69876 ECONOMIC VALUE OF WATER IN THE RIO BRAVO BASIN (MEXICO): THE CASE OF BAJO SAN JUAN, JUAREZ AND SALTILLO Final Report Prepared by J. Goicoechea for The World Bank June, 2005 1 Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo Index 1. Water Requirements and Regional Output: A Methodology for Determining the Economic Value of Water 1.1. Water as an Economic Input Agriculture Irrigated crops Rainfed crops Livestock Forestry Fisheries and aquaculture Mining, Manufacturing, Construction and Private Services Hydro-power generation Navigation Tourism Criticisms 1.2. Water as a Non-produced Output Water Provision and Distribution Assimilative Services 1.3. Water as a Final Good Residential Uses Recreation 1.4. Private and Social Values of Water Water Allocation by Sector Wastewater by Source 1.5. Location Selection 2- Introduction 3. Regional Output and Economic Value of Water 3.1. Crop Production 3.1.1. Irrigated Crops 3.1.1.1. Crop Groups Area harvested Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 2 3. Regional Output and Economic Value of Water (continues) Water Consumption Gross Water Consumption Net Water Consumption Linkages between Irrigation Water and Area Value Added Economic Value of Water Net Economic Value Gross Economic Value 3.1.1.2. Individual Crops Juarez Saltillo Bajo San Juan 3.1.1.3. Valuation Comparisons 3.1.2. Rainfed Crops 3.2. Livestock Production Water Consumption Value Added Economic Value of Water 3.3. Other Primary 3.3.1. Forestry 3.3.2. Fisheries 3.3.3. Mining 3.4. Manufacturing Water Consumption Value Added Economic Value of Water 3.5. Other Industries 3.5.1. Construction 3.5.2. Hydro-power Generation 3.5.3. Water Provision and Assimilative Services Fiscal Rebates for Water Treatment 3.6. Non-Financial Private Services Water Consumption Value Added Economic Value of Water 3.7. Additional Services 2.7.1. Navigation 2.7.2. Residential Consumption 2.7.3. Recreational Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 3 4. Economic Aggregation Water Consumption Value Added Economic Value of Water 5. Policy Issues and Discussion of Findings Private and Social Values of Water Equity, Productivity and Efficiency Bibliography Appendix 1. Regression Estimates. Irrigated Crops Appendix 2. Acuifer Balances. 2004 Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 4 1. Water Requirements and Regional Output: A Methodology for Determining the Economic Value of Water In the Rio Bravo Basin large urban settlements have thrived. In this region, manufacturing and services bear the overwhelming weight in the local output. Being water a scarce resource in this region, the present study addresses its role in the generation of value through three selected locations. By means of official statistics, this paper estimates the level of economic output in terms of value added for the main economic activities. The purpose of this estimate is to relate the above mentioned generation of value to the quantity of water required with reference to specific economic sectors at a local level. The evaluation of water use provides elements of analysis to establish priorities in a quantitative fashion utilizing an aggregation approach, while resorting to macroeconomic concepts. A strategy for stimulating specific economic activities, while inhibiting others, including even the possibility of compensating affected parties, is to be a means to attain a better use of water to enhance the economic and demographic development in the basin. The methodology used in this paper for assessing the economic value of water is made explicit from the outset. Here, water is dealt with exclusively as an input, in which case the value added by economic activity is related to the quantity of water required. This last amount can be established either by direct observation in the case of surface crop production, or else, by derived data.1 After expounding this approach by sector of analysis, consideration is made for water as a non-produced input, with reference to water provision and distribution, as well as assimilative services. Further, water is considered as a final good, being the case for residential use and recreation activities. Finally, private and social values of water are detailed. Regarding irrigated crop production, data is available regarding both gross and net water requirements in the case of irrigation districts, i.e. superficial water. 2 In the case of groundwater, no official statistics are collected. Therefore, benefit transfer is to be done from nearby districts. For mining, net water demand was estimated on the basis of 1 A previous version of this methodology is found in Goicoechea (2005). 2 CNA 2004b. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 5 3 Canadian information. As far as industrial activities are concerned, information from the 4 United States was used. In-stream use has been dealt with through its specific acitivities, i.e. fisheries and aquaculture, hydro-power generation, navigation, assimilative services and recreation. 5 Due to data availability, no distinction is made regarding gross and net value added. 1.1. Water as an Economic Input Agriculture Irrigated Crops In order to estimate the value added per unit of water withdrawn, the following calculations have been made. Based on data by crop, which is specified indicating the source, the transformations to which data is subject, is further specified. A. Data by crop a) Harvested area, physical output and value of production by crop and location, by cycle (autumn-winter and spring-summer), and perennial. This information is obtained through CNA 2004a and SAGARPA 2003. b) Hectare-centimeters of water, gross and net by crop and location, by cycle and perennial. In this case, direct observation for surface crops have been utilized (CNA 2004b) and transfer benefit for groundwater; c) Costs or production, according to FIRA (on line), in order to deduce value added as share of gross output; d) Price index by cicle and perennials, available on line at Banco de Mexico. B. Transformations by crop i) Value added coefficient: (labor compensation+profits)/value of production 3 Tate and Scharf, 1995. 4 U.S. Geological Survey. 5 That is to say, depreciation of fixed capital estimates in Mexico is done only at an aggregate basis for the economy as a whole, i.e. 72 economic activities. No data is available for industrial activities. Besides, since 1994, Banco de Mexico has interrupted the estimation of the stock of capital in the country. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 6 ii) Value added: value of production*value added coefficient/price index iii) Water requirements: meter-hectare of water*harvested area iv) Economic value of water for crops: value added/cubic meters of water Rainfed Crops In the present evaluation, water is considered as a natural resource previously stored, and extracted if it is the case, besides being conveyed and applied as an input by manpower. Not being the case with rainfed crops, the economic value attributed to water is nil. However, within an economic analysis by location, the value added generated in this activity is considered within the local product, contributing to the local economy and hence, to the performance of the region as a whole. Livestock In the case of livestock, data has been obtained through INEGI 2003a, 2003b, 2003c, with the exception of the price index, which is available on line at Banco de Mexico. A. Data a) Number of heads by specie; b) Value of animals slaughtered by specie; c) Value of livestock by-products by kind; d) Derived water demand by head of specie; e) Derived value added coefficient, as a share of the value of production; f) Price index, by specie slaughtered and by-product. B. Transformations Value added (by specie and by-product): value of production*coefficient of value added/price index Livestock water demand: water demand by head of specie*number of heads Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 7 Economic value of water for livestock value added/water use Forestry As in rainfed crop production, in forestry water is a natural event. Therefore, no economic value is imputed to water. It contributes to the local generation of value, for which it is explicitly credited. Official schemes oriented towards the payment for environmental services are an option, considering the relevance of this sector in the preservation of acuifers. Fisheries and Aquaculture In the production of any good or service an object of production as well as a means of production is required. Here, water ought to be considered as an economic input when these two –object and means- stand each on its own. In the case of fisheries and 6 aquaculture, both elements constitute are bound together. Therefore, no economic value is imputed to water. The generation of value for which fishing and aquaculture contribute, is duly accounted. Mining, Manufacturing, Construction and Private Services First, the data by sector is outlined, while the transformations to which is subject is detailed as follows: A. Data by sector (two digits) a) Value added, based on Censos Economicos 1999, available on line at INEGI; b) Employees, from the same source as (a); c) Derived water demand by employee, based on Tate and Sharf (1995) for mining, and U.S. Geological Service online for the rest; d) Price index, by branch of industry, according to Banco de Mexico, on line. B. Transformations Value added: 6 This is in so far as water, as a means, cannot be detached from the object of production, i.e. the fish before it is caught. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 8 value added/producer price index Water requirements: water demand by employee*employees Hydro-power Generation In generating electricity, water becomes a means to produce this fluid, i.e. volume of water for a unit of electricity, as well as the scale of turbines. Being dams an edification upon an orographical facility, water efficiency to produce it derives in differential rents in the same manner as a fertile mine vis a vis a non-fertile one. To estimate the value added generated locally, data from the electricity board at a national level could be used. Nevertheless, it would be advantageous to have access to information regarding the value of production and how is integrated according both to scale of production as well as the energy source.7 Navigation Transport by this mode is included within the census data, in which case its contribution will be accounted for. As water is not applied as an input by man, no economic value is attributed. Up to here, water has been considered as an economic input for the provision of goods and services, in which case its economic value has been estimated based on the value added obtained. Tourism Although there is no economic data for tourism broken down in locations, i.e. classified by municipality, the activity of lodgings and restaurants are taken, explicitly, as a proxy for this economic activity. In this case, both data variables and subsequent transformations are similar to private services. 7 That is to say, steam, turbogas, internal combustion, geo-thermal, coal, nuclear, eolic etc. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 9 In brief, the evaluation of water in conducting economic acitivities has been made considering value added and the volume of water required. The standard alternative course of action to evaluate the value of water is the so called residual method. This approach assumes that water yields an economic rent, as a sort of economic surplus that the user or owner of the water receives. Criticisms The methodological approach laid out here, which at the same time is used throughout this paper, i.e. estimating the value aded per unit of water withdrawn, is strenously criticised by Young (2005). According to this author, this method at most has a useful descriptive meaning from a narrow regional stance, representing payments to the primary inputs processed by factor owners in the region. Three main objections are put forward by 8 this author. a) It overstates the contribution of water by including the payments for all primary inputs, i.e. wages and salaries, interest, profits and rents, besides taxes and capital depreciation. Therefore, it clearly yields a large overstatement of its correct value; b) Payments to factors of production, i.e. capital and labor are incorrectly treated as income or benefits. They should actually be understood as opportunity costs; c) For intersectoral transfers and public investment in water supply, i.e., water policy issues of primary interest, value added is not a measure commensurate with benefits of transferring water from low to high value added uses, or the cost of supply of investments. In the end, Young suggests even dropping the term value added, calling it instead “pricing factor incomes�, in so far as the first term is confusing for non economists. This author concedes that this method can be, at the most, an initial stage in the process of estimating the value of the marginal product of water in the long run, in the purpose of obtaining the residual return to water. The first objection of Young is that water contributes to the value of the product but not as much as this measure claims. However, the “correct� value that this author upholds is a residual. That is to say, Young assumes that water yields or has to yield a rent (or quasi 8 Young, 2005, p. 92 Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 10 9 rent), in so far as it is mainly a fixed or limited input. It is not clear why water should yield a rent because of its fixed nature, particularly in agriculture, where traditional irrigation technique do not treat it as a scarce resource, far less a fixed one, considering the widespread irrigation methods even in regions with serious droughts. While Young clarifies that it is in irrigated agriculture where water rents best reflect this situation (p.68), it would be interesting to know how relevant is this argument in the face of drip irrigation, plastic crop production and the myriad of water saving techniques in this field, not to mention technical possibilities and financial stimulus for water reuse in other sectors, i.e. industrial activity.10 The second objection according to Young, is of a normative nature, claiming that factor incomes should be regarded as opportunity costs, while through this approach, both are implicitly treated as income or benefits. In macroeconomics, whether it is regional or national, it would appear that both are dealt with as income or benefits, as any textbook in the subject can attest. However, Young appears to overlook that the fact that the value added, as an aggregate of goods and services produced by economic agents, is indepedent of being factor payments, i.e. rents or benefits to the factor of production owners. In the same normative venue, it could be stated that value added should be considered as aggregated output, besides opportunity costs of its elements and sources of revenue. Regarding the third objection of Young, no doubt that the ratio of value added to unit of water withdrawn need not be a commensurate measure of the benefits derived from intersectoral transfers or supply investments. It attempts to expose the impact of aggregate value generation in terms of output, vis a vis water demands. More than an objection, this point of Young is a pertinent caveat to further analyze and substantiate impacts. 