A Study On The Impacts Of The Pricing Systems Of Water Resources On Agricultural Economy Based On A CGE Model

China’s structural decentralized water management created a water parallel pricing system(called the traditional system or WPP), where the pricing of irrigation water for agricultural sector and that of pipe water for non-agricultural sector are parallel, and the irrigation water price covers the irrigation subsidy. Consequently, a significant price distortion can be found between irrigation water and pipe water. Considering the pressures from both sides of demand increasing and supply insufficiency, the reform on water pricing system has been started. This study aims to evaluate the different water pricing system and selects a best option for agricultural economy. The purpose of this study is to solve the problem of water distortion and to provide a policy foundation. The main works and originalities of this study can be found as following:First, to solve the shortage of current system study on water CGE analysis, we constructed three social accounting matrixes (SAM) --- SAM-WP, SAM-WP, and SAM-16R; based on these three SAMs as the data foundation, respectively, we constructed four CGE models:the CGE-WPP, where the traditional system was introduced; the CGE-WP_A, where the current system (the water pricing system under current reform or called WP_A) was introduced; the CGE-WPB, where the new system (the water pricing system under further reform, called WP_B) was introduced; and the CGE-16R, which extended the block of water resources into regional level based on the CGE-WPP. and the main extensions were located in the structure of production function:the macro irrigation water inputs and their subsidies were introduced into the structure often farming production functions; and a water input with a high price elasticity were introduced into the structure of the production function of the 24 productions including non-farming agriculture, construction, industrial and services; CGE-16R was improved from the CGE-WPP, where the macro irrigation water inputs and their subsidies as well as the pipe water consumption of rural households were extended into 16 regions.Second, four CGE models were applied relying on the scenario simulations of changes in water demand and supply, and a comparative analysis would be made among three pricing systems of water resources, which demonstrated that the new system was the best policy option for agricultural economy. In the simulation of water demand increasing, the new system would distribute more water into agricultural production, the domestic supply of agricultural commodities would increase. In the simulation of water supply decreasing, the new system was the best policy option for rural households, because they would be benefited from highest increase in income and least severe decrease in consumption. The simulation of regional water insufficiency indicated that:although the forming productions with most severe decline basically located in northern areas, the rural households with most severe decline in consumption, especially in food consumption, could be found in both northern and southern areas.Policy recommendations include:deleting the irrigation subsidy from irrigation water price and moving the subsidy into the prices of agricultural products, which would be undertaken by consumers, and also the production burden of farmers would be relieved. Under the background of water demand increasing, some subsidies should be provided to rural households in the short-term of reform for their constrained increases in income and consumption. To reduce the negative effects from water supply decline on the supply of agricultural products, the imports of agricultural products should be increased, and the technology of water-saving irrigation and the cultivation of water-saving crops should be promoted.