Integrated agricultural water pricing reform (IAWPR) in China: a state-of-the-art review with focus on strategic significance, policy design, reform process and case reform effect

Water is one of the most essential economic resources at present, and the shortage of water resources will become a major constraint to sustainable socio-economic development. International Water Management Institute (IWMI) predicts that by 2025 about 78% of the world's population will live in water scarce regions (Namrata & Chandra, 2019). The scarcity of freshwater resources is a global problem as the world population increases, climate changes and increased water demands (Ghadouani & Coggins, 2011; Yu et al., 2019). Currently, the world's water resources are abundant, but the directly available fresh water from fresh water lakes and rivers accounts for less than 0.01% (Olalekan et al., 2019). China is a country with water scarcity and the per capita water resources are less than 2,100 m³, only one-third of the world's average (Cheng et al., 2009; Xu et al., 2016). The huge population base and the economic aggregate constitute a giant pressure on the limited water resources, and the contradiction between water supply and demand will become more and more prominent for a long time in the future (Shu et al., 2021).

Agriculture is the world's largest employment sector, providing livelihoods for 40% of the world's population. As a major water user for national economic development, agriculture plays an important role in ensuring food production, promoting harmonious economic and social development (Smith et al., 2017). Irrigated agriculture accounts for only 20% of the total arable land but contributes approximately 30% of the world's food supply. Agricultural irrigation water is the largest global water sector (Arrendondo-Ramirez et al., 2015), with more than 70% of total global water withdrawals coming from agriculture (Döll & Siebert, 2002; Irshad et al., 2007). For example, in Russian Federation, up to 80% of agricultural land needs watering (Ugryumova et al., 2019). In the Cega-Eresma-Adaja basin of Central Spain, irrigated agriculture which accounts for only 12% of the cropland area, consumes more than 84% of the available water resources (Rivas et al., 2017). In China, 80% of the water consumption is due to irrigated agriculture (Niels et al., 2017). Intensifying water constraints threaten food security and nutrition. Thus, urgent actions are needed to make water use in agriculture more sustainable and equitable.

The State of Food and Agriculture 2020 presents that ‘Water is also a commodity with its value and price’ (Mcneill, 2009; Ambrus et al., 2014). In 1992 the International Conference on Water and the Environment held in Dublin emphasized the need to consider water as an economic good for the first time in a UN setting (Rogers et al., 2002; Tilmant et al., 2008). Since the marketization of water resources was late, agricultural water is completely free of charge in some areas, which leads to market failure and the waste of water resources. Additionally, the deterioration of water quality, low water resource utilization efficiency and increased investment in irrigation engineerings are constantly increasing the price of agricultural water. This has led to a global challenge for farmers to obtain available water at an acceptable cost, and for the government to greatly improve water management. Results showed that enacting a reasonable water price was the simplest of the complex water management. It also prevents water overuse, water depletion and water quality degradation (Fei et al., 2021).

Iglesias & Blanco (2008) established a mathematical model to analyze the socio-economic impacts (e.g. water consumption, cropping patterns, technology innovation, farmers’ income) of water pricing policies in Spanish irrigated lands. Romano et al. (2015) used a treatment effects model, where privatization was an endogenous binary variable to analyze the relevant variables of water tariffs in Italy. Alamanos et al. (2020) proposed a systematic and objective methodology for the estimation of irrigation water price in Greek. Zhu et al. (2018) used a Bayesian network to analyze the current water rights trading and management systems in Xinjiang with the participation of stakeholders and experts. Chou et al. (2020) analyzed the impact of water price policy on agricultural land use in China. The above studies showed the great significance of water prices in solving the problem of water shortage. Unfortunately, agricultural water-pricing policy should not be used as a policy tool alone, especially in developing countries which are very sensitive to agricultural water costs. In Ghana, increasing agricultural water prices has a negative impact on cropping activities, and Aidam (2015) suggests that water price policy should be used together with other water policies in order to achieve the best results. In the western region of China, the water rights trials failed to curb the rise in agricultural water use due to water trading market frictions (Chen & Sun, 2021). There are still some shortcomings in the current water price reform. If the water price reflects its true economic value, then appropriate incentives can be instituted to make the best economic use of water resources.

