South Africa has adopted an ambitious new water legislation that promotes equity, sustainability, representativity and economic performance through water management decentralization, new local and regional management institutions, water users' licensing, and the possible emergence of water rights' markets. This paper addresses the diversity of water users and uses that currently exists in rural areas, and especially focuses on the competition for water that may result from such a diversity in a context of water scarcity, and from the diversity of objectives formulated by the public authorities. The paper first briefly describes the current institutional arrangements regarding access to water. It also presents the situation in rural areas where farming communities and the mining sector are interacting on water- and labour-related matters. The paper then presents a case study whereby these two sectors have embarked into a negotiation process on water rights transfer, under the auspices of several public role players. It proposes an analysis of the case study through a standard environmental economics model. The model considers the marginal net private benefit (MNPB) generated by mining activities and the associated marginal returns to water (MRW). The transfer of water from farmers to mines results in a loss in crop production potential by the farmers and the subsequent loss of income and potential for development. Such a loss can be considered the opportunity cost of water for smallholders. If not compensated, it represents a proxy of the externality associated with water transfer. The model first highlights the difference in terms of water productivity in the two sectors, and its consequences if a system of transferable licenses is adopted. Then, some policy options (taxes, standards, subsidies) are tested and discussed.


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