Distributional impacts of water markets on small farmers: Is there a safety net

The United Nations 2006 human development report states that water markets have not been shown to protect the interests of the poor, while other research has found that water markets have benefited smaller, resource-constrained farmers. This article provides insight into this international development debate by analyzing the impact of water markets on small farmers in the Limarí River Basin of Chile. The analysis is based on data collected from an extensive in-person survey of 316 farmers in the basin. Results show that water markets in the basin have been successful in moving water and water rights from low- to high-valued uses and that resource-constrained farmers use temporary water sales as a safety net. The long-term beneficial effects of water market trades for the most resource-constrained farmers, however, remain unclear. These results are relevant to both Chile and a host of developing countries where agriculture is a predominant activity and water resources are scarce. They are also applicable to the western United States, where water market trades often originate in the agricultural sector.