12
Making the Most of Scarcity
the higher value crops, such as fruits, vegetables, and nuts, in which they have a comparative advantage. Morocco, a country with perfect conditions for growing olives, is obliged to import olive oil in some years because domestic production is not of consistently good quality and because irrigation systems are not set up to provide backup irrigation for olives in dry years, leading to dramatic drops in production in those periods (Humpal and Jacques 2003). Perhaps the most striking example is Saudi Arabia, which is using water that is virtually nonrenewable to produce wheat and milk domestically that would be cheaper to import (World Bank 2006a). In the late 1980s, wheat production was high enough to make Saudi Arabia the world’s sixth largest exporter—crops grown with fossil water were competing in the international market against rain-fed wheat (Wichelns 2005). The Saudi irrigation systems themselves are inefficient, with overall water efficiency rates of 45 percent, compared with standard practice for these types of irrigation systems of 75 percent (Water Watch 2006). Low-efficiency water use stems from an array of nonwater policies that restrict economic diversification. A series of policies in most countries in the region indirectly discourage economic diversification. These policies include trade restrictions, and rigidities in land, real estate, and financial markets. The restrictions range from the large, often inefficient public sectors and extend to the prohibitive costs of doing business (for example, red tape, poor logistical support, high costs of firing employees) that deter entrepreneurialism. These factors limit economic growth, which would increase nonagricultural employment and provoke the agricultural transformation seen across the world as economies develop: less productive farmers move to more attractive employment outside agriculture, while farms consolidate and become more efficient. Without growth, farmers have few options other than staying in agriculture or migrating. Land holdings get smaller and smaller as they are divided among family members and farmers remain risk averse, causing them to grow low-risk, but low-value and water-inefficient, crops. Additional factors outside the water sector further encourage wasteful water use in agriculture. In almost every country in the region, a number of government policies directly or indirectly give incentives to farmers to overirrigate or to use irrigation water for low-value crops. These include price supports for staple crops, but extend to subsidized credit for agricultural investment (which subsidizes investment in boreholes) and to subsidized energy (which reduces the price of pumping groundwater). These additional incentives for low-efficiency water use are summarized in table 1.1. Some of these policies will only make a small difference to farmers’ choices, but others, such as price supports, are likely to be fundamental.