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Abstract
In South Africa, a water scarce country, conflict between water users is mounting, while
there are few remaining bulk water augmentation options. Water demand management is
thus increasingly taking centre stage in water management debates. Water pricing is
regarded as an important component of managing the demand for water resources. This
article traces the efficacy of increasing irrigation water tariffs to save water and the impact
thereof on the national economy and the Western Cape economy using the Computable
General Equilibrium (CGE) model and Social Accounting Matrix (SAM) constructed by
Hassan et al (2008). Two scenarios are investigated in which the water tariff is increased by
50 percent from a base of 2c/m³. In the first scenario water demand is fixed in agriculture;
thus, water needs to be fully utilized in agriculture. In the second scenario it is assumed that
all water does not have to be utilized. The study finds that, for both scenarios, increasing
water tariffs by 50% raises the risk profile of agriculture, threatens food security, decreases
national welfare, increases imports of staple foods, increases the prices of staple foods,
decreases household welfare and decreases employment in agriculture. These adverse effects
are more severe in the second scenario than in the first scenario. The introduction of
irrigation water pricing shocks should thus be approached with due caution and alternative
demand management approaches should be investigated.