Therefore, to enhance the effects of water price in optimal allocation and efficiency of agricultural water use under water scarcity conditions, water resources should be managed in an integrated fashion where the economics, legal and political aspects complement each other (Rogers et al., 2002; Duncan, et al., 2019). As the biggest developing agricultural country, China's irrigated area reached 74 million hectares, ranking first in the world. The total population of China is about 1.4 billion, and the agricultural population accounts for more than 25% of the national population. China is the country with the biggest agricultural product consumption in the world, and its annual agricultural product demand accounts for about one-fifth of the world's demand. China is the largest consumer of water resources in the world (Long et al., 2019), and China feeds 22% of the world's population with 7% of the world's arable land (Piao et al., 2010). China's current freshwater resources amount to less than 2,100 cubic meters per person per year, and the shortage of fresh water resources is the biggest threat to China's food security (Jiao, 2010; Zhang et al., 2020). Multiple factors, including weak infrastructure for irrigation, fewer management funds, inefficient water management, and weak farmers’ awareness of water-saving, backward technology of agricultural irrigation and low agricultural water prices, have resulted in a farmland irrigation water utilization coefficient of only 0.45 in China in 2019 (Qiu et al., 2020).

China's past water price policies have severely restricted the effects of water management (Dou, 2016). To alleviate China's water shortage and ensure national water security and food security, China has embarked on a 10-year journey of integrated agricultural water pricing reform (IAWPR) since 2016. It is a national strategy that affects China's future political and economic situation, and the process of the reform is regularly reported to the China central government. This paper will systematically introduce the process and policy design of China's IAWPR. Following the introduction, the remaining parts of this paper are organized as follows. Section 2 presents the history of China's water price reform. Section 3 introduces the policy design of China's IAWPR. Section 4 presents the effects of China's IAWPR, taking Jiangsu Province as an example. Section 5 presents the discussion. Finally in Section 6, the conclusion is summarized.

The full-cost agricultural water price includes full supply costs (e.g., Operation & Maintenance (O&M) costs, capital costs), costs of economics (e.g., opportunity costs), costs of environmental externalities (e.g., agricultural pollution control costs), as shown in Figure 1(a) and 1(b) shows the general composition of agricultural water costs in China. Most of the costs of agricultural irrigation systems regarded as a public good in many countries are borne by the government for food security needs. Therefore, prices for water are not determined solely by costs and irrigation water pricing and cost recovery is still at a very slow pace which puts more pressure on the national budget in these countries.

China is also experiencing similar problems. Water prices in most parts of China are even far lower than the O&M costs. China's irrigation districts are roughly divided into three categories: large-scale irrigation district with an irrigated area of more than 20,000 hectares, medium-scale irrigation district with an irrigated area between 670 and 20,000 hectares, and small-scale irrigation district with an irrigated area of fewer than 670 hectares. A typical irrigation system (Figure 2) in China's irrigation districts usually includes water sources (e.g., reservoirs, wells, rivers), water conveyance/drainage canal (or pipe) system (e.g., main canals/pipes, branch canals/pipes, sub-branch canals/pipes, distributary canals/pipes), control structures (e.g., water inlets/outlets, pump stations, sluices, weirs).