9 P. 68. In an enlarged production function construed by the author (p. 60), output is a function of purchased materials and equipment (M), human input, e.g. labor (H), equity capital (K); other natural resources, such as land (L); and water (W), the residual claimant. 10 There is a Neo-Malthusian flavor in Young´s analysis of water yielding a rent. If his analysis is static, of course water supply is unavoidably fixed or limited. Within this logic, he would be assuming what he attempts to prove. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 11 1.2. Water as a Non-produced Output Water Provision and Distribution Water is not a produced good,11 therefore there is no cost of production, strictly speaking. There could be a cost of abstraction, storage, transport, distribution, and even of restoration, i.e. it has to be moved from the source to the market. As a result, water is already a produced output. The value added of which water is subject, is part of the value of this good, as established in economic accounting. Distinction ought to be made between its use and plausible replenishment, versus its abuse or overexploitation in terms of volume, for which a negative externalilty is implied. Quality deterioration conveys a deleterious effect, which has to be accounted for. Be it in terms of quantity or cualitatively speaking, the cost of restoration is to be estimated and established. This is not the case when a detrimental natural occurence appears in water, for instance, the presence of arsenic, or brackish aquifers. In this case, the cost of removal, if incurred, is part of .the process of making it drinkable. Water is used for irrigation and urban water supply. In the last case, its contribution to value added is made explicit through water treatment costs. When used for irrigation, the pumping costs are incorporated in its value. No value as such is attributed to water as an output. However, a treatment for disinfection to make it drinkable, for instance of, becomes a value added to be accounted for as a component of its price. Assimilative Services Value of water is estimated here in terms of current costs for its treatment in order to fully restore it. That is to say, third party effects are estimated in terms of the difference between its full cost and expenses for current insufficient or incomplete water treatment, if this were the case 1.3. Water as a Final Good In this last part of this appendix, water is considered as a final good. If it has been treated before to become drinkable, i.e. for residential uses and public services, its economic value of production has already been estimated. If, however, water is used for recreation, 11 In the sense that forms a given stock, it cannot be multiplied. However, the quantity required can be reduced through efficiency, whether in production of goods and services, or in final consumption. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 12 the importance of this activity is not subject to regional accounting, a common denominator of the valuation made in this work. Residential Uses When drinking water is being used as a final good through the physical network of a urban location, no value is generated. Its cost has already been considered when treated, and distributed. It is in this role that contributes to the value added by the branch of activity which provides it. Finally, it is consumed when demanded by households and public services, for which no extra value is imputed.12 Recreation No economic value is attached to recreation uses of water. In this paper, water systematically enhances its own value or that of the products it helps to create when used as an input for production, but not in final consumption. Therefore, no value is attributed for water in this activity. Only its importance is to be briefly described in terms of heterogenous goods and facilities available for this service. Summing up what has been outlined in this section, water is being considered as a non- produced output. In this sense, not bearing a cost of production, it is subject to modification by man in terms of location and eventually, treatment to insure it is safe for human consumption. In this manner, a value added has been incorporated, as a standard calculation of regional or national economic accounting. In estimating the economic value of water, it must be an input, applied ex-profeso by manpower in producing a good or service. Being an input, as a means to produce it has to be independent of the object of production. With this proviso, its economic contribution is estimated as a ratio bewteen the value added and the quantity of water used. As a final good, there is no further accounting for the value of water, in order to avoid double counting. 12 As it is frequently reminded, double counting ought to be avoided. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 13 1.4. Private and Social Values of Water Water Allocation by Sector A. Irrigated crops At present, the private value of water in Mexico is nil. Implicitly, it is being assumed that being a renewable resource, both it terms of quantity and quality, whether it is derived from superficial or ground water, it is self-replenished. This approach does not take into account the excessive allocation of irrigated land in the case of surface water, or overexploitation of acuifers. The social cost of water used in crop production could be considered two-fold. First, by estimating the differential between the value added per unit of water of a specific group of crops, with the group of highest value added per unit of water. This method would bring into evidence the high oppportunity costs of producing cereals and other low income crops. This first procedure would underline the disparity of water use, as cereals and grains often tend to draw a substantial amount of water with resulting in modest amount of value added. This approach would also imply the convenience of introducing high value added crops, in order to make better use of the water. Unfortunately, this is not of an enticement, despite the convincing rationality involved, assuming a higher value of the crop and an increase in profits. In this case, a compelling force would imply the competitivenes of the crops under cultivation with imports, taking into account tariff barriers, or even if they are fully abolished.13 A second approach to estimite the opportunity costs of water in crop production would be by comparing specific group of crops with the average value added per cubic meter obtained in the location. This might suggest curtailing irrigated crop production altogether, particularly with a well developed manufacturing and service sectors competing for water, let alone the urban population and its water requirment for human development. 13 According to NAFTA rules, by 2008 trade barriers for agricultural products will be abolished (OECD 1997). The price gap between Mexico on the one hand, and Canada and the US on the other, would place serious hindrances for the remaining production of basic crops in Mexico, both due to the chronic overvaluation of the Mexican currency and a gap in physical yields. This legal decision on trade barrier removals, could be the single most important element in reducing water demands in Mexican crop production, as imports would increase considerably, assuming there are enough loans for Mexico, facing recurrent trade and current account deficits. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 14 B. Rest of economic activities In the case of Mexico, the availability price and quantity per cubic meter by location is provided on an aggregate basis,14 i.e. without detailed information by kind of user.15 The private cost of water, taken as the average price charged by the water board, implies a considerable bias. An alternative course of action would be to estimate the difference between the average price paid for a cubic meter obtained by the specific economic activity, and the weighted average in the location, to be taken as the opportunity cost for every unit of water used. This comparison is considered equitable, in so far as it takes into account the performance of a location, on average. If opportunity costs were to be calculated on the basis of the highest economic value added yielded by water, it would reflect the most efficient use of water. However, it would be highly unequitable for the rest of activities, i.e. non-manufacturing. Residential consumption is not subject to this comparison, in so far it is not oriented towards production. However, its price currently paid will be given as a terms of reference to compare it with other uses. Wastewater by Source A. Irrigated crops Elimination of residuals of fertilizers and pesticides in in water which has been used for irrigation, is not binding in Mexico. As these residuals are being poured into the Río Bravo, it conveys an externality to be coped with. The cost of treatment for urban supply water becomes a proxy for this negative externality. B. Rest of economic acitivities The rest of activities, besides crop production, require a primary assimilative service for wastewater. Considering that wastewater might be subject to a partial treatment, the difference between what is spent at present and its primary assimilative service is to be considered as an external cost. In the case of Mexico, it is estimated a primary wastewater 14 Annual physical output (cubic meters), invoicing and gross revenue by the local water board. 15 CNA 2004d. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 15 treatment of US$0.64 per cubic meter. The treatment currently provided (activated 16 sludges and stabilization lagoons), is estimated at US$0.09 per cubic meter. Full pricing cost of treated water, while it is efficient, might not be equitable. Therefore, a progressive rate structure could avoid the regressive nature of a flat water rate. The differential among various uses is to be considered, subject to the accesibility of data. 1.5. Location Selection In selecting the locations for the Rio Bravo basin, two basic considerations were made. a. Crop production demands a disproportionate amount of water, while it has a meagre contribution in terms of value added. b. Alongside, non-crop production economic activities are substantial, basically manufacturing and private services, besides a large population, all of which compete with crop production due to water scarcity. c. Intersectoral transfers of water within the location are plausible, besides economically grounded, in order to improve its effect in the generation of value. If a specific location does not have room for water sectorial transfers, it implies that no activities with low value added are present. For instance, if irrigated crop production takes place, it should rely on sewage. However, consideration should be made, in particular, to alternative sources of water supplies, outside the location. 16 According to local experts, a primary treatment at present costs seven pesos, while the basic ones currently applied cost one Mexican peso. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 16 2. Introduction This paper evaluates the economic value of water in three representative locations located in the Rio Bravo Basin. Formally known as the Bravo-Conchos, this basin overlaps across five Mexican states,17 beneath the Rio Bravo in northeastern Mexico. The economic value of water is estimated as the ratio between the value added in each economic activity, and the amount of water required. Both components of such regoinal evaluation are outlined beforehand, in order to place in context the importance of the natural resource under consideration. The first location selected is Bajo San Juan, in the northern part of the state of Tamaulipas, 100 kilometers away from the Gulf of Mexico, where the Rio San Juan, from where it takes its name, joins the Rio Bravo. This location spreads over six municipalities.18 The most important one is Reynosa, whose capital, bearing the same name, is a leading population center.19 Besides, this town is a foremost maquiladora 20 21 location, along with two other towns in the state of Tamaulipas. This location depends form the El Azucar dam whose main purpose is the irrigation of low value crops, 22 besides urban water supply. In this last respect, the Rio San Juan also contributes to the urban water supply of Monterrey, political capital of the neighbouring Nuevo Leon state, through El Cuchillo dam, with three quarters (74.8%) of its water requirements. Local acquifers in the location are subject to brackish groundwater. In so far as Monterrey has no room for 23 intersectoral transfers, increases in its supply are to be arranged exogenously through the Bajo San Juan location. 17 That is to say, Chihuahua, Durango, Coahuila, Nuevo Leon and Tamaulipas. 18 Camargo, Gustavo Diaz Ordaz, Mier, Miguel Aleman, Reynosa and Rio Bravo. 19 Populated with 435 thousand inhabitants. It has a similar population to Matamoros (425 thousand), a border town across Brownsville, Texas. 20 Temporary in-bond import of intermediate goods free of duty, undergoing a labor-intensive assembly process to be further exported. 21 Matamoros and Nuevo Laredo (across Laredo, Texas), are the other two key centers for offshore assembly production in Tamaulipas. 22 Irrigation district No. 26, with a strong presence of feed grains. 23 While 5,000 Hectares of irrigated crops -mainly low value added pastures- took place in the metropolitan area of Monterrey (3.3 million inhabitants in 2003), using the residual water generated by this metropolis, estimated at 183 Mm3 per year. