
level of the water allocation process in order to improve the efficiency
of agricultural water use and sustain crop yield and output growth to
meet rising food demands while allowing transfers of water out of
agriculture.  Institutional and legal environment reforms must empower
water users to make their own decisions regarding resource use, while at
the same time providing a structure that reveals the real scarcity value
of water.  Key policy reforms include the establishment of secure water
rights to users; the decentralization and privatization of water
management functions to appropriate levels; the use of incentives
including pricing reform (especially in urban contexts) and markets in
tradable property rights; and the introduction of appropriate water-
saving technologies.  Failure to implement these reforms could
significantly slow the growth in crop production in developing countries
and could have devastating impacts on the rural poor.


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