Irrigation systems outside farmland in China's irrigation districts are mainly invested and managed by the government. Farmers invest in the construction and maintenance of minor farmland irrigation systems (e.g., ditches, drip irrigation systems, sprinkler irrigation systems) within farmland, and the investment of some water-saving systems can be subsidized by the government. In the past 20 years, the above-mentioned government investment in China was estimated in the range of $10–20 billion per year, of which the agricultural water fees contribute less than 10% due to low irrigation prices and low agricultural irrigation fee collection rates (71%) (Wang & Chen, 2014). In addition, about 80% of these government investments are used for irrigation system construction, and only about 20% are used for the O&M of irrigation systems. The actual irrigation system O&M costs (excluding depreciation) are about 1–4 times the system capital costs, which leads to two serious problems: (1) Most of the government funds are invested in primary canals and their control structures (also known as primary irrigation system), and subsidies for secondary canals and their control structures (also known as secondary irrigation system) (Figure 2) are less; (2) Many secondary irrigation systems, especially built from the 1950s to the 1980s, are extremely short of O&M funds, resulting in a shortage of management staff and a high damage rate (over 70%). This situation has driven the Chinese government to carry out water price reforms (Shen & Wu, 2016), and water pricing policy is being increasingly recognized as a key instrument for better water conservation, increasing available agricultural investment funds, and improving O&M of irrigation systems.

Unfortunately, China's irrigation system has only a short history of recovering maintenance costs from farmers. Figure 3 shows the important policies at two stages (i.e. exploratory stage, development stage) of China's agricultural water price reform. The People's Republic of China was established in 1949, but it was not until 1985 that the ‘Announcement for Water Fee Determination, Collecting and Management used for Water Engineering’ issued by the Chinese State Council clearly stated that agricultural water usage should be paid and the agricultural water price should be calculated based on water supply costs. It was not until 1988, with the promulgation of the ‘Water Law of the People's Republic of China’, that water as an economic good was legally confirmed for the first time in China, and more farmers began to bear a small amount of on-farm irrigation costs. In 2004 the central government issued ‘Water Supply Price Management Policy’ and ‘Notification on Promoting Water Price Reform to Saving Water and Protect Water Resources’. By these two policies, some scholars (Wang & Chen, 2014) gave the definitions of full-cost pricing of agricultural water services, which includes the resource fee (i.e. costs of economics), the engineering fee (i.e. full supply costs), and the environmental fee (i.e. costs of environmental externalities).

As a result of decades of water price reform exploration and experience accumulation, objectives of the first phase are achieved and the reform is now in its second phase (2016–2025). In 2016, the central government officially promulgated the ‘Opinions on Integrated Agricultural Water Pricing Reform’, marking the beginning of the integrated reform development phase of China's agricultural water price. IAWPR aims to alleviate China's water shortage and solve O&M problems of irrigation systems in about 10 years through the leverage of water prices. In 2020, the ‘Notification on Continuously Promoting the Comprehensive Reform of Agricultural Water Prices’ was issued by the central government to urge all provinces of China to accelerate the pace of this reform. At the same time, this policy also emphasizes the importance of the exchange of reform experiences. For this, Beijing, Shanghai, Jiangsu Province and Zhejiang Province, which are all progressing very rapidly in their reforms, are summarizing the past 5 years of reform results and reporting it to the central government. These reform results will be evaluated by the central government, and good experiences and practices of these regions will be used as relevant references for reforms in other provinces.

The current round of reform in the development stage started in 2016 and is expected to end in 2025. The total irrigated crop area involved in IAWPR in China reached ∼64.08 million hectares, which account for 93.2% of the irrigated crop area and 47.44% of the total arable land, respectively. In China, rice is the main water-consuming crop, and water consumption of rice accounts for over 50% of agricultural water use. China's rice planting areas are mainly distributed in the south (the lower part of the red solid line in Figure 4), accounting for more than 90% of the country's rice planting area. The southern part of China is located in rainy regions and with abundant water resources. Developed economy and dense population have led to a small per capita water resources and large industrial and agricultural water consumption.

The main crops planted in northern China include wheat, cotton, corn, etc., as well as a small amount of rice. The northern part of China is the water-stressed area in China (Wu et al., 2019). Both the north and south of China are facing sustainable development problems caused by water shortages. Therefore, the IAWPR covers all provincial-level administrative regions in mainland China, including 22 provinces (i.e. Jiangsu, Zhejiang, Shandong, etc.), 5 autonomous regions (i.e. Inner Mongolia, Xinjiang, Tibet, etc.) and 4 municipalities directly under the central government (i.e. Beijing, Shanghai, Tianjin, Chongqing). As shown in Figure 4, East China and Central China have the largest irrigated areas participating in the reform, with 14.93 and 12.63 million hectares respectively.