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 17 A second location for this study is Juarez, in the state of Chihuahua, located at the 24 inception of the Rio Bravo in Mexican territory. It is composed of three municipalities, i.e. Guadalupe, Juarez and Praxedis G. Guerrero. Ciudad Juarez, capital of the municipality of the same name and the largest city in the state.25 It is the most important maquiladora center along the Mexico-U.S. border. Four fifths of its water supply comes from in-stream Rio Bravo derivation, The remaining is supplied from the local acquifer, jointly exploited with El Paso, Texas, as both cities are located across each other, with the river in between, being a permanent source of strain as far as water supplies are concerned. Both locations, Bajo San Juan and Juarez, are directly affected by the water treaty whereby Mexico is to deliver to the United States 431.7 cubic hectometers annualy, computable on a five year cycle basis. Considering water availabilities and local consumption, Mexico has not fulfilled this committment. As a result, this is an additional impending difficulty for the economic and demographic feasibility of the location. One of the objectives of the present paper is to evaluate the economic use of this resource in the above mentioned locations, putting forward alternatives to increase the generation of value, alongside the possibility of reducing the level of water consumed in the basin. A third location is located in the south-east portion of the state of Coahuila, comprising the municipality of Saltillo, the political capital of the state, as well as the adjacent Ramos 26 Arizpe. Besides its administrative importance, Saltillo is a leading demographic center, with a well developed non-maquiladora industrial activity. It is 241 kilometers away from 27 the nearest US border. For its water supply, this location is wholly dependent on the overexploited Saltillo-Ramos Arizpe acquifer. 24 That is to say, where the Rio Grande, as it is known in the United States, divides the states of New Mexico and Texas, prior of being the watershed between Mexico and its northern neighbour. 25 1.3 million inhabitants. 26 Being the largest city in the state, it has 608 thousand inhabitants, along with 33 thousand in Ramos Arizpe. 27 Roma, Texas. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 18 3. Regional Output and Economic Value of Water Key economic patterns of irrigated agriculture are set forth, through the value added for irrigated agriculture classified by crop groups, i.e. cyclical (autumn-winter and spring- summer), as well as perennials. Afterwards, the same exercise is undertaken for different livestock species and its products. Fisheries, mining, manufacturing, building and private services, undergo a similar analysis. The data is presented for each of the three locations, each one being an aggregation on the basis of its municipal activiity. 3.1. Crop Production 3.1.1. Irrigated Crops 3.1.1.1. Crop Groups Area Harvested During the crop year of 2003,28 Bajo San Juan harvested 66.8 thousand hectares. In terms of harvested area, crop production was conducted overwhelmingly during the autumn-winter cycle (97.9%). Perennials covered only 2.1% of the area.29 Out of the 10.5 thousand hectares harvested in Juarez, more than half (51.9%), was ploughed during the spring-summer cycle, while 31.3% of the area was cultivated with perennials. The remaining 16.8% refers to the area harvested during the autumn-winter cycle. Saltillo is the smallest of the three locations in terms of area harvested, with 6.1 thousand hectares during the 2003. In this location, 54.8% was devoted to perennials. The spring-summer cycle covered 31.1% of the area, while the remaining 14.1% corresponds to the autumn- winter cycle. Table 1. Irrigated Crop Groups. Area Harvested. 2003 (Hectares and percentage) Juárez Saltillo Bajo San Juan TOTAL 10,523 100.0% 6,070 100.0% 66,826 100.0% 7,228 68.7% 2,744 45.2% 65,417 97.9% Autumn-winter 1,769 16.8% 856 14.1% - - Spring-summer 5,459 51.9% 1,888 31.1% 65,417 97.9% Perennials 3,295 31.3% 3,326 54.8% 1,409 2.1% Source: Based on CNA 2004a and SAGARPA 2004 28 Comprising form October 2002 to September 2003 for cyclical crops, and the calendar year, i.e. 2003 for perennials. 29 No crop was cultivated in Bajo San Juan during the spring-summer cycle. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 19 In terms of area harvested, the difference among the three locations is considerable. For instance, in 2003 Bajo San Juan ploughed 11 times more than Juarez. While the last one mentioned and Saltillo expose a more even distribution of crop groups with perennials and within cyclical crops, the Bajo San Juan is heavily concentrated in the autumn-winter cyclical, suggesting scant heterogeneity in its crop mix. Water Consumption Distinction is made between gross water consumption, i.e. considerig the total water use for irrigation on the one hand, and net water consumption, once its return flow has been taken into account. These estimates are the result of an aggregation of gross and net water demands for each one of the crops cultivated in the three locations under study, through official data (CNA 2004b). Table 2. Irrigated Crop Groups. Water Consumption. 2003 (000 cubic meters and percentage) Juárez Saltillo Bajo San Juan Gross Water Consumption TOTAL 131,019 100.0% 65,904 100.0% 387,223 100.0% Cycle 75,647 57.7% 22,747 34.5% 378,623 97.8% Autumn-winter 17,518 13.4% 6,061 9.2% - - Spring-summer 58,129 44.4% 16,686 25.3% 378,623 97.8% Perennials 55,372 42.3% 43,157 65.5% 8,600 2.2% Net Water Consumption TOTAL 75,027 100.0% 33,374 100.0% 210,123 100.0% Cycle 43,632 58.2% 11,065 33.2% 207,498 98.8% Autumn-Winter 10,423 13.9% 2,932 8.8% - - Spring-Summer 33,209 44.3% 8,133 24.4% 207,498 98.8% Perennials 31,395 41.8% 22,309 66.8% 2,625 1.2% Source: Based on CAN 2004a, CNA 2004c and SAGARPA 2004 Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 20 Gross Water Consumption Water consumption in the Bajo San Juan was 387,223 thousand cubic meters in 2003. Most of it (97.8%) went for the autumn-winter crops, while only 2.2% was used in perennials. In Juarez, water demands were 131,019 m3. Over two fifhts (44.4%) went to spring-summer crops, while an almost equivalent portion (42.3%), was used for perennial crops.30 Irrigated crops in Saltillo consumed 65,904 thousand m3, of which almost two thirds (65.5%) was required by perennials, and 25.3% for spring-summer cycle crops. Bajo San Juan consumed almost six times more water than Juarez, both located alongside the Río Bravo. Irrigated crop production in the first one is supplied by surface water in its entirety, while in the second case, fourth fifths are provided by the river itself. The remaining one fifth in Juarez is groundwater (CNA 2004a). Net Water Consumption Taking into account ground returns, water consumption represents 54.3% of the total amount irrigated in the Bajo San Juan. That is to say, 210,123 thousand cubic meters. In Juarez, net consumption of water was 75,027 thousand m3, averaging 57.3% of gross water irrigated. In the case of Saltillo, net consumption was 33,374 thousand cubic meters, i.e. 50.6% of the total amount irrigated. Table 3. Irrigated Crop Groups. Net Water Consumption. 2003 (Meter-Ha) Juárez Saltillo Bajo San Juan TOTAL 0.71 0.55 0.31 Cyclical 0.60 0.40 0.32 Autumn-Winter 0.59 0.34 0.00 Spring-Summer 0.61 0.43 0.32 Perennials 0.95 0.67 0.19 Source: Based on CNA 2004a, CNA 2004b and SAGARPA 2004 Regarding net water consumption by area, Juarez uses 0.71 meters-hectare, followed by 0.55 m by hectare in the case of Saltillo. The requirments of Bajo San Juan are a scant, i.e. 0.31 meters-hectare. In this last location, during the spring-summer cycle, the demand 30 The remaining 13.4% of the water was consumed by autumn-winter crops. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 21 for water remains at the same level for this location as a whole, being reduced to 0.19 m in the case of perennials. The largest heterogeneity of water consumption by area is evinced in Juarez. In this location, perennials required 0.95 meters-hectare, and 0.59 meters-Ha. for the autumn- winter cycle. For the spring-summer crops, consumption reaches 0.61 meters-Ha. In the case of Saltillo, perennials averaged 0.67 m per hectare, while it was 0.34 m per hectare for the autumn-winter cycle, and in between, the spring-summer cycle crops with a net consumption of 0.43 m per hectare. Linkages between Irrigation Water and Area The Bajo San Juan and Juarez irrigation districts overwhelmingly depend on the supply of water by the Rio Bravo. Being a renewable resource, the supply of water for these two irrigation districts expose a considerable degree of variation, while they bear the bulk of fluctuations, considering its availability. That is to say, due to water shortages water 3 3 demand has fallen to 110.1 Mm in 2000, while reaching a maximum of 739 Mm in 1989. In the case of Juarez, a minimum of 94.5 Mm3 was available in 1998, while a maximum of 255.6 was experienced in 1995. In the case of Saltillo, there are no time series available to evaluate its performance. Table 4. Bajo San Juan and Juarez Irrigation Districts. Water and Area. 1986-2003 3 (000 m , hectares and meter-hectare) Bajo San Juan Juarez Water Area Meter- Water Area Meter- 3 3 (000 m ) (Has) hectare (000 m ) (Has) hectare (1) (2) (3) = (1)/(2) (4) (5) (6) = (4)/(5) Mean 338,290 62,754 0.54 191,852 14,926 1.29 Maximum 739,010 83,332 0.89 255,620 20,452 1.25 Minimum 110,100 37,191 0.30 94,506 6,845 1.38 log(std dev) 4.69 3.62 -0.72 4.16 5.22 -0.77 Trend* -5.7% -2.7% -3.0% -4.4% -2.5% 1.9% * Estimates are reported in Appendix 3. Source: Based on CNA 2004f. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 22 When examining the pattern of water available for agriculture and the area under cultivation, there are various elements which must be made explicit. For the period 1986- 2003, there is a long term trend of water reduction in both districts. At the Bajo San Juan, water constraints have resulted in a reduction rate (-5.7% on a yearly basis), more than twice compared to Juarez (-2.5%). In contrast, the Juarez district reduced its area under cultivation at a rate of 4.4% yearly, while Bajo San Juan diminished its acreage by -2.7%. As a result, this last location reduced its hectare-meter requirements by 3% yearly, while Juarez was even able to increase it by 1.9% per year, on average, during the above mentioned period. The heterogeneity both of water requirements and area under cultivation, as well as the ratio derived thereof, is measured by the logarithm of the standard deviation. While Juarez bears a higher heterogeneity than Bajo San Juan, it also exposes a larger variance in terms of area, and as a consequence, of the rate of both. The aggregate response of Juarez has been to reduce the area under cultivation at a higher pace than Bajo San Juan (-2.7%), despite a lower rate of water abatements. At the same time, Juarez even increased water volumes by area at a rate of 1.9%, while Bajo San Juan constrainted such relative volumes at 3% on average. In this respect, Juarez exposes an example of successful adjustment in terms of water constraints. The above results are confirmed when the area under cultivation becomes a function of the water supplies. For instance in the Juarez district, the acreage with respect to water exposes nearly a unit elasticity (0.86), while it is ostensibly inelastic in the case of Bajo San Juan (0.24).31 While in both cases water and area are reduced, Bajo San Juan shows considerable resistance to abate its area under cultivation when water supplies are curtailed. In the same fashion, as a district, Bajo San Juan would seem to be far less adept to react increasing the crop acreage when more water were to become available.32 Value Added In what follows, the value added by irrigated crop groups is considered first. Afterwards, the ratio between value added and the area harvested is obtained. 31 The statistical results are reported in Appendix 3. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 23 Table 5. Irrigated Crop Groups. Value Added. 2003 (US$ 000) Juárez Saltillo Bajo San Juan TOTAL 9,976 100.0% 14,087 100.0% 24,317 100.0% Cyclical 5,599 56.1% 4,471 31.7% 24,132 99.2% Autumn-Winter 1,025 10.3% 670 4.8% - - Spring-Summer 4,574 45.8% 3,802 27.0% 24,132 99.2% Perennials 4,377 43.9% 9,616 68.3% 185 0.8% Source: Based on Banco de Mexico, 2005, FIRA 2005 and SAGARPA 2004 33 Bajo San Juan produced 24,317 thousand dollars of irrigated crop output in 2003. Allmost all of it (99.2%) came belongs to the autumn-winter cycle. The participation of perennials in value generation was close to nil (0.8%). Saltillo contributed with 14.1 million dollars, while Juarez almost reached 10 million dollars. In the case of Juarez, more than two fifths of the total output is due to spring-summer cycle (45.8%) and to perennials 34 (43.9%). In Saltillo, almost two thirds of the value added comes from perennials (68.3%), while more than one fourth (27%) belongs to the spring-summer crops.35 Considering the amount of value added in irrigated crops among the three locations, Bajo San Juan produces almost as much as the joint output of the other two. That is to say, Bajo San Juan produced 24.3 million dollars of irrigated crops, while Saltillo reached 14.1 and Juarez 10 million dollars in 2003, respectively. The extent at which Saltillo generates value per hectare in comparison to Juarez, suggests a high value crop mix of the former, by local standards. Saltillo is an undisputed leader, with 2.3 thousand pesos by hectare on average, ahead of Juarez (US$ 948 per hectare), and a modest amount (US$ 364 per hectare) at the Bajo San Juan. When output is considered by group of crops, a similar pattern appears. In particular, Saltillo reached 782 dollars by hectare in 2004 during the autumn-winter cycle, as well as US$ 2,014 per hectare for spring-summer crops, and US$ 2,891 for perennials by hectare. 32 Abstraction is made of other factors like prices and the crop mix, which necessarily affect this outcome. 33 In oder to express values in terms of 2004 US currency, local economic output is being converted to 2004 prices using local deflators, after which its conversion to US currency is made. 34 The generation of value added by autumn-winter crops is represented by the remaining 10.3%. