Modelling the marginal revenue of water in selected agricultural commodities: a panel data approach.
Moolman C. E., Blignaut J. N., Eyden R. van
Author Affiliation: Department of Economics, University of Pretoria, Pretoria, South Africa.
Agrekon 45 : 78-88
Abstract : This study estimates the value of water in the South African agricultural sector, in particular the marginal revenue of water for six irrigation commodities, namely, avocados, bananas, grapefruit, mangoes, oranges and sugarcane. A quadratic production function was fitted with an SUR model specification in a panel data study from 1975 to 2002 to obtain marginal revenue functions for each of the six commodities. We found that mangoes are the most efficient commodity in its water use relative to revenue generated (marginal revenue of water equals R25.43/m3 in 2002) and sugarcane the least efficient (marginal revenue of water equals R1.67/m3 in 2002). The marginal revenue of water is not an indication of the true market price. Neither is it an indication of what the administered price should be. The marginal revenue of water is rather a guideline for policy makers to determine which industries or commodities within an industry can generate the largest revenue per unit of water applied.