The driving means of the reform include not only the policies related to the water price reform but also China's existing accountability mechanisms for food security and water security. In the development stage of IAWPR, the main objectives of the reform are to: (i) promote agricultural water-saving mainly by improving water use efficiency of irrigated crops and reducing the total amount of agricultural water use; (ii) improve the usability, reliability and effectiveness of the irrigation system mainly by increasing O&M funds and O&M organizations. In order to accomplish the two objectives, the central government proposed eight key tasks to local governments. The key tasks for the first objective include:

1. Formulating irrigation water requirements (IWR) of major crops for supporting crops’ survival under water-limited conditions based on survey research, field test and data analysis. This provides means for accurately assessing water requirements of irrigation districts and making reasonable water-allocation schemes for agricultural sustainable development.

2. Establishing reward mechanism of irrigation water-saving related to IWR and water consumption (ET) for encouraging the adoption of water-saving technologies and practices. The reward funds are provided by the central government and local governments to increase farmers’ willingness to save water.

3. Encouraging the establishment of agricultural water trading markets to help farmers manage the risk of water shortage. According to their own use of water, farmers can purchase and sell water allocations on the market. The income from water sales can provide incentives to promote farmers to save water.

4. Promoting water-saving irrigation technologies (e.g. pipe irrigation, drip irrigation), improving farmers’ scientific knowledge of water use through agricultural training, and increasing the proportion of drought-tolerant crops, for raising the irrigation water use efficiency.

The key tasks for the second objective include:

1. Re-determining the agricultural water price in irrigation districts. The current water fee levels in China are too low to cover even O&M costs, the agricultural water price should be gradually increased to the level of O&M costs, and can be increased to the full supply costs in regions with better economic conditions.

2. Installing simple and economical metrological facilities in all irrigation districts participating in IAWPR for water allocations and water metering. The accurate assessment and refined management of the agricultural water resources with the help of metrological facilities will directly affect the government's decision-making process.

3. Establishing more non-government farmer-based organizations (e.g. agricultural cooperative society) to assist the government in water allocations, collection of irrigation fees, water-saving rewards, O&M of the secondary irrigation systems, etc.

4. Considering farmers’ affordability when levying water fees, which mainly are used for the O&M of the secondary irrigation systems and water-saving rewards. User-pays is an important principle for irrigation water allocations. High water prices has a negative impact on cropping activities and farmers’ income, and many farmers resist even modest water price increases. IAWPR requires local governments to concern with the level of water charges, in particular, the capacity of farmers to pay increased prices for irrigation water. To increase water prices, local government subsidies are the optimal solutions when the irrigation water prices charged to farmers is lower than the price charged by the supplying authority. Therefore, the local government must establish an agricultural water fee subsidy mechanism in IAWPR.

The IAWPR calls for close coordination and cooperation among agriculture-related government ministries including the development and reform commission, the water resources sector, financial sector, agriculture sector, as is presented in Figure 5. The reform policy-making process is organized publicly by central and local governments in China. The central government (i.e. the Chinese State Council) is the highest organ of governance in this reform, and provides an overall conceptual framework for guiding IAWPR, including the objective, key tasks, scope, and schedule of reform. In addition, the central government is also responsible for measuring the compliance of local governments to the reform guidelines and evaluating the effectiveness of IAWPR in provinces and municipalities directly under the central government in China. Local government develops the specific implementation plans and guidelines in its region according to the overall conceptual framework of IAWPR, and implements IAWPR in its irrigation districts located in counties.