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 24 That is to say, Saltillo has the highest high value crop mix in terms of value generated for the three groups of crops. In a second place, Juarez obtained US$ 580 per hectare for the autumn-winter cycle, US$ 838 per hectare for the spring-summer cycle and US $ 1,329 per hectare for perennials. A lagging position in terms of crop value is exposed by the Bajo San Juan. Here, the largest value is reached for the spirng-summer cycle, with US$ 369 per hectare, while no harvest took place in the autumn-winter cycle. The lowest value appears in perennials, with US$ 131 per hectare. There is a consistent pattern among the three locations when irrigated crop groups are considered. That is to say, Saltillo is a leader in the various crop groups, while Bajo San Juan is particularly lagging. This performance exposes the ample possibilities for this last location to improve the level of economic output without increasing the area under cultivation. Graph 1. Irrigated Crop Groups. Value Added by Area. 2003 (US$/Hectare) 782 Autumn-Winter 580 0 2,014 Spring-Summer 838 369 2,891 Perennial 1,329 131 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Bajo San Juan Juárez Saltillo Source: Based on Banco de México, FIRA, INEGI and SAGARPA Economic Value of Water In order to estimate the economic value of water for each group of crops, its value added is being related both to the net and the gross consumption of water. In other words, it is 35 The autumn-spring cycle represents the remaining 7.1% of the total value added in the region. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 25 being shown how much value is generated while taking into the acount the extent of water consumed. Net Economic Value In an aggregate fashion, Saltillo averages the equivalent of US 0.42 per cubic meter, while Juarez and Bajo San Juan are less than one third of the former, i.e. 0.13 and 0.12 dollars per cubic meter, respectively, during the crop year of 2003. Taking into account the various crop groups, the range for net economic value of water goes from US$ 0.47 per cubic meter for the Saltillo during the spring-summer cycle, to US $0.10 dollars, for the autumn-winter cycle in Juarez. In evey single group, Saltillo reaches the highest economic value of water. For the autumn-winter cycle, the leader is also Saltillo, with US$ 0.23 per cubic meter consumed, ahead of Juarez (US 0.10/m3).36 In the case of perennial crops, Saltillo reached US$ 0.43. Behind this mark, Juarez shows 3 a coefficient of US$ 0.14 per cubic meter, while Bajo San Juan is lagging with US 0.07/m . Table 6. Irrigated Crop Groups. Net and Gross Economic Value 3 of Water. Crop Groups. 2003 (US $/m ) Juárez Saltillo Bajo San Juan Net Value TOTAL 0.13 0.42 0.12 Cycle 0.13 0.4 0.12 Autumn-Winter 0.1 0.23 - Spring-Summer 0.14 0.47 0.12 Perennials 0.14 0.43 0.07 Gross Value TOTAL 0.08 0.21 0.06 Cycle 0.07 0.2 0.06 Autumn-Winter 0.06 0.11 - Spring-Summer 0.08 0.23 0.06 Perennials 0.08 0.22 0.02 Source: Based on Banco de México, CNA 2004a and 2004c, FIRA and SAGARPA 2004 Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 26 Gross Economic Value Taking into consideration that the net demand for water corresponds roughly to one half of the total amount of water irrigated,37 the gross value of water is basically twice in the case of the three locations. The corresponding coefficients are found in the preceding table, keeping for each crop group the implicit proportion. The economic value of water in irrigated crops is placed in context in section three, when considering the rest of economic activities in the locations. Besides, in a section underneath, valuation comparisons with other locations are discussed. 3.1.1.2. Individual Crops In the previous section, crop production has been analyzed by groups, regarding the cycle in which they are cultivated, as well as whether they are perennials. In what follows, each crop group is considered on the basis of each of individual product by location. Juarez In the case of Juarez, production is concentrated in a handful of crops. Out of the 9.984 million dollars of value added produced in 2003, cotton and alfalfa together accounted for 75.7% of the total.38 A second group of four crops, contributing with a value added ranging between 4.6% and 5.6%, contributed with 19.7% of the total. This is the case for oats for silage and wheat during the autumn-winter cycle, with 5.6% and 4.6% of the total value added, respectively. Regarding perennials, pasture and fruit trees contributed with 4.9% and 4.6%, respectively. The rest of the crops participate with one percent of the total value added, at the most. For instance, during the spring-summer cycle, sorghum for silage during the spring summer cycle as a second crop represented 1.8%.39 Additionally, a contingent of sorghum for 36 As mentioned before,there was no output during the autumn-winter cycle in Bajo San Juan. 37 As specified previously, 49% in the case of Bajo San Juan region, 56% for Juarez and 54% for Saltillo, as an aggregation of individual flows, on the basis or official data (CNA 2004c). 38 That is to say, cotton (41.4%) and alfalfa (34.3%). 39 Second crops are referred to the output being harvested during the spring-summer cycle, using reminding water allocations from the current cycle. That is to say, if a crop producer manages to save a specific amount of water, he (or she) is entitled to use that water, normally resorting to a short cycle crop. Therefore, it is plausible to harvest two crops during spring-summer. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 27 silage reached 1%. A modest amount of value added was derived by pastures during the same cycle, with 0.9% as a second crop, and 0.5% for the first one. Table 7. Irrigated Individual Crops. Juarez. Area, Value Added and Water Productivity 2003 Water Area Value Added Value Productivity Added/Area Gross Net 3 Ha % $ 000 % $ 000/Ha US$/m TOTAL 10,523 100.0% 9,984 100.0% 0.949 0.08 0.13 Cycle 7,228 68.7% 5,606 56.2% 0.776 0.07 0.13 Autumn-Winter 1,769 16.8% 1,025 10.3% 0.580 0.06 0.10 Oats for silage 468 4.4% 563 5.6% 1.202 0.17 0.28 Wheat 1,297 12.3% 456 4.6% 0.351 0.03 0.05 Pasture 4 0.0% 7 0.1% 1.722 0.13 0.22 Spring-Summer 5,459 51.9% 4,581 45.9% 0.839 0.08 0.14 Cotton 3,870 36.8% 4,132 41.4% 1.068 0.10 0.17 Sorghum for silage 2nd 893 8.5% 181 1.8% 0.202 0.02 0.03 Sorghum for silage 461 4.4% 102 1.0% 0.220 0.02 0.04 Pasture 2nd 126 1.2% 88 0.9% 0.698 0.08 0.14 Pasture 91 0.9% 54 0.5% 0.591 0.07 0.12 Vegetables 18 0.2% 25 0.2% 1.379 0.11 0.20 Perennials 3,295 31.3% 4,377 43.8% 1.329 0.08 0.14 Alfalfa 2,491 23.7% 3,429 34.3% 1.377 0.07 0.13 Fruit trees 225 2.1% 487 4.9% 2.163 0.17 0.30 Pastures 579 5.5% 462 4.6% 0.797 0.09 0.16 Source: Based on Banco de México, CNA 2004a, CNA 2004b and CNA 2004c, FIRA and SAGARPA 2004 As far as the area harvested is concerned, cotton represents 36.8%, while alfalfa reaches 40 23.7%, amounting 60.5% of the total. A second group of four crops, comprised 24.3% of the total area. Net water productivity was US$ 0.17 per cubic meter in the case of cotton, while it is reduced to US$ 0.07 in the case of alfalfa. Bearing in mind that the average in this location for all crops was US$ 0.13/m3, these two products are within this range. Fruit trees (perennials) and oats for silage (autumn-winter) are at the upper scale of net water productivity in Juarez, i.e., 0.17 dollars per cubic meter in both cases. On the lower end, sorghum for silage, both the ordinary one and the second crop, expose US$ 0.03 per 40 Oats of silage and wheat for the autumn-winter cycle; and pasture and fruit trees for perennials. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 28 cubic meter, while wheat reaches a slightly higher value (US$ 0.05). Unspecified 3 vegetables show a value of US$ 0.20/m , just around the average performance in the district. A similar result is observed in the case of pastures in autumn-winter (US$ 0.22/m3) and perennials (US$ 0.16/m3). Saltillo Regarding Saltillo, out of the 14.1 million dollars of value added, most of it (68.3%) arises from perennial crops. Table 8. Irrigated Individual Crops. Saltillo. Area, Value Added & Water Productivity 2003 Water Area Value Added Value Productivity Added/Area Gross Net 3 Ha % $ 000 % $ 000/Ha US$/m TOTAL 6,070 100.0% 14,087 100.0% 2.321 0.21 0.42 Cycle 2,744 45.2% 4,471 31.7% 1.629 0.13 0.20 Autumn-Winter 856 14.1% 670 4.8% 0.782 0.11 0.23 Oats for silage 477 7.9% 364 2.6% 0.763 0.11 0.22 Barley for silage 371 6.1% 292 2.1% 0.787 0.11 0.23 Garlic 2 0.0% 13 0.1% 6.467 1.60 4.09 Wheat 6 0.1% 1 0.0% 0.145 0.03 0.07 Spring-Summer 1,888 31.1% 3,802 27.0% 2.014 0.23 0.47 Potatoes 266 4.4% 2,543 18.1% 9.561 0.73 1.45 Sorghum for silage 880 14.5% 245 1.7% 0.279 0.04 0.08 Serrano chilies 62 1.0% 237 1.7% 3.827 0.32 0.56 Tomatoes 18 0.3% 193 1.4% 10.749 0.89 1.56 Tomatillo 25 0.4% 150 1.1% 6.016 0.50 0.87 Courgettes 48 0.8% 144 1.0% 3.010 0.25 0.44 Sorghum for brooms 180 3.0% 102 0.7% 0.566 0.04 0.09 Corn 385 6.3% 88 0.6% 0.228 0.04 0.08 Poblano chilies 10 0.2% 52 0.4% 5.166 0.43 0.75 Coriander 9 0.1% 22 0.2% 2.459 0.20 0.36 Cauliflower 4 0.1% 22 0.2% 5.438 0.45 0.79 Corn on the cob 1 0.0% 2 0.0% 2.013 0.32 0.71 Perennials 3,326 54.8% 9,616 68.3% 2.891 0.22 0.43 Pasture 1,275 21.0% 3,749 26.6% 2.940 0.34 0.93 Nuts 953 15.7% 3,378 24.0% 3.544 0.28 0.49 Alfalfa 980 16.1% 2,077 14.7% 2.119 0.11 0.20 Fruit trees 48 0.8% 205 1.5% 4.281 0.35 0.62 Peaches 23 0.4% 97 0.7% 4.199 0.33 0.58 Asparragus 40 0.7% 92 0.7% 2.295 0.19 0.33 Plums 6 0.1% 18 0.1% 2.969 0.23 0.41 Pistachioes 1 0.0% 1 0.0% 1.308 0.10 0.18 Source: Based on Banco de México, CNA 2004a, CNA 2004c, FIRA and SAGARPA 2004 Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 29 Within perennials, production is concentrated on pasture (26.6%), nuts (24%) and alfalfa (14.7%). For spring-summer crops, representing 27% of the total value added in this location, most of it belonging to potatoes (18.1%). Production in the autumn winter cycle is reduced to 4.8% of the total value added, where oats and barley, both for silage, represent 4.8% and 2.6% of it. For the spring-summer cycle, representing 27% of the total, potatoes has an overwhelming weight (18.1%). There are eight crops weighting each between one and five percent of the total value added. In the case of autum-winter crops, oats and barley, both for silage, contribute with 4.8% and and 2.6%, each respectively. For the spring-summer cycle with the exception of sorghum for silage, the rest are vegetables.41 In the case of perennials, an array of unspecified fruit tress represents 1.5%. The rest of products represent less than one percent of value added. 3 Regarding water productivity, garlic has a net productivity of 4.08 dollars/m , contrasting with a minimal area harvested (two hectares in the autumn-winter cycle). Tomatoes and potatoes follow with US$ 1.56 and US$ 1.45 per cubic meter, being the crops which contribute most to the value added for the spring-summer cycle, despite using 4.4% of the total area. The rest of crops are below a one dollar mark of water productivity per cubic meter. While the average is 0.42 dollars per cubic meter for this location, vegetables are above this average. Typically cereals are at the lower end, with 8 cents per dollar for corn and sorghum for silage, for instance. Bajo San Juan Considering the 24.3 million dollars produced by this district in 2003, an overwhelming portion (99.2%) comes from the spring-summer cycle. Two crops represent the bulk of the value added, i.e. sorghum (77.2%) and corn (16.3%), which happened to have been harvested in the above mentioned cycle. Besides a modest contribution by cotton and water melon, with 3.5% and 1.5%, the rest of crops contributes with less than one percent 41 With respect to value added, this group is comprised by serrano chilies (1.7%), tomatoes (1.4%), tomatillo (1.1%) and courgettes (1%). Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 30 of the value added. While there is no output during the autum-winter cycle, perennials account for less than one percent (0.8%) of the total value added. Table 9. Irrigated Individual Crops. Bajo San Juan. Area, Value Added and Water Productivity. 2003 Water Area Value Added Value Productivity Added/Area Gross Net 3 Ha % $ 000 % $ 000/Ha US$/m TOTAL 66,826 100.0% 24,317 100.0% 0.364 0.06 0.12 Cycle 65,417 97.9% 24,132 99.2% 0.369 0.06 0.12 Autumn-Winter - - - - - - - - Spring-Summer 65,417 97.9% 24,132 99.2% 0.369 0.06 0.12 Sorghum 54,343 81.3% 18,765 77.2% 0.345 0.06 0.11 Corn 8,329 12.5% 3,953 16.3% 0.475 0.07 0.12 Cotton 1,080 1.6% 843 3.5% 0.781 0.14 0.41 Pop corn 990 1.5% 364 1.5% 0.368 0.06 0.10 Water melon 97 0.1% 58 0.2% 0.593 0.10 0.16 Melon 47 0.1% 38 0.2% 0.810 0.17 0.25 Onion 28 0.0% 31 0.1% 1.125 0.24 0.34 Green chilies 11 0.0% 24 0.1% 2.205 0.46 0.67 Sorghum for brooms 139 0.2% 18 0.1% 0.132 0.02 0.04 Sorghum for silage 313 0.5% 14 0.1% 0.044 0.01 0.01 Tomatillo 7 0.0% 10 0.0% 1.491 0.31 0.45 Garlic 2 0.0% 7 0.0% 3.371 0.71 1.02 Beans 19 0.0% 4 0.0% 0.214 0.05 0.07 Nopal (cactus) 12 0.0% 3 0.0% 0.214 0.04 0.06 Perennials 1,409 2.1% 185 0.8% 0.131 0.02 0.07 Pasture 1,193 1.8% 128 0.5% 0.107 0.04 0.08 Other citric 216 0.3% 57 0.2% 0.266 0.01 0.06 Source: Based on Banco de México, CNA 2004a and 2004c, FIRA and SAGARPA 2004 Regarding, net water productivity for 2003, the average for the district is US$ 0.12/m 3, coincident with the two most important crops. Due to the low weight of vegetables in the total value added geenerated, its higher productivity hardly increases the district average. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 31 3.1.1.3. Valuation Comparisons Using the residual method, Lindgren (1999) found a value of water equivalent to US$ 0.51/m3 for commercial for commercial crops in the Stampriet aquifer, Naimibia, while using the residual method. In another study for Namibia, MacGregor et al. (2000), reports an economic value of water for commercial agriculture equivalent to US$ 0.49 for 1996 agriculture, as a ratio between value added and water used. For susbsistence agriculture, the value was US$ 0.57/m3, being US$ 0.52 for agriculture on average, being irrigated crop production the leading activity in terms of income. 