Japanese Water Management Systems from an Economic Perspective: The Agricultural Sector - Water and Agriculture: Sustainability, Markets and Policies - page 51

First, the O&M costs would not necessarily be characterised as marginal costs,
because most of them, once actually operated, are required regardless of the volume of
the water to be delivered in the case of the gravity irrigation system, which is dominant in
paddy irrigation. In the normal precipitation situation, increasing a marginal unit of water
supply is nearly costless, and its marginal value in the agricultural production is also very
small. Marginal cost pricing, therefore, implies very low levels of charges, and a large
part of the O&M costs should be covered by charges not related to the volume of water.

Figure 2. Average Expenditures by LID, 2000

Administration
cost
56%

Other
O&M cost
44%

Maintenance
& repair
17%

Energy cost
7%

22.5
million
yen /year

Labor cost
7%

Others
13%

Source: MAFF.

Table 2. Payments for water uses in rice production, 2003

Payment to (yen/0.1ha) %

LID 3,808 59.5

Subordinate body 798 12.5

Capital investment loan 2,402 37.5

Individual management 114 1.8

Others 74 1.2

Total payment 6,398 100.0

Percentage of the total production cost 4.2

Source: Production Cost Survey on Paddy Rice , MAFF.

Second, strict control of water supply by individual paddy field is difficult due to the
technical reasons: the paddy fields are separated into hundreds/thousands of patches by
ridges, the water to be supplied to a specific patch must use the canals running through
neighbouring upper fields and the water might percolate into the neighbouring fields (or
the neighbouring farmer might break a part of the dyke to extract water). Considering the
nature of small holdings, it is obvious that volumetric pricing, which requires strict
monitoring and metering of the actual water use, even if it is combined with some multi-
tiered pricing, is not realistic (the fourth criterion above).