In the ‘Notification on Accelerating the Integrated Agricultural Water Pricing Reform Activity’ promulgated by the central government in 2019, six basic principles for evaluating the effectiveness of the reform were proposed: (i) The irrigation systems are in good condition and the O&M systems are complete, reliable and effective in irrigation districts; (ii) The irrigation quota for sustainable water use is implemented in irrigation districts; (iii) The water pricing scheme in irrigation districts supplies water to farmers at fees not lower than the O&M costs; (iv) The increased water price is partly borne by the government, and the government's proportion should take into account the farmers’ affordability; (v) Local governments establish water-saving reward policies to induce the adoption of water-saving; (vi) Water supply metering is implemented in the irrigation districts. Local governments can formulate specific reform self-assessment rules based on the above.

In IAWPR, the central government presents a conceptual reform framework, which is used to guide provincial-level governments to develop more detailed rules for guiding IAWPR. In the province-level administrative regions, the reforms are carried out with the county as the smallest unit. The county government implements the reform in the irrigation districts within its jurisdiction accordance with provincial rules. This chapter takes Jiangsu as an example to introduce its supporting policies and measures for national reform requirements.

As shown in Figure 6, Jiangsu Province is located on the eastern coast of mainland China, between 116°18′∼121°57′ east longitude and 30°45′∼35°20′ north latitude. Jiangsu Province covers an area of 1,07,200 km², accounting for 1.1% of China's total area. The terrain of Jiangsu is dominated by plains, accounting for about 70% of the total area of Jiangsu. There are 13 municipalities in Jiangsu Province, which govern 96 counties (or county-level cities, districts). Jiangsu is geographically divided into three parts: Northern Jiangsu, Central Jiangsu, and Southern Jiangsu.

The total arable land area in Jiangsu is about 4.539 million hectares, of which 92.3% (4.188 million hectares) is irrigated. The area of irrigated arable land involved in IAWPR is 3.624 million hectares, which ranks among the top ten in the country. The area of Jiangsu only accounts for 1.1% of the country's land area, but it contributes more than 10% of China's GDP. Jiangsu is one of the main grain producing areas in China. Jiangsu's grain crops mainly include wheat, rice, potato, corn, and soybean. For many years, Jiangsu's annual gross value of agricultural output value has been among the top three in the country.

The statistical analysis on hydrological data from 2014 to 2019 shows: (i) The average annual rainfall and evaporation in Jiangsu are ∼1,122 mm and ∼700 mm, respectively, resulting in an average annual local freshwater resources (rainwater) of only 45.437 billion m³; (ii) The per capita local water resources in Jiangsu are 455 m³, which is less than 20% of the national per capita share; (iii) The total water consumption in Jiangsu is 45.32 billion m³–49.34 billion m³, and the average water consumption is 46.90 billion m³, of which the average water consumption for agricultural irrigation is 24.81 billion m³, accounting for 52.9% of the total water consumption (Chen & Chen, 2020).

As an economically and socially developed province, the utilization and management of water resources in Jiangsu in the early stage of the reform cannot meet the national overall requirements, which is the main driving force of this round of reform in Jiangsu. The details are as follows:

1. Local freshwater resources cannot meet Jiangsu's water demands. In 80% of the years from 2014 to 2019, there was a water shortage problem. The largest annual water shortage occurred in 2019, reaching 26.17 billion m³. The transit water volume from Yangtze River can make up for the lack of water demands, but the construction and maintenance costs of water diversion projects are very high. As shown in Figure 6, Jiangsu has completed three major Yangtze River water diversion projects (namely, water diversion project from Yangze River to the north of Jiangsu, water diversion project from Yangze River to the east of Jiangsu, and water diversion project from Yangze River to Taihu Lake). The cost of transit water supply exceeds the cost of local water supply by 5–10 times, resulting in a heavy financial burden on local governments.

2. The agricultural water-use efficiency needs to be greatly improved. For Jiangsu in 2014: the water consumption per $10,000 of GDP in Jiangsu was about 480 m³ (Fang et al., 2017), and that in developed countries is generally less than 300 m³; the area of irrigated arable land controlled by water-saving irrigation technologies only accounted for 36% of the total arable land; the farmland irrigation water utilization coefficient in irrigation districts was 0.590, which was far lower than the level of 0.7–0.8 in developed countries (Zhang et al., 2019).

