Although selling water from private wells is a long-standing practice in South Asia, these informal arrangements are only now being examined in detail. As water becomes scarce or degraded, more information is needed to help Pakistan and other South Asian countries make policy decisions that will improve equity of access to groundwater resources. Groundwater Markets in Pakistan: Participation and Productivity, Research Report 105, by Ruth Meinzen-Dick, looks at how water markets operate, who participates, the nature of the transactions, and the effects of the markets on agricultural productivity and incomes, in order to determine what helps or hinders the emergence of viable water markets. The report reviews the current literature on groundwater markets, the empirical evidence on performance, and the available policy options. The study examines patterns of private tubewell and groundwater market development using district-level data for the country as a whole, then looks in detail at the performance of groundwater markets using farm household data collected in an IFPRI survey conducted in 1990-92.

Tubewells are found throughout Pakistan, but they are most common in Punjab and North-West Frontier Province. The report finds that large farmers--those with more than 25 acres--are most likely to own tubewells, and tenants, small farmers (with fewer than 10 acres), or households with younger heads are more likely to buy groundwater (Figure 2). Where there is plenty of good quality groundwater, more farmers own tubewells, but many areas of Pakistan have falling water tables or poor quality groundwater, and in those areas water markets are especially important. Groundwater sales are more common in areas with canal irrigation, largely because the canals help recharge groundwater supplies, making more water available. Tubewell owners who have medium-sized landholdings--10 to 25 acres--are more likely to sell water than those with large landholdings, who can use more of the water for their own land.

In addition to physical factors, social relationships between buyer and seller contribute to the development of water markets. Water purchases are not anonymous transactions. Local buyers and sellers interact in many ways, so it is not only the price of water that determines the allocation of this resource. Informal contracts for ground-water include sharecropping for water, having the buyer bring the fuel, or a charge per hour of irrigation. The study does not find that sellers make much profit from the sale of water, and price per hour does not change over a season as water becomes more scarce. Tubewell owners are primarily concerned with delivering adequate water to their own fields: if there is water left over, they may sell it to their neighbors. Consequently, purchased water is an unreliable source: well owners often refuse to sell water just when farmers need it most.

In a survey of water buyers, those who considered their sources reliable were likely to have higher status in the community than those who reported unreliable sources. It may be that tubewell owners are reluctant to refuse to sell water to those with higher status, whereas they may not hesitate to refuse those with lower status. Encouraging medium-sized farmers to purchase tubewells may help to resolve this problem because they are more likely to have surplus water (beyond their own requirements), and the status gaps may be smaller. Also, those who purchased water from tubewells with diesel pumps found them more reliable than tubewells powered by electricity. Improving the reliability of electric power or switching to diesel pumps would improve reliability for both water buyers and well owners.

Purchasing groundwater from other farmers gives farmers more control over their irrigation than relying on public canal irrigation systems alone, but less control over how much water to apply and when than if they owned a tubewell.

The differences in water control are reflected in agricultural productivity. Groundwater irrigation from farmers own tubewells had a greater impact on wheat yields and on total farm returns than did purchased groundwater (Figure 3). Because many high-value crops are sensitive to timing and the amount of water applied, reliability of water supply is crucial. Without this, farmers are unlikely to risk changes in cropping patterns or investments in crop inputs, with the result that productivity does not reach its full potential. One alternative is for several farmers to go together to purchase a tubewell and to share the groundwater, which allows even smaller farmers to gain access to the resource. This report indicates that sharing ownership is preferable to buying water because it offers a greater degree of control.

• Policies should be targeted to medium-sized farms because these farmers are more likely to be able to buy a tubewell than farmers with small holdings, and they are more interested in selling water than large farmers, who are likely to use all of the water from a tubewell for their own land.

• Policies should include credit access to help less affluent farmers finance wells and pumpsets. Credit for tubewell purchase is already available for small and medium-sized farms in Pakistan, but uneducated farmers often do not take advantage of institutional credit with lower interest rates. Procedures and application forms should be simplified, and barriers to small farmers receiving credit should be removed.

• Policies that encourage farmers to acquire private tubewells must be approached with caution, however. The number of tubewells that can be operated sustainably in a given area is limited by the available recharge for groundwater resources. In areas experiencing problems with water quality or quantity, tubewell density must be limited to avoid environmental degradation.

• Farmers should be encouraged to join together to purchase, install, and operate tubewells as shared enterprises. Joint ownership enables small farmers to acquire rights to water and increases the chance of tapping into good quality water. Group wells are also more efficient economically. Shared ownership is likely to become more important for equitable allocation as supplies become more scarce. In addition to policies to provide credit and technical assistance to groups, information on arrangements for sharing water and expenses and for conflict management should be provided.

• Existing regulations should be modified to permit farmers to convey groundwater through watercourses used for surface irrigation, as long as they do not interfere with canal deliveries or cause deterioration of the infrastructure.

• Technical assistance programs for farmers who wish to invest in a tubewell are valuable in helping farmers to locate pockets of fresh water, avoiding saline areas. Information on water tables and sustainable withdrawals should be made available at the local level, to assist farmers and government officials in making appropriate decisions on resource use.