3 Using the residual procedure, water productivity in Haryana, India, was US$ 0.02/m for crop production, according to an official survey.42 Typically, willingness to pay for a farmer is within the range of US$ 0.01-0.25 per cubic meter, according to Wu, Whittington and Sadoff (undated). Crop cultivated, amont of rainfall, prices of outputs and key inputs, are responsible for this wide range. These authors observe that cereals are at the lower end, while fruits and veggetables are at the opposite, subject to market conditions and transportation costs for the latter. In well-run irrigation schemes, Wu, Whittington and Sadoff, assume an economic value of US$ 0.05/m3 (p. 16). In the above mentioned literature, no reference is made as to whether the calculations are referred to gross or net water demands. It is being assumed that the value estimates are implicitly gross requirements. Therefore, the comparisons with the results of the present work are likewise. Considering the results for gross water productiivity obtained here, they fit within Wu, Whittington and Sadoff ranges. Juarez and Bajo San Juan are slightly above the mark for an adroit irrigation scheme, with US $ 0.06/m3. At the same time, in these two locations, individual crops with a minimium productivity are at the bottom range, with US $0.01 and US $0.02 in both cases regarding sorghum for silage in Juarez and Bajo San Juan. Saltillo has an average productivity of US$ 0.21, already at the upper limits 42 Government of India: Cost of Cultivation of Major Crops, Ministry of Agriculture, 1993 (quoted in Rogers et al. 1998). Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 32 established by Wu, Whittington and Sadot. In terms of individual crops, garlic is responsible for the high value attained, with US $1.60 in Saltillo and US$0.71 in Bajo San Juan. In general, the three locations fit whithin the parameters of the three authors mentioned. Table 10. Individual Crops. All locations. Gross Water Productivity 3 2003 (US $/m ) Average Maximum Minimum Juarez 0.08 0.17 0.02 Other fruits Sorghum for silage perennials autumn-winter Saltillo 0.21 1.60 0.04 Garlic Corn autumn-winter spring-summer Bajo San Juan 0.06 0.71 0.01 Garlic Sorghum for silage spring-summer autumn-winter Source: Based on Banco de México 2005, CNA 2004a, CNA 2004b, FIRA 2005 and SAGARPA 2004 Regarding local experiences in measuring value as a ratio between value added and 43 water unit of input, in Caborca, an irrigation district located in the state of Sonora, a 44 similar estimate was made. For the 2002 agricultural year, perennials reached a mean of 0.23 dollars of value added per cubic meter. For the autumn-winter crops, it averaged 0.09 cents per cubic meter, while the spring-summer showed a slightly higher value (0.13). Therefore, Caborca shows a value as high as Saltillo in perennials, where it stands out both in terms of area and value added. This confirms the relative backwardness of Bajo San Juan and Juarez in this group of crops. For autumn-winter crops, Caborca is as low as the worst performer of the three locations, i.e. Bajo San Juan. For the spring-summer cycle, except Juarez, the other two locations perform better than Caborca. 43 That is to say, nortwest part of Mexico. 44 Goicoechea, 2004. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 33 45 In a recent study for the Lerma-Chapala region, surface irrigation for crops exposed an equivalent of 0.13 dollars per cubic meter was obtained for the period 1997-2003 at prices of 2004.46 Considering the five states over which this region spreads, it reached 0.17 dollars as the highest value in the region of the state of Michoacan. The lowest value was found in the state of Mexico, with 0.12 dollars per cubic meter. Therefore, Saltillo outperforms Lerma-Chapala, while the other two regions of this study remain below it. 3.1.2. Rainfed Crops For the three locations under consideration, rainfed crop production is considered in what follows. In the case of Juarez, no output is obtained in this type of agriculture. Saltillo harvested 23.6 thousand hectares, most of it (88%) during the spring-summer cycle. In the case of Bajo San Juan, the rainfall area harvested reached 84.8 thousand hectareas, with an overwhelming weight for the autumn-winter crop (98.1%). The rest are spring- summer crops. Table 11. Rainfed Crop Groups. Area Harvested. 2003 (Hectares and percentage) Juárez Saltillo Bajo San Juan TOTAL - - 23,583 100.0% 84,757 100.0% Cycle - - 23,583 100.0% 84,757 100.0% Autumn-Winter - - 2,808 11.9% 83,172 98.1% Spring-Summer - - 20,775 88.1% 1,585 1.9% Perennials - - - - - - Source: Based on CNA 2004a and SAGARPA 2004 In terms of value added, in 2003 it reached 3.273 million dollars in total. More than four fifths (82.9%) came from the spring-summer cycle, while the remaining belongs to the autum-winter one. In the case of the Bajo San Juan, rainfall value added was 14.4 million dollars, of which 96.8% was harvested during the autumn-winter crop. 45 Located in the central part of Mexico. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 34 Table 12. Rainfed Crop Groups. Value Added. 2003 (US$ 000 and percentage) Juárez Saltillo Bajo San Juan TOTAL - - 3,273 100.0% 14,358 100.0% Cyclical - - 3,273 100.0% 14,358 100.0% Autumn-Winter - - 560 17.1% 13,893 96.8% Spring-Summer - - 2,713 82.9% 465 3.2% Perennials - - - - - - Source: Based on Banco de Mexico, FIRA and SAGARPA 2004 Considering value added per hectare in Saltillo, for the autumn-winter cycle in Saltillo, it was US$ 167 in rainfall, compared to US$ 2,891 for irrigated crops. Meanwhile, the spring- summer average value per hectare was US$ 461 compared to US$ 2,014 in irrigated crops. That is to say, in the case of Saltillo, rainfall in the autumn-winter cycle represents 5.8% in comparison to irrigated crops. In the case of spring-summer, rainfall represents 22.8% of irrigated crops, when considering value added per hectare. 3.2. Livestock Water Consumption In terms of water consumption, Saltillo required 1.1 million cubic meters for animal production during 2003. Almost half of it (48.5%) was demanded by poultry, followed by 26.3% for beef production. Besides egg output, which stands for 9.3% of the total water demand in the location, the rest of products demand less than five percent of the total. This is the case for pork (2.8%), milk (2.3%) and sheep (0.8%). As far as livestock is concerned, in Bajo San Juan water consumption rose to 161,584 thousand meters in 2003, being beef responsible for 66.5% of it. Sheep production comes in a second place, with 16.4% of the total water requirements. Pork output demanded 10.4% of the total amount of water, followed by goats (6.1%).47 The least demanding location in terms of water for animal production is Juarez, with 134,768 cubic meters in 2003. A high concentration in beef production is ostensible, with 84.5% of the total water consumption. Besides milk production (5.9%) and pork output 46 Goicoechea, 2005. 47 Milk production required a minimal amount, i.e. 0.6% of the total water demand. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 35 (5%), the rest of the products demand a small share of the total water required. This is being the case for sheep (2.5%) and poultry (1.7%). 3 Table 13. Livestock. Water Consumption. 2003 (m ) Juárez Saltillo Bajo San Juan TOTAL 134,768 100.0% 1,114,407 100.0% 161,584 100.0% Cattle 121,855 90.4% 292,767 26.3% 108,451 67.1% Beef 113,875 84.5% 267,062 24.0% 107,481 66.5% Milk 7,981 5.9% 25,705 2.3% 970 0.6% Pork 6,738 5.0% 31,321 2.8% 16,834 10.4% Sheep 3,340 2.5% 8,877 0.8% 26,457 16.4% Goats 548 0.4% 136,776 12.3% 9,842 6.1% Chicken 2,285 1.7% 644,655 57.8% - - Poultry 2,285 1.7% 541,003 48.5% Eggs - - 103,652 9.3% Beehives 3 n.s. 12 n.s. - - Source: Based in Banco de Mexico, INEGI 2004a, 2004b and 2004c. Value Added Saltillo is the leading location in terms of livestock production in 2003, with a value added 48 of 16.117 million dollars at 2004 prices. In a second place, Bajo San Juan produced 7.041 million dollars, less than half (43.7%) of Saltillo. Juarez turned out with 4.434 million dollars of livestock output, over one fourth (27.5%) of Saltillo output. Regarding the 16.1 million dollars of livestock production in Saltillo during 2004, two products have a leading position. Poultry reached 41.3% of the total in this location, followed by 16.4% for eggs. In the third place, beef output reached 14.9% of the total value creation in the location. 48 In what follows, the 2003 livestock output has been deflated at 2004 prices using local price indices, being afterwards converted to US currency using the 2004 exchange rate. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 36 Continuing with Saltillo, milk production represented almost one tenth (9.7%) of the output, followed by pork (7.3%). Goat meat reached 5.8%. The rest of the products represent less than five percent, including goat milk (3.8%).49 Table 14. Livestock. Value Added. 2003 (US$ 000 at 2004 prices) Juárez Saltillo Bajo San Juan TOTAL 4,418.0 100.0% 17,101.5 100.0% 7,032.5 100.0% Dressed 3,659.4 82.8% 12,213.0 71.4% 6,879.7 97.8% Beef 2,929.7 66.3% 2,383.5 13.9% 3,761.8 53.5% Pork 482.4 10.9% 1,173.4 6.9% 2,167.7 30.8% Mutton 217.2 4.9% 84.6 0.5% 598.7 8.5% Goat 22.0 0.5% 954.8 5.6% 351.5 5.0% Poultry 8.1 0.2% 7,616.7 44.5% - - By-products 758.6 17.2% 4,888.5 28.6% 152.8 2.2% Milk Cow 680.6 15.4% 1,567.5 9.2% 151.3 2.2% Goat - - 629.3 3.7% 1.5 0.0% Eggs - - 2,646.5 15.5% - - Wool - - 2.9 0.0% - - Honey 78.0 1.8% 42.2 0.2% - - Beeswax - - 0.2 0.0% - - Source: Banco de México, INEGI 2004a, 2004b and 2004c. In Bajo San Juan, beef production represents more than half (53.8%) of the total livestock output, followed by pork (30.8%). Jointly, they stand for 84.6% of the total value generated in animal production. Mutton has a third place in terms of output, with 8.3%. Two remaining products from goats, i.e. meat and milk, represent 4.9% and 2.1%, respectively. Output in Juarez is concentrated in beef (66.6%) and milk (15.3%). Pork represents 10.9%, while mutton output is 4.8%. The rest, have a reduced importance, i.e. honey (1.8%), goat meat (0.5%) and poultry (0.2%). 49 The remaining livestock products in the Saltillo region, comprising mutton, honey, wool and beeswax, have a marginal value. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 37 Comparing the three locations in terms of animal production, Saltillo contrasts with the other two in terms of production heterogeneity, in spite of being specialized in poultry. In this respect, Bajo San Juan and Juarez could develop their potential in this array of economic activities. Economic Value of Water In terms of value added generated in relation to water consumed, Bajo San Juan and 50 Juarez lead. Saltillo, despite exposing the largest heterogeneity in terms of products and species, is the least efficient in terms of water consumption. In terms of beef, pork and milk, the efficiency by which the production process takes place, showing considerable differentials. The exception in this pattern is poultry, as Saltillo, is four times more efficient than Juarez. However, in this last location, production of this kind is minimal. Table 15. Livestock. Economic Value of Water. 2003 3 (US$/m ) Juárez Saltillo Bajo San Juan TOTAL 33 15 44 Beef 26 9 35 Pork 72 37 129 Mutton* 65 10 23 Goats** 40 12 36 Poultry 4 14 - Milk 85 61 156 Eggs 26 - Honey*** 26,711 3,649 - * Includes wool ** Includes goats' milk *** Includes beewax Source: Based in Banco de México, INEGI 2004a, 2004b and 2004c. Besides the case of milk, it is plausible that in terms beef, Juarez and Bajo San Juan might be important centers for a finishing process in raising cattle, instead of breeding it 50 In so far as water requirements have been estimated in terms of animal inventories, the efficiency with which production takes place, determines differential coefficientes for the same specie. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 38 from the outset. In the case of pork, it could be that Saltillo specializes in piglets, reporting a large stock. 3.3 Other Primary 3.3.1. Forestry Due to natural conditions, forestry acitivities have a scant importance in the three locations. In the case of Bajo San Juan, in 2003 the value added for the tropical species was 9.9 thousand dollars. In the case of Saltillo, output was 68.5, of which 51.3% was recolection of non-wood forest products, basically (80%) lechugilla wax. The remaining 51 49.7% was mezquite wood . No forestry products were produced in Juarez. 3.3.2. Fisheries Out of the three locations selected, only Bajo San Juan shows a minor importance in fish 52 production. Accodring to 1998 economic census data, the last available, value added 53 reached 338 thousand dollars, at 2002 prices. This output is derived from the El Azucar 54 dam. In Juarez, fish output reached a value added of 4 thousand dollars, as a by product of irrigation based in water derivation in the area. In Saltillo, no fish production took place. In this paper, water is considered as a production factor only when the object of labor is independent of its means of production. In so far as in fisheries both –object and means- are both undistinguishable, no value is attributed to water. 3.3.3. Mining Water consumption in mining was 1,613 cubic meters in Bajo San Juan. Most of it (92.1%) was used for coal mining. The remaining amount of water was used in non-metalic minerals. The generation of value added for this location was 667.5 million dollars. 51 Prosopis sp. 52 The 2004 economic census data has not been yet released. 53 In so far as local deflators for 2004 have not yet been published for the following economic activities considered in this report, output data was deflated with local price indices for 2002, after which were being converted to US dollars with the 2002 exchange rate. 54 Officially known as Marte R. Gómez. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 39 Juarez and Saltillo expose a lesser weight in this sector. Total water consumption was 267.9 and 214.4 cubic meters, respectively. In both cases, non metalic minerals predominate. The amount of value added generated was 1.679 and 1.533 million dollars in the case of Juarez, and Saltillo, respectively. In terms of efficiency with respect to the use of water, mining in Bajo San Juan has an exceptionally high coefficient of 414 thousand dollars per cubic meter. In the case of Saltillo and Juarez, the efficiency rate was 7.8 and 5.7 dollars per cubic meter, respectively. 3.4. Manufacturing Water Consumption Juarez is the largest water consumer in manufacturing, reaching 260,748 cubic meters in 1998. The largest demand comes from machinery and equipment output, representing almost two thirds (64.7%) of the total. In a distant second place comes textile and apparel, with 10.2%, slighlty above food manufacturing (8.3%). Four industries, i.e. paper, chemical, wood and non-metalic industries show a consumption level within a range of 2.9% and 5.3%. Other industries and basic metal have a minimal participation in water demand, both below one percent. Table 16. Manufacturing. Water Consumption. 