Clean freshwater is essential to sustain life, enable development, and support a healthy environment. Due to population and economic growth, water demand for household, industrial, and agricultural uses is increasing, while watersheds and irrigated land are deteriorating and ground and surface water pollution is increasing. In much of the developing world, growing urban and industrial water demand will require transfers of water from agricultural uses, threatening food production and rural livelihoods.

Historically, increasing water demand has been met by developing new sources of water. However, the economic and environmental costs of developing new sources make this approach unsustainable for fully meeting future growth in the long run. Instead, policymakers need to work toward making existing irrigation and water supply systems more efficient, equitable, and environmentally benign.

IFPRI's research on water resource allocation and policies aims to understand how different ways of managing water affect food production, rural livelihoods, poverty, and the environment and to suggest fair and efficient mechanisms of allocating and using water. Questions concerning the feasibility, costs, and likely effects of alternative water allocation policies in developing countries are also addressed.

The water resources research program focuses on three main areas:

• River basin level analysis assesses the impact of alternative water allocation mechanisms on agricultural productivity, consumer welfare and equity, and resource degradation is examined using a holistic framework for analysis. The modeling framework combines a hydrological water simulation model, which describes the water supply situation along the river basin, with an economic optimization model which endogenously determines the demand for water in its various uses, including irrigation, domestic, industrial, hydropower, and environmental uses based on economic benefit functions.
• Research on institutional arrangements for water allocation focuses on the nature and evolution of institutional arrangements for water allocation, particularly organizational structures and water rights, including participatory and community management and the consequences for food production, equity, the environment and rural livelihoods. Alternative water institutions and policies that are considered in the analysis include: (1) enabling conditions, which are the fundamental institutional and legal environment in which water is supplied and used. Policies here include reform of water rights, privatization of utilities, and laws pertaining to water user associations; (2) market-based incentives, which directly influence the behavior of water users by providing incentives to conserve water including pricing reform and reduction in subsidies on urban water consumption, water markets, effluent or pollution charges, and other targeted taxes or subsidies; (3) non-market instruments, including restrictions, quotas, licenses, and pollution control; and (4) direct interventions, including conservation programs, leak detection and repair programs, and investments in improved infrastructure.
• Water quality research began in 2005 to provide policymakers and communities with information on water quality problems and tools to address these problems, while maintaining food security, improving water productivity, and reducing rural poverty.

In addition to these 3 areas, IFPRI also assesses the impacts of water availability and demand on food supply at the global level through the research program on Global Change and Global Warming.

IFPRI also leads a related program on The Global and National Food and Water System, one of 5 themes of the CGIAR Challenge Program on Water and Food.