3. The O&M of the irrigation system needs to be greatly improved by increasing more qualified staff and government subsidies. For Jiangsu in 2014: the O&M funds invested in the irrigation systems accounted for about 40% of the actual needs, the intactness rate of the primary irrigation system was only about 66%, and that of the secondary irrigation system was only about 56%; the number of O&M organizations was insufficient, and the scope of their management was also low; the area of irrigated arable land managed by the O&M organizations was 6,32,700 hectares, accounting for only 17% of the total irrigated area; problems such as low education level and weak management ability of management staff were very prominent.

In order to complete the basic reform tasks assigned by the central government before the end of 2020, the Jiangsu government has issued several supporting policies and measures.

1. In response to the reform policies promulgated by the central government, Jiangsu's supporting policies include the ‘Implementation Opinions on Promoting IAWPR’ used for promoting the reform process, ‘Notification on Administrative Regulations for Agricultural water pricing’ used for guiding agricultural water pricing, ‘Agricultural Irrigation Water Quota in Jiangsu in 2019’ used for water allocations, and ‘Effectiveness Assessment Method for IAWPR in Jiangsu’ used for assessing the effectiveness of IAWPR, etc (Figure 7).

2. In response to the two goals and eight tasks of national reform described in Section 3.2, Jiangsu has formulated a number of supporting measures: (i) The agricultural water price is determined according to the O&M costs, which include the maintenance cost of irrigation system (M1), the fuel and electricity costs consumed in the process of water supply (M2), the employee compensation of the O&M organization (M3), the management costs of the O&M organization (M4) and other costs (M5). Their proportions in Central, Southern and Northern Jiangsu are shown in Figure 8(a); (ii) Weighing the farmers’ affordability and local financial resources, the county governments provide agricultural water at a cost between 0.080 and 0.171 yuan/m³ in Northern Jiangsu, 0.086 to 0.157 yuan/m³ in Central Jiangsu, and 0.087 to 0.104 yuan/m³ in Southern Jiangsu. Figure 8(b) shows the proportions of government subsidies and farmers’ payments in Central Jiangsu, Southern Jiangsu and Northern Jiangsu; (iii) The Jiangsu government has established 5,675 non-governmental farmer-based organizations, and each organization has about 5–20 sub-organizations, which are mainly used for the O&M of the secondary irrigation systems, the collection of water fees, etc, shown in Figure 8(c); (iv) A total of 1,37,235 sets of metrological facilities had been installed in Jiangsu's irrigation districts for water metering and water allocations.

Following the basic requirements for reform evaluation determined by the central government described in Section 3.4, the Jiangsu government uses indicators related to the key reform tasks and reform goals to evaluate the IAWPR in each county (or county-level city or district). The indicators are divided into three levels, as shown in Table 1. The assessment results are divided into four grades: excellent, good, qualified, and unqualified. Those with scores above 90, 80–90, 60–80 and below 60 are considered excellent, good, qualified and unqualified, respectively. The indicator ‘Farmer's satisfaction levels (3 points)’ showed the interaction with the farmers, and the farmers’ satisfaction with IAWPR were investigated by masses satisfaction questionnaire in each town. The subsidy in indicator ‘Subsidy mechanism and water-saving incentive mechanism (15 points)’ include the investments by central government and local governments. Under the principle of not increasing the burden on farmers, local governments raise funds in various ways, and some provinces arrange special funds for IAWPR.