1998 (cubic meters and percentage) Juarez Saltillo Bajo San Juan TOTAL 260,748 100.0% 98,805 100.0% 109,277 100.0% Food 21,602 8.3% 28,037 28.4% 10,603 9.7% Textiles & apparel 26,541 10.2% 3,620 3.7% 8,542 7.8% Wood 8,732 3.3% 6,066 6.1% 1,997 1.8% Paper 13,837 5.3% 16,105 16.3% 32,565 29.8% Chemical 11,675 4.5% 9,721 9.8% 20,285 18.6% Non-metallic minerals 7,559 2.9% 6,213 6.3% 2,263 2.1% Basic metals 123 0.0% 165 0.2% 46 0.0% Machinery & equipment 168,749 64.7% 28,294 28.6% 31,670 29.0% Other industries 1,930 0.7% 581 0.6% 1,305 1.2% Source: Banco de Mexico, INEGI and US Geological Service Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 40 The Bajo San Juan and Saltillo regions show a similar level of water consumption for 1998. The first one demanded 98,805 cubic meters, while Bajo San Juan required 109,277 cubic meters. In Bajo San Juan, the leading sectors demanded a similar level of water, i.e. paper (29.8%), as well as machinery and equipment (29%). Chemical industries required 18.6% of the total water consumed. The rest of manufacturing required less than ten percent of the water utilized, i.e. food production (9.7%), besides textiles and apparel (7.8%). The rest of manufacturing in Bajo San Juan consumed lesser quantities of water, i.e. non-metallic minerals (2.1%), wood (1.8%), and other industries (1.2%).55 Saltillo concentrates its water demand in machinery and equipment (28.6%), food industries (28.4%), and paper (16.3%). The rest of industries are below the ten thousand meters range. This is the case in the chemical sector, with 9.8% of the total consumption, besides non-metalic minerals (6.3%) and wood (6.1%). Textiles and apparel demanded 3.7% of the total amount. Basic metals and the group under other industries have a negligible consumption in Saltillo. Value Added In terms of economic importance, Saltillo produced 2,434 million dollars in 1998. Almost two thirds of its output came from machinery and equipment. In a distant second place, chemical and food industries reached a similar level (311 and 293 million dollars). Besides non-metalic minerals, representing 9.3%, the rest of manufacturing has a reduced weight in value generation. This is the case of wood and other industries (0.4% each), while basic metals show a negligible contribution to value generation in Saltillo. Juarez generated a value added of 2,079 million dollars in 1998 of manufacturing output. Production is heavily concentrated in machinery and equipment, with 68.1%. Textiles and apparel reached 16.8% of value added, followed by food manufacturing, with 7.5%. The rest of activities are below a five percent of contribution to the local value added. This is the case of non-metalic minerals (3.3%), while other industries, i.e. wood, chemical and paper individual contribution, is between one and two percent to the local value generation. 55 Basic metals show a negligible consumption in Bajo San Juan. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 41 Table 17. Manufacturing. Value Added. 1998 (US$ 000 of 2004 and percentage) Juarez Saltillo Bajo San Juan TOTAL 1,778,890 100.0% 2,083,147 100.0% 734,441 100.0% Food 133,755 7.5% 246,325 11.8% 32,155 4.4% Textiles & apparel 233,788 13.1% 66,145 3.2% 70,316 9.6% Wood 16,187 0.9% 9,490 0.5% 2,648 0.4% Paper 34,017 1.9% 37,789 1.8% 26,788 3.6% Chemical 38,187 2.1% 236,687 11.4% 116,723 15.9% Non-metalic minerals 71,258 4.0% 203,326 9.8% 20,092 2.7% Basic metals 2,155 0.1% 4,945 0.2% 1,391 0.2% Machinery & equipment 1,640,167 92.2% 1,160,235 55.7% 438,790 59.7% Other industries 18,719 1.1% 6,822 0.3% 8,381 1.1% Source: Banco de Mexico and INEGI Bajo San Juan shows a heavy concentration of value generation in machinery and equipment (68.2%), a percentage similiar to Juarez. Chemical industries participated with 10.8% of the value added, almost similar to textiles and apparel (9.5%). Besides food industries (4.5%), the rest weight less than five percent within the local value added. This is the case for four industries, i.e. paper (3.6%), non-metalic minerals (2.8%), other industries (1.4%), wood (0.4%), and basic metals (0.1%). Economic Value of Water On averge, Saltillo generates an economic value 24.6 thousand dollars per cubic meter consumed in manufacturing. This ratio is more than three times higher than Juarez and Bajo San Juan, in so far as the last two generate slightly under eight thousand dollars per cubic meter. In every single stance except for wood and paper, Saltillo is considerably ahead of the rest of locations in terms of water efficiency when it comes to value generation. When specific industries of Bajo San Juan and Juarez are compared, the results are mixed. For instance, Juarez ostensibly leads over Bajo San Juan in food, textiles and apparel, wood, as well as the group under the name of other industries. In non-metalic minerals these two locations are similar. In the case of chemical, basic metals, and Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 42 machinery & equipment, Bajo San Juan has a clear advantage over Juarez, as far as value added production in relation to water consumed is concerned. Table 18. Manufacturing. Economic Value of Water 3 (US$ of 2004/m ) Juarez Saltillo Bajo San Juan TOTAL 6,822 21,084 6,721 Food 6,192 8,786 3,033 Textiles & apparel 8,809 18,270 8,231 Wood 1,854 1,564 1,326 Paper 2,458 2,346 823 Chemical 3,271 24,347 5,754 Non-metalic minerals 9,427 32,725 8,878 Basic metals 17,520 29,911 30,080 Machinery & equipment 9,720 41,006 13,855 Other industries 9,701 11,733 6,423 Source: Banco de México, INEGI and US Geological Survey 3.5. Other Industries 3.5.1. Construction The largest consumption of water in the building industry is found in Saltillo, having required 105,431 cubic meters in 1988. Both Bajo San Juan and Juarez expose similar requirements, i.e. 80,759 and 78,617, respectively. In terms of economic importance, construction activities in Juarez generated 104,330 thousand dollars, at 2002 prices, followed by Bajo San Juan, with 89,471 thousand dollars. In the bottom position is Saltillo, where this activity yieldad a net value of 56,840 thousand dollars. The largest contribution of water to value creation is observed in Juarez (1,327 dollars per cubic meter), closely followed by Bajo San Juan (1,108 dollars/m3). In the case of Saltillo, it reached the lowest value, i.e. 539 dollars for each cubic meter consumed in this activity. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 43 3.5.2. Hydro-power Generation No hydro-power generation takes place in the three locations selected. In the case of Bajo San Juan, there are two plants in the municipality of Rio Bravo, run by turbogas and steam, respectively. Altoghether, the generation was 2,777.4 GWh in 2003, accounting for 1.6% of the Mexican energy output (INEGI, 2004).56 In the case of Juárez, 1,234.8 GWh were produced during that year, through two plants,57 representing 0.7% of the output in the country. The value added for electricity in Juarez was 14,583 thousand dollars, while in Bajo San Juan reached US$ 17,912. 3.5.3. Water Provision and Assimilative Services Due to availability of information on water supply, only Ciudad Juarez, Saltillo and 58 Reynosa themselves are being considered. Table 19 . Urban Water Supply.* 2003 3 (Mm and US $ 000 at 2004 prices and percentage) Juarez Saltillo Reynosa 3 Mm Input 155.0 100.0% 40.2 100.0% 50.5 100.0% Invoiced 115.6 74.6% n.a. - 36.9 73.1% Collected 79.5 51.3% 13.0 32.5% 28.6 56.7% US $ 0002004 Revenue 48,387 100.0% 7,928 100.0% n.a. - Expenses 56,185 116.1% 10,038 126.6% n.a. - Surplus/Deficit -7,797 -16.1% -2,110 -26.6% n.a. - Value Added 44,810.1 6,906.7 18,305.4 Price 3 (US$/m ) Market 0.61 0.61 n.a. shadow* 0.71 0.77 n.a. * Provided by the local water body, i.e. Excludes provision by privately operated well facilites. * Market price plus aliquot deficit. Source: Banco de Mexico and CNA 2004d 56 For the country as a whole, 178,510 GWh were generated. 57 Operated by turbogas and steam. 58 Ramos Arizpe (Saltillo), and the following places in Bajo San Juan: Ciudad Aleman, Ciudad Camargo, Ciudad Gustavo Diaz Ordaz, Mier and Río Bravo, are not being considered (CNA 2004d). Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 44 Out of the 155 millions of cubic meters provided in Ciudad Juarez during 2003, three quarters (74.6%) are invoiced, while only half (51.3%) is being collected. In other words, one quarter of the volume supplied is provided whithout metering, while only half of the total water supply is metered as well as collected. The average price reported, without taking into account different uses, is US$ 0.61 per cubic meter. In terms of revenue, the operating organism ran a deficit of 7.8 million dollars. In order to cover in full the reported 3 expenses should have been US$ 0.71/m , i.e. an increase of 16.1% would be in order to balance the accounts.59 60 In the case of the town of Saltillo, the availability of water supply was 40.2 million of cubic meters. Half of these supplies are collected, while no mention is given regarding the percentage of water invoiced, as the efficiency in revenue collection can not be gauged. The operating expenses of the local operating organism left a deficit of 2.1 million dollars. An average price of US$ 0.06/m3, from the present US $ 0.61/m3 would be necessary to cover in full for the operating costs. 3 Regarding Reynosa, water provision is 50.5 Mm . While 73.1% of this amount was invoiced, 32.5% was actually collected. Therefore, most of the water supplied is not being charged for, despite the fact that it was invoiced. No data on operating revenue and expenses is reported for this town, the reason for which no data on price appears in the official survey (CNA 2003) In the case of Juarez and Saltillo prices are similar per average cubic meter, regardless of the specific use.61 The gap between the provision of water and the amount charged is 31.2% in the case of Juarez and 22.5% in the case of Reynosa. In both cases, the data shows the scope to improve the financial fortunes of the water operating agencies. As far as assimilative services are concerned, in Ciudad Juarez most of the water output (90 Mm3) undergoes a primary process according to official data (CNA 2003). However, this water is poured either to the Rio Bravo or reused for agricultural irrigation. A minimal 59 This assumption is made leaving aside the scope for balancing returns by improving the collection of invoiced water. 60 That is to say, excluding Ramos Arizpe. 61 There is no information available for Reynosa. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 45 3 amount of water is subject to basic processing, i.e. 1.6 Mm , further used in an irrigation ditch. The predominance of primary assimilative services in Ciudad Juarez contrasts with the other two cases. In Saltillo, there is an estimated output of 30.1 Mm3. Only a fraction of it (11.1%), undergoes a basic treatment, while using less than half of its installed capacity. 62 Two thirds of this treated portion is poured to a golf course, as the remaining is devoted to industrial reuse.63 It is assumed that the rest of the drainage (89.9%), goes for agricultural irrigation. Table 20. Assimilative Services. Output and Processing. 2003 3 (Mm and percentage) Juarez Saltillo Reynosa 3 Mm Output 90 100.00% 24.1 100.00% 37.8 100.00% Processing Basic* Installed 1.6 1.80% 6 24.90% 23.7 62.50% Utilized 1.6 1.80% 2.7 11.10% 37.8 100.00% Primary** Installed 110.6 122.80% n.a. n.a. Utilized 88.4 98.20% n.a. n.a. * Activated sludges and stabilization tanks. ** Unspecified. Assumed to include oxidation ditches, biological filters and Imhoff tanks. Source: CNA 2003 3 Regarding Reynosa, the output of wastewater is estimated at 37.8 Mm . It is assumed that all of it undergoes a basic processing, through a facility equipped to deal with 23.7 Mm 3 yearly, while it is being used to process 37.8 Mm3, i.e. 59.5% above its capacity. Its flows are drained to the Rio Bravo. 62 Processed by means oxidation ditches. 63 Having being subject to activated sludges. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 46 Fiscal Rebates for Water Treatment Municipal water demand is modest, not only due to its requirements, but also when it is compared to irrigated crops. Further, it is stimulated due to tax rebates provisions designed to make firms extend their water treatment. The rebates are granted on a cubic meter of water, depending on the location of the municipality involved. For the Juarez and Saltillo both clasified under zone 3, the current rate is at US$ 0.87, and for San Juan, it is US$ 0.53 (zona 6). 64 These rebates also stimulate the water reuse, and therefore, a reduction in demand. 3.6. Non-Financial Private Services Water Consumption In terms on non-financial private services, water consumption reached 2,244 thousand cubic meters in the Juarez location, whose consumption is almost twice of Saltillo and Bajo San Juan. In Juarez, half of the volume of water consumed went for restaurants and hotels, with 1,123 thousand cubic meters. Trade, both comprising wholesale and retail, represented 25.1% of the total. The group under other private services, represented 20.5%. In the case of transport and communications, the water consumed was below 100 thousand cubic meters, equivalent to 4.4% of the local consumption. Table 21. Non-Financial Private Sector Services. Water Consumption. 1998 (Cubic meters and percentage) Juarez Saltillo Bajo San Juan TOTAL 2,244,875 100.0% 1,177,170 100.0% 1,214,370 100.0% Trade 563,990 25.1% 271,830 23.1% 273,300 22.5% Restaurants & hotels 1,122,925 50.0% 506,890 43.1% 711,990 58.6% Transport & communications 98,460 4.4% 69,710 5.9% 29,060 2.4% Other 459,500 20.5% 328,740 27.9% 200,020 16.5% Source: Banco de México, INEGI and US Geological Service In Bajo San Juan, the non-financial private sector services required 1,214 cubic meters. Almost two thirds (58.6%) went for restaurants and hotels. Slightly over one fourth went 64 CNA 2004b. