African Water Development Report 2006 - United Nations Economic ...

tain many types of value and benefits from water.These can generally be classified into two categories,namely:(a) Use values:(ii) Commodity benefits (for drinking, cooking,sanitation, and leading to productiveactivities on farms and industries); and(b) Waste assimilation benefits (to carry awaywastes, dilute wastes, and aid in processingwaste into less undesirable forms).(b) Use values:(i) Public and private aesthetic and recreationalbenefits;(ii) Species and ecosystem preservation; and(iii) Social and cultural values. (ibid).The non-use value is difficult to measure, but canbe subdivided into existence value (value fromknowledge of continued existence) and bequestvalue (the willingness to pay in order to ensurethat future generations will be able to use the resource).Valuation Techniques for DifferentWater UsesThe two main approaches to the valuation ofnatural resources are direct valuation and indirectvaluation. Direct valuation attempts to usesurvey and experimental techniques to obtain informationdirectly. The techniques include contingentvaluation and contingent ranking. In theindirect technique approach, values are based onactual, observed market-based information. Differentindirect methods are used to measure thevalue of water in various sectors, such as the:(a) Value of water in the municipal sector. Inthis sector, the demand for water can be domestic,public or other. Given the heterogeneityof demand for water in this sector, itsmarginal value depends upon how much ofit is already available, and the quantity canrange from negligible to infinite, dependingon the extremes of abundance and scarcity.In urban utilities in developing countries,the price of water only reflects the averagefinancial costs such as capital, operation andmaintenance costs, while for urban utilitiesin developed countries the price of waterreflects only the average financial costswith capital costs computed as replacementcosts;(b) Value of irrigated water. To measure thevalue of irrigated water, crop-water productionfunction analyses and farm crop budgetanalyses are used. In the former, applicationof all other inputs in agriculture areassumed to be constant, and the marginalvalue of each volume of water used is themarginal price times the price of the crop.This method is based on the assumptionthat the application of different amounts ofwater incurs the same labour, fertilizer, andother input costs. In the farm crop budgetanalyses, the total crop revenue less thenon-water input costs is considered to bethe maximum amount the farmer could payfor water and still cover costs of production.It thus reflects the on-site value of water.(c) Value of water used in industry. Giventhat water costs are a small fraction of thetotal costs of industries in general (the costof water is very low when compared to otherinputs like raw materials, technology),water use is of secondary importance toindustry for profit maximization. The primarydecisions on technology and outputdetermine the amount of water demand perunit of output in the specific industrial productionprocess. Therefore, the importanceof water lies mainly in the role of water reusein industrial processes. Thus the internalcost of water re-circulation is often usedto estimate the value of water in industry.Another less direct measure is by using thealternate cost framework of providing thesame water quality through pre-treatmentof effluent; this cost is assumed to be thevalue of water for that industry;(d) Recreational and aesthetic value of water.To estimate the recreational and aestheticVALUING WATER281