The IAWPR in the past five years has improved the repair rate of agricultural irrigation systems and promoted water-saving technology, which has gradually increased the farmland irrigation water utilization coefficient in China, from 0.542 in 2016 to 0.559 in 2019. With China's grain production increasing year by year, the total amount of water used for agriculture continues to decrease, from 378.6 billion m³ in 2016 to 368.23 billion m³ in 2019. Jiangsu, as the first province to complete the basic reform tasks, has also increased the utilization coefficient of farmland irrigation water from 0.605 in 2016 to 0.614 in 2019. It is expected that by 2025, the area of irrigated arable land controlled by water-saving irrigation technologies will account for more than 90% of the area of irrigated arable land. Through government subsidies and agricultural water fees, the funds and personnel needed for the O&M of secondary irrigation systems can be basically guaranteed, and the intactness rate of the secondary irrigation systems in Jiangsu has increased from about 56% in 2014 to about 80% in 2020.

The regional differences in China's economic development are quite obvious. In general terms, the economic development level of the southern region is higher than that of the northern region, and the economic development level of the eastern region is higher than that of the western region in China. In economically developed provinces, with strong government finances, the reform moved at a faster pace and achieved better results. Problems such as shortage of funds, outdated irrigation facilities and farmers’ resistance in economically underdeveloped provinces are more prominent, and the reform is facing more challenges. Even in economically developed Jiangsu, the economic development of Southern Jiangsu is obviously better than that of Northern Jiangsu. Therefore, the agricultural water fee in Southern Jiangsu is subsidized more by the government. However, most of the water fee in Northern Jiangsu is borne by farmers, which affects the income of farmers and leads to the obvious psychological gap of some farmers.

A questionnaire survey was conducted among about 50,000 farmers. The results show that it is appropriate for farmers to spend 5%–15% of the agricultural net income per mu (1 mu = 1/15 hectare) for water fees, and the proportion should usually be less than 10% in underdeveloped regions. Most of these surveyed farmers mainly grow rice, and their net income from rice is about 689 yuan per mu. After the reform, the agricultural water fees per mu account for 11.3% of farmers’ net income per mu. With government subsidies, farmers actually pay about 40% less than required. The affordability of farmers and the subsidy capacity of local governments are the key to the success of the reform. Unfortunately, as of the end of 2019, nearly 70% of the 64.08 million hectares of arable land participating in IAWPR had yet to be reformed, mainly in undeveloped regions. The central government should increase the proportion of investment in the main grain-producing provinces and local financial difficult provinces. With the further progress of the reform, some goverments with the relatively poor economic base can not guarantee continued investment in subsidies, the reform will be harder to promote. Whether the central government's financial support should be biased towards undeveloped regions is a controversial topic. The worry is how underdeveloped regions will retain the gains of the reform once the central government's money stops pouring in.

According to the reform requirements of the central government, the agricultural water prices throughout the country will generally be adjusted to the price level of O&M costs in about 10 years, and it is also suggested that the prices in developed regions be increased to the price level of full supply costs. With the rapid development of China's economy and society, environmental pollution due to agricultural sewage is becoming more and more serious (Chen et al., 2017; Li et al., 2020; Wang et al., 2021). China's agricultural output value accounts for less than 8% of its GDP, while China's investment in environmental protection currently accounts for more than 2% of its GDP. If the costs of environmental externalities are included in the agricultural water fees at this stage, the agricultural water price will increase significantly. Taking Jiangsu as an example, this will cause the agricultural water price to increase by 40–60 times on the existing basis. Water must be affordable for farmers, but it will be difficult for local governments to adequately subsidize agricultural production in response to high water prices. Therefore, in China, there is still a long way to go before the agricultural water price is adjusted from the price level of O&M costs to the level of full costs. It requires the governments, enterprises and farmers to make concerted efforts in environmental protection and improvement, to reduce the agricultural pollution control costs.

For many years in China, low water prices and policies benefiting farmers have led to farmers’ perception that water is free or cheap, which has caused certain conflicts in the implementation of measures such as increasing the agricultural water prices and reducing agricultural water allocations. These conflicts have become an important factor hindering the implementation of IAWPR. Random inspections found that 10% of farmers still did not know or support IAWPR in Jiangsu where the reform was well developed. Therefore, how to effectively enhance the awareness of water conservation in the whole society through various measures such as publicity and incentives is a problem that the governments need to consider deeply in IAWPR at the present stage.