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 47 for trade. Other private services demanded 16.5% of the water consumption in the Bajo San Juan, while the remaining 2.4% was consumed by transport and communications. In the case of Saltillo, slightly over two fifths (43.1%) was consumed by restaurants and hotels. Other private industries account for 27.9% of the water demanded. Trade required 23.1%, while the remaining 5.9% was used by transport and communications. It should be added that there is no data for tourism in the location at a municipal level. Therefore, restaurants and hotels are being taken as a proxy for this activity.65 Value Added The leading location in terms of value added with regard to non-financial private services is Juarez, where 2,128 million dollars were generated in value added during 1998. This activity is heavily concentrated in other non-financial private services (43.5%), as well as trade (43%). Restaurants and hotels as well as communications show a small weight in their contribution to the generation of value, with 8% and 5.4% respectively. Table 22. Non-Financial Private Services. Value Added. 1998 (US$ 000 of 2004 and percentage) Juarez Saltillo Bajo San Juan TOTAL 1,978,982 100.0% 826,220 100.0% 753,845 100.0% Trade 930,600 47.0% 267,383 32.4% 361,693 48.0% Restaurants & hotels 179,775 9.1% 39,832 4.8% 51,135 6.8% Transport & communications 127,187 6.4% 48,385 5.9% 43,377 5.8% Other 741,420 37.5% 470,620 57.0% 297,640 39.5% Source: Banco de México and INEGI As far as Saltillo is concerned, most of the value added (65.4%) comes from other private non-financial services, underlining its importance as a leading administrative and educational center. The second activity in terms of contribution is trade, with 25.8% of the total value added. Transport and communications as well as restaurants and hotels have a lesser weight in terms of value generation, with 5.1% and 3.7% respectively. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 48 In the case of Bajo San Juan, the weight of trade and other non-financial private services show similarities, each with over two fifths of the total value generated. Restaurants and hotels, as well as transport and communications are within the same range, i.e., between five and six percent of the total net product. Economic Value of Water Juarez generated 948 dollars in non-financial private services, being the highest ratio when compared to the rest of locations. Saltillo reached 762 dollars per cubic meter, still ahead of Bajo San Juan (680 dollars per cubic meter). In every single economic activity, Juarez shows an advantage over the other two locations, with the exception of transport and communications, as well as the group under other services, where Bajo San Juan is at a similar level as the former. In terms of efficiency in the use of water for value generation, in general Saltillo shows an ostensible lag, vis a vis the border locations. Table 23. Non-Financial Private Services. Economic Value of Water 3 (US$ of 2004/m ) Juarez Saltillo Bajo San Juan TOTAL 882 702 621 Trade 1,650 984 1,323 Restaurants & hotels 160 79 72 Transport & communications 1,292 694 1,493 Other 1,614 1,432 1,488 Source: Banco de México and INEGI 3.7. Additional Services 3.7.1. Navigation In the three locations selected, no navigation takes place. Besides, due to its geological formation the Rio Bravo and affluents lack depth and water spate, a system of dams have been built alongside the river. 65 In this respect, both Juarez and Bajo San Juan have a high demand in terms of short term visits (weekend) by foreign tourists when compared to Saltillo, as shown in terms of water demands, due Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 49 3.7.2. Residential Consumption In Juarez, estimates of water demand are in the region of 345 litres a day per inhabitant. Reynosa has similar water consumption (324 litres) per person, reaching 48.9 Mm 3. In the case of Saltillo, residential demand is 176 litres per day, equivalent to 37.7 million of cubic meters per year. Table 24. Residential Demand. Per Capita and Population. 2003 3 (Mm and population) Juarez Saltillo Reynosa 3 Total (Mm ) 152.3 37.7 48.9 Per Capita* 344 176 324 Population** Total 1,274.2 607.9 435.2 Suplied w/water 1,210.5 583.6 413.4 * liters/day **Inhabitants Source: CNA, 2004d 3.7.3. Recreational At presa el Azucar, in Bajo San Juan, recreation associated with water is not a relevant activity.66 In the other two locations, Juarez, beneath the Rio Bravo, recreation is negligible. In the case of Saltillo, there is no recreation derived from surface water. 4. Economic Aggregation Water Consumption When considering the array of activities conducted in the three representative locations, irrigated crops and residential consumption are the overbearing water consumers in the three locations. Bajo San Juan is the largest user among the three locations with 437.7 million of cubic meters, followed by Juarez with 286 million cubic meters. In the case of Saltillo, consumption reached 160.1 million of cubic meters. The weight of water to the location of the two former across the Mexican-U.S. border. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 50 consumption irrigated crops can go from 88.5% in Bajo San Juan, to 62.1% and 45.8% in the case of Saltillo and Juarez, respectively. In relative terms, Juarez demands 53.2% for residential consumption, being 35.5% for Saltillo and 11.2% in Bajo San Juan. Considering the demand for water among the rest of economic sectors, the activities which demand more than one percent of the total amount of water are private non- financial services in Juarez (3.7%), and 3.5% for livestock in Saltillo. In the case of Bajo San Juan, the largest consumer of water, besides irrigated crop production is private non- financial services, with one percent participation. 3 Table 25. Water Consumption by Sector. 1998* (m and percentage) Juarez Saltillo Bajo San Juan TOTAL 286,018,210 100.00% 106,080,934 100.00% 437,680,700 100.00% Irrigated Crops 131,018,770 45.81% 65,904,070 62.13% 387,223,100 88.47% Rainfed Crops - - - - - - Livestock 134,768 0.00% 1,114,407 1.05% 161,584 0.04% Forestry - - - - - - Fisheries - - - - - - Mining 214 0.00% 268 0.00% 1,613 0.00% Manufacturing 260,748 0.09% 98,805 0.09% 109,277 0.02% Electricity - - - - - - Water Utilities - - - - - - Building 78,617 0.03% 105,431 0.10% 80,759 0.02% Private Services** 2,244,875 0.78% 1,177,170 1.11% 1,214,370 0.28% Residential 152,280,218 53.24% 37,680,784 35.52% 48,889,998 11.17% * 2003 for crops, livestock, forestry, electricity and water utilities. ** Non-financial. Source: CNA 2004b, INEGI 2003, 2004a, 2004b and 2004c, Tate & Sharf 1995 and US Geological Service Value Added Based on the economic sectors for which data is being reported in the present report, Juarez generated 4,387.6 million dollars, followed by Saltillo and Bajo San Juan with 3,431.5 and 2,523.3 million dollars, respectively. 66 It contrasts with nearby Falcon and La Amistad dams, located upriver. These last two are embedded along the Río Bravo itself, where recreation is a foremost activity (TWDB, 1990). Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 51 In terms manufacturing output, the indisputable leader is Saltillo, with 2,434.8 million dollars, in spite of occupying a second place in terms of total value added generated. In this location, this activity represented 71% of the total value generated, significantly higher than Juarez (47.4%) and Bajo San Juan (34%). After manufacturing, private non-financial services systematically stands in a second 67 place, except in the case of Juarez. Manufacturing reached 48.5% in Juarez itself, followed by Bajo San Juan (32.7%) and Saltillo (26.1%). The construction sector is within a range from 1.7% in Saltillo to 3.6% in the case of Bajo San Juan. Mining is important only in Bajo San Juan. Table 26. Value Added by Sector. 1998* (US$ 000 at 2004 prices and percentage) Bajo San Juarez Saltillo Juan TOTAL 4,387,645 100.00% 3,431,461 100.00% 2,523,327 100.00% Irrigated Crops 9,976 0.23% 14,087 0.41% 24,317 0.96% Rainfed Crops - - 3,273 0.10% 14,358 0.57% Livestock 4,418 0.10% 17,101 0.50% 7,033 0.28% Forestry - - 69 0.00% 10 0.00% Fisheries 4 0.00% - - 338 0.01% Mining 1,679 0.04% 1,533 0.04% 667,523 26.45% Manufacturing 2,079,182 47.39% 2,434,800 70.96% 858,421 34.02% Electricity 14,583 0.01% - - 17,912 0.01% Water Utilities 44,810 0.02% 6,907 0.20% 18,305 0.73% Building 104,330 2.38% 56,840 1.66% 89,471 3.55% Private Services** 2,128,664 48.51% 896,851 26.14% 825,640 32.72% Residential - - - - - - * 2003 for crops, livestock, forestry, electricity and water utilities. ** Non-financial. Source: CNA 2004a, Banco de México, INEGI 2003, 2004 and 2005, Tate & Sharf 1995, US Geological Service In spite of consuming the majority of water in the three locations, irrigated crops at the most represent 1% of the total value added in Bajo San Juan. In the case of Saltillo and Juarez, they reached 0.4% and 0.2% of the value added, respectively. 67 In this location, both sectors are similar in terms of value added. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 52 Except for Saltillo, livestock in the other two locations are below irrigated crop production. Altogether, primary activities show a considerable lack of development in the three locations, contrasting with the weight of secondary and service activities. Economic Value of Water On an aggregate basis, Saltillo is the most efficient in generating value in relation to the amount of water consumed. It averaged 46.7 dollars for cubic meter. Juarez has an efficiency of less than a half of Saltillo, with 19.1 US$/m3. Bajo San Juan has a value added roughly a fifth (US$ 9.7/m3) in relation to Saltillo. 3 Table 27. Economic Value of Water by Sector. 1998* (Value Added in US$/m and proportion) Juarez Saltillo Bajo S Juan TOTAL 19.07 1.000 46.65 1.000 9.68 1.000 Irrigated Crops 0.13 0.007 0.42 0.009 0.12 0.012 Rainfed Crops - - - - - - Livestock 32.78 1.719 15.35 0.329 43.52 4.494 Forestry - - - - - - Fisheries - - - - - - Mining 7,831.88 410.594 5,723.59 122.681 413,950.12 42,747.999 Manufacturing 7,973.93 418.041 24,642.59 528.198 7,855.49 811.224 Electricity - - - - - - Water Utilities - - - - - - Building 1,327.07 69.573 539.12 11.556 1,107.88 114.409 Private Services** 948.00 49.700 762.00 16.333 680.00 70.223 Residential - - - - - - * 2003 for crops, livestock, forestry, electricity and water utilities. ** Non-financial. Source: Banco de México, INEGI 2004 and 2005, SAGARPA 2003, Tate & Sharf 1995, US Geological Service In terms of economic activity, mining in the Bajo San Juan reached the highest value for 68 cubic meter consumed, with 413,950 dollars per cubic meter. Mining in the other two locations, besides being a marginal activity, has a ratio of between 5.7 and 7.8 thousand dollars per cubic meter Manufacturing is close to the 8 thousand dollars per cubic meter both in Juarez and Bajo San Juan, approximately one third of the level observed in Saltillo. Construction yielded Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 53 3 3 between 539 US$/m in the case of Saltillo, and 1,327 US$/m Juarez. Private non- financial services are below the one thousand dollar mark in terms of water consumed. In the case of livestock, Saltillo, with the lowest ratio reached 15 dollars per cubic meter. Juarez turned out US$ 33/m3, while Bajo San Juan achieved US$ 44/m3. Irrigated crop production has a reduced coefficient, with 15 US cents per cubic meter in Juarez, US 20 cents in Bajo San Juan and US 43 cents in Saltillo. Irrigation techniques as well as the value of current crops, need to be reconsidered in terms of crop mix and production techniques. At present, agriculture constitutes a fetter for the development of economic activities with a higher value added. The reduced value added obtained by the use of water in irrigated crops at present, implies a very high opportunity cost in terms of alternative output which is already under production, whether it is livestock, or it is high value added in manufacturing and services. Reestructuring of irrigated crop production to turn it into an efficient activity constitues a means in abatting the considerable gap separating this activity from the rest of production. 68 This is basically due to coal mining, demanding 92.1% of the water in this sector. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 54 5. Policy Issues and Discussion of Findings Irrigated crop production exposes an heterogeneous perfomance in the three locations selected, i.e. Juarez, Saltillo and Bajo San Juan, within the Rio Bravo Basin. There is an inverse relation between the total area harvested and the value added per hectare, and to a lesser degree, in relation to the net productivity of water, measured as a ratio between value added and water demands after ground returns have been estimated. Saltillo, with a 3 scant 6.1 thousand hectares, yielded US$ 2,321/hectare and US$ 0.42/m in 2003. Bajo San Juan, at the other end, with 66.8 thousand hectares generated US$ 364/Ha and US$ 3 0.12/m . In between is Juarez, with 10.5 thousand hectares, yielding US$ 949/Ha and US$ 0.13 per cubic meter. The improvement of high value crops and a higher value both per unit of land as well as per unit of water is plausible, while there is ample room for the introduction of high value crops, as well as an improvement in irrigation techniques. Systematically, there is a considerable degree of crop concentration in every location both for cyclical and perennials, in terms of acreage as well as in value added. Therefore, policies to improve the quality of crop mix would benefit ex-ante, with scale economies. Crop production in the most efficient location, i.e. Saltillo, is wholly dependent on ground water. Juarez, the middle of range region in terms of efficiency, derives 18.9% of its water sources from ground water. The rest is derived from the Rio Bravo itself. Bajo San Juan irrigated crops are fully dependent from surface waters. The last two locations are been subject to a considerable variation in terms of yearly water supplies for crops, exposing a reduction of 2.5% and 2.7% on a yearly basis, as from 1986. However, Juarez has reduced the area under cultivation at a rate of 3%. In contrast, Bajo San Juan has incrased its surface for crops at a yearly rate of 2.7%. As a result, the volume of water for irrigation measured in terms of meter-hectare, in Bajo San Juan has diminished at a rate of 3% during the same period, while in Juarez it has increased at 1.9%. The performance of these two regions basically dependent on surface water in a scarcity scenario shows the virtuous behaviour of Juarez, while Bajo San Juan exposes a low degree of adaptation to the downward trend of water supplies in the region. Besides, water supply changes in Bajo San Juan result in a reduced impact in area harvested, while Juarez exposes a high degree adjustment, restraining its surface while being able to increase the amount of water per unit of surface. