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A stochastic production function specification is used to value the variability in agricultural productivity of groundwater use in rainfed lowland rice areas by farmers using shallow tube wells (STWs). The study was done in Southern Philippines Province o f Cotabato. Using survey data, this study first estimated the mean rice yield function with the cost of pumping, which represents well depth and water availability, used as water supply proxy variable input into the stochastic production function. The results of the estimated mean yield function showed that machineries cost, cost of pesticides, and cost of pumping are the most important determinants of yield levels of rice grown during wet season cropping. The mean yield function revealed a diminishing marginal productivity for the cost of pumping. Nitrogen fertilizer was found to be positively related to yield in the dry season cropping in the sample study area. The variance function of the stochastic production function provided empirical evidence that the cost of pumping reduces rice yield variability in the wet season cropping. This implies that risk-averse rainfed lowland rice farmers concerned with reducing production risk, hence income variability could use groundwater as source of irrigation. The study proposes, though subject to further verification, that the use of shallow tube well stabilizes rice yield in rainfed lowland irrigation agriculture. The significant higher difference in gross margin (P7,323 ha-1) attained by farmers in high recharge areas in dry season cropping is probably due to higher water levels in turn more water availability than in low recharge areas. The welfare loss associated with increased pumping cost could shed some light on the lower bound estimate valuation of raw water fees for irrigation agriculture that use groundwater. This lower bound estimate only considers the extraction cost but consideration on the in-situ value of the groundwater resource is highly important though it is not included in this study.


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