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 55 When comparing the economic value water among individual crops with outcomes obtained elsewhere, the three locations are within medium to upper limits of what is rated as a well runned irrigation scheme, i.e. US $ 0.05 per cubic meter. In terms of water volumes, there are two basic sectors determining its demand in the three locations under study. These sectors are irrigated crops besides residential consumption. The rest of sectors require less than one percent, with the exception of livestock in Saltillo (1.1%), a foremost poultry production area. In this sense, demographic growth is competing with agriculture for water resources. In the case of Juarez, with a total of 286 Mm3, 45.8% goes for irrigated crops and 53.2% for residencial consumption. In Saltillo, 3 with 106 Mm , crops require 62.1% of this amount, while households demand 35.5%. In Bajo San Juan, by far the largest consumer of water (437.7 Mm3), 88.5% was consumed by crops and 11.2% by the population in their dwellings. In consequence, with the exception of Saltillo, crop production is the largest water consumer. Considering that value added by agriculture reaches the highest participation in value added with 1% in Bajo San Juan, while requiring 88.5% of total water supplies, exposes the need to improve techniques and production methods in crop production. It would not only make better use of water economically speaking, but would also help to generate more value and wealth. The assimetry is even higher in Juarez, where irrigated crops contribute with 0.23% of the local value added, while requiring 45.8% of the volume of water used. In Saltillo, the proportions are 62.1% of water supplies and a generation of 0.4%. The increase in efficiency in crop production would help to unleash volumes of water to guarantee the demographic development, besides providing assurances to prospective investors about water availabilites. Private and Social Values of Water Private values express what economic agents actually pay in the market for the water used. Social values are structured taking into account four elements: First. The value of water as a ratio between value added per unit of water, as specified previously in this paper. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 56 Second. Water for crop production costs as much as the electricity to be paid per cubic 69 meter, as water itself is not charged for. In the case of surface water, the price is negligible. Third. The shadow price of municipal water, i.e. including in the social value the deficit generated by the local water board in terms of current expenses.70 Fourth. The additional cost of assimilative services for municipal supplies to fulfill a primary treatment, in so far as residual water is subject only to an elementary process. In the case of Saltillo, there is an additional social value, as officially water exploitation is 27% above its replenishment capacity. Therefore, each sector is charged an additional cost on the basis of its respective value added per unit of water, in proportion to the water it contributes to overexploit. 3 Table 28. Private and Social Value of Water by Sector. 1998* (US$ /m ) Juarez Saltillo Bajo San Juan Private Social Private Social* Private Social TOTAL 0.33 15.42 0.25 35.32 0.07 3.90 Irrigated Crops 0.005 0.130 0.027 0.515 0.000 0.120 Rainfed Crops - - - - - - Livestock 0.61 33.50 0.61 19.59 0.61 44.24 Forestry - - - - - - Fisheries - - - - - - Mining 0.61 7,832.60 0.61 7,014.21 0.61 413,950.84 Manufacturing 0.61 7,974.65 0.61 30,196.68 0.61 7,856.21 Electricity - - - - - - Water Utilities - - - - - - Building 0.61 1,327.79 0.61 661.39 0.61 1,108.60 Private Services** 0.61 948.72 0.61 934.50 0.61 680.72 Residential 0.61 0.72 0.61 0.78 0.61 0.72 * 2003 for crops, livestock, forestry, electricity and water utilities. ** Non-financial. Source: Banco de México, INEGI 2004 and 2005, SAGARPA 2003, Tate & Sharf 1995 and US Geological Service 69 An average electromechanical efficiency of one kilowatt hour per cubic meter is assumed. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 57 Systematically, social values are well above the private ones. Were this difference to represent the hidden costs for economic agents, manufacturing would be the most fragile sector, in so far as water scarcity would be affecting it most, precisely on the basis of its capacity to generte wealth due to its social value, no to mention the importance it conveys in the three locations.71 Building and private services follow in terms of social costs. The first represents the most dynamic sector in the country, while the last one is associated with the urban and dempographic importance of these locations. Livestock represents a modest figure. Irrigated crops, in spite of the considerable difference between social and private values, express the low contribution of water to the generation of wealth. In consequence, the fraility of water resources would endanger manufacturing activities in the first place, which happen to be the economc power house in the three locations. Crop production becomes the least important in terms of social value. Equity, Productivity and Efficiency In terms of availability of water resources and the need to make the urban development sustainable, two alternatives are faced by irrigated crops at a local level. The first would be to substantially raise the crop mix, besides improving water saving techniques. Alternatively, for producers who can not undertake a technological change, a life annuity could be instrumented in exchange for their water rights. Alternatively, the water rights are to be exchanged for a lump sum. In both cases, a government agency operating as a trust could become a broker, while guaranteeing water rights for urban and demographic expansion, and in the case of Saltillo, to also reduce the overexploitation of its present water source. Legal difficulties as well as an institutional framework are to be established, in order to guarantee the expansion or the basin. Besides, the public agency or trust could become an agent for water transactions, making transparent a procedure for which at present there is no reference offered to the public.72 70 Based on available information, a single price is published by CNA (2004d) for each location regarding municipal water supply. 71 Mining is not taken into consideration here, as it faces difficulties to relocate, due to its extractive nature, as well as the sunk costs in terms of capital invested. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 58 Productivity of value exposes the ranking of the various activities, and the need to make sure that manufacturing, private services as well as building, can find an adequate ground for expansion in terms of natural resources, including water, not to hinder its growth. In terms of efficiency, there is the need to increase the municipal water tariffs to terminate with the financial deficit with which the water operators work. Besides, the level of unmetered water, alongside recurrent underinvoicing, water losses in distribution pipes as well as the political environment in which water tariffs evolve, would imply the possibility of an improvement for the local water supply. There is also the need for further transparecy and accountability from these enterprise, regardless of whether they are public agencies of private firms providing a key public service. 72 Water rights transfers among private agents in terms of value, is known only by the incumbent parties, or remains a matter of hearsay. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 59 Bibliography Banco de México �ndices de Precios y Tipo de Cambio www.banxico.org.mx CNA 2003 Inventario Nacional de Plantas Municipales de Potabilización y de Tratamiento de Aguas Residuales en Operación Subdirección de: Infraestructura Hidráulica Urbana y Subdirección General Técnica. México: Comisión Nacional del Agua. Diciembre CNA 2004a Estadísticas Agrícolas de los Distritos de Riego. Informe Estadístico. 2002-2003. México: Comisión Nacional del Agua agosto CNA 2004b Ley Federal de Derechos (Disposiciones aplicables en materia de Aguas Nacionales) México: Comisión Nacional del Agua CNA 2004c Resultados del Plan de Riegos. Año Agrícola 2002-2003. México: Comisión Nacional del Agua CNA 2004d Situación del Subsector Agua Potable, Alcantarillado y Saneamiento a Diciembre 2003 Subdirección de Infraestructura Hidráulica Urbana México: Comisión Nacional del Agua CNA 2004e Statistics on Water in Mexico Mexico: Comisión Nacional del Agua CNA 2004f Superficies Regadas y Volúmenes de Agua Distribuidos en los Distritos de Riego México: Comisión Nacional del Agua FIRA Costos de Producción www.fira.gob.mx Fideicomisos Instituidos en Relación con la Agricultura Goicoechea, Julio 2004 Sustentabilidad del Distrito 037 Altar-Pitiquito-Caborca. Sonora, México: Desempeño y Alternativas Económicas (Coordinated by M. Assad and H. Garduño). mimeo. 2004 (A background paper for Programa de Adecuación de Derechos de Uso del Agua (PADUA), sponsored by the World Bank) Goicoechea, Julio 2005 Evaluación Económica y Social de Alternativas de Distribución de Aguas Superficiales en la Cuenca Lerma-Chapala México: Comisión Nacional del Agua y Universidad Autónoma Metropolitana INEGI Censos Económicos 1999 www. inegi.gob.mx INEGI 2003 Censo de Población 2000 www.inegi.gob.mx INEGI 2004a Anuario Estadístico de Chihuahua (edición 2003) Aguscalientes: Instituto Nacional de Estadística, Geografía e Informática INEGI 2004b Anuario Estadístico de Coahuila (edición 2003) Aguscalientes: Instituto Nacional de Estadística, Geografía e Informática Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 60 INEGI 2004c Anuario Estadístico de Tamaulipas (edición 2003) Aguscalientes: Instituto Nacional de Estadística, Geografía e Informática INEGI 2004d El Sector Energético en México (edición 2003) Aguascalientes: Instituto Nacional de Estadística, Geografía e Informática Lindgren, Anna 1999 The Value of Water. A Study of the Stampriet Aquifer in Namibia Unpublished Master´s Thesis. Department of Economics. UMEÅ University Mac Gregor, James, Simon Masirembu, Rick Williams and Christopher Munikasu 2000 Estimating the Economic Value of Water in Namibia Paper presented at the 1st WARFSA/Waternet Symposium: Sustainable Use of Water Resources, Maputo: 1-2 November OECD 1997 Review of Agricultural Policies in Mexico National Policies and Agricultural Trade. Paris: Organisation for Economic Co-operation and Development Rogers, Peter, Ramesh Bhatia and Annette Huber, 1998 Water as a Social and Economic Good: How to Put the Principle into Practice Technical Advisory committee (TAC) No. 2 Stockholm: Global Water Partnership/Swedish International Development Cooperation Agency SAGARPA 2003 Anuario Estadístico de Producción Agrícola. Sistema de Información y Estadística Agroalimentaria y Pesquera México: Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación Tate, D.M. and D.N. Scharf, 1995 Water Use in Canadian Industry, 1991 (Social Science Series No. 31) Water and Habitat Conservation Branch. Ottawa: Environmental Canada Texas Water Development Board (TWDB) 1990 Water for Texas Today and Tomorrow Austin: Texas Water Development Board U.S. Geological Survey (http://water.usgs.gov/pubs/chapter11/chapter11_appendix1.html) Wu, Xun. Dale Whittington and Claudia Sadoff (Undated manuscript) Water Resources Management in the Nile Basin: The Economic Value of Cooperation Mimeo Young, Robert A. 2005 Determining the Economic Value of Water. Concepts and Methods Washington: Resources for the Future Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 61 Appendix 1. Regression Estimates. Irrigated Crops Trend estimates have been calculared for selected variables, i.e. water volume used in crop producion (million of cubic meters), the area under cultivation (hectares), and the 73 density of water used (hectare-meter), which is a ratio of the previous two. Due to data availability, the estimates were done for Bajo San Juan and Juarez, for the 1986-2003 period.74 Equations 4 and 8 express the capacity of a crop production to adjust in face of water availability. This indicador is particularly useful in surface agriculture when it is subject to considerable variance and stress.75 Bajo San Juan log water volume = 13.089 c - 0.057 trend (1) (62.33)*** (-2.71)** _ R2 = 0.31 D.W. = 1.18 n = 18 log area = 11.248 c - 0.027 trend (2) (113.72)*** (-2.73)** _ 2 R = 0.32 D.W. = 1.46 n = 18 log hectare-m = -0.462 c - 0.030 trend (3) (-3.46)*** (-2.24)** _ R2 = 0.24 D.W. = 1.53 n = 18 Δ log area = 0.24 Δ log water -1.78 MA (1) (4) (4.22)*** (-3.29)*** _ 2 R = 0.88 D.W. = 2.49 n = 18 73 That is to say, equations 1 to 3 and 5 to 7. In these equations, c stands for the intercept with the y axis, while the slope is indicated by the coefficient of the specific independent variable. When this last one is the trend itself, a value of -0.057 indicates a decrease of 5.7% yearly, for the time period 1988-2003, on average. 74 Due to the time period available, it was not possible to model these trends through stationary data. Meanwhile, the presence of spurious coefficients cannot be discarded. 75 All variables in these two univariate equations are integrated of first order (denoted by Δ). In the case of equation four, it was necessary to introduce a moving average variable [MA(1)], in order to ammend autocorrelation of first order. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 62 Juarez log water volume = 12.343 c - 0.025 trend (5) (62.33)*** (-2.71)** _ R2 = 0.24 D.W. = 1.49 n = 18 log area = 9.944 c - 0.044 trend (6) (98.30)*** (-4.38)** _ R2 = 0.54 D.W. = 1.59 n = 18 log hectare-m = 0.097 c + 0.019 trend (7) (1.91)* (3.83)** _ R2 = 0.45 D.W. = 1.09 n = 18 Δ log area = 0.86 Δ log water (8) (14.07)*** _ R2 = 0.93 D.W. = 2.33 n = 18 Note. Significance: ( )***: 99%; ( )**: 95%; ( )*: 90%, while t values appear in parenthesis. Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo 63 3 Appendix 2. Aquifer Balance. 2004 (Mm ) Bajo San Juan Juarez* Saltillo 1. Use of water granted 45.7 292.2 45.4 2.Committed discharge 2.0 8.0 5.4 3. Extraction 45.7 310.0 37.3 4. Recharge 45.1 318.2 29.5 5. Explotaition Index 1.01 0.97 1.27 * Includes 120 Mm3 granted to the local water board. Source: CNA (Direct communication) Economic Value of Water in the Rio Bravo Basin (Mexico): The Case of Bajo San Juan, Juarez and Saltillo