Long ago, economic theory has explained how the correct pricing of goods can lead to gains in economic efficiency (Rogers et al., 2002). If the price of water does not reflect its true cost, this will affect the most valuable uses of water resources even in water-rich and developed regions. Some literature (Rogers et al., 2002; Iglesias & Blanco, 2008; Chou et al., 2020) show that increased water prices improve managerial efficiencies in the agricultural sector, reduce water consumption, provide economic incentives to reduce water losses and facilitate re-allocation from irrigation to domestic and industrial, increase funding for irrigation support and improve the O&M efficiency of irrigation systems, promote water-saving technologies, and so on. These advantages of water prices are also evident in water-rich and developed regions. How to improve the enthusiasm of local governments in water-rich and developed regions to promote agricultural production and agricultural water-saving work needs more clear reward and punishment measures from the governments. In fact, Jiangsu Province, which is rich in water resources and developed in economy, has made remarkable progress in IAWPR, such as promoting water-saving technologies, improving the O&M efficiency of irrigation systems and promoting water conservation in agriculture (See Section 4.1–5.1).

All centrally formulated measures are horizontal for all provinces participating in IAWPR. Main problems in China driving IAWPR include: (i) water supply for agriculture is becoming a critical issue due to the shortage of fresh water resources; (ii) water scarcity situations have been further exacerbated by inefficient irrigation water consumption and management; (iii) the cost of agriculture water use is not the full cost paid directly by farmers, and the local government where the irrigation district is located has no incentive or sufficient funds to subsidize the remaining water costs, which leads to a lack of O&M funds and management staffs for the irrigation systems, especially the secondary irrigation systems; and (iv) the past agriculture water pricing strategy lacks strong incentives and other measures for farmers to promote more efficient use of water and adopt more advanced agricultural water-saving irrigation technologies. IAWPR provided more detailed regulation since 2016, aiming to address these challenges. Figure 9 shows the architecture for IAWPR system mainly described in subsections 3.1, 3.2, 3.3 and 3.4. Local governments can develop more detailed rules based on architecture for the IAWPR system presented by the central government. For example, in the ‘Notification on Accelerating the Integrated Agricultural Water Pricing Reform Activity’ promulgated by the central government in 2019, six basic principles for evaluating the effectiveness of the reform were proposed. Jiang government formulated specific reform self-assessment rules shown in Table 1.

In most agriculturally-oriented developing countries, the problem faced by the agricultural sector is that water prices are universally far below full-cost agricultural water price, or even less than the irrigation system O&M costs (Rogers et al., 2002). Low agricultural irrigation water prices have emerged as a problem as water charges are a major source of irrigation support for these developing countries (Wang & Chen, 2014). This means that agricultural water prices need to be raised. But increased agricultural water prices have some negative effects: (i) Increased water prices has a negative impact on cropping activities and farmers’ income; (ii) If water prices are high, prices for agricultural commodities will increase and this has a negative effect on consumers; (iii) When water prices are increased significantly, changes in crop varieties and distributions may affect the water-consuming crop (e.g. rice) yield; (iv) High water prices result in high food prices that may be beyond the reach of many people, and rising food prices play an important role in the acceleration of inflation; (v) Soaring food prices caused by high water prices may lead to a substantial increase in government expenditures in agriculture owing to the incremental government food subsidies (Albers & Peeters, 2013; Aidam, 2015).

Agricultural water saving in IAWPR of China is a complex process, which needs to take into account the interests of all participants, and the effect of water saving is the result of a multi-participant interest game. The advantages of water pricing promote the governments to adopt reform measures to save water, but its disadvantages also hinder the implementation of water pricing policies. Farmers want lower water prices and better water services which mean more agricultural subsidies and more fiscal burdens for the governments. In IAWPR of China, some measures taken by Chinese governments to address the water pricing challenges, such as subsidies, incentives and penalties, can be seen as potentially interesting options for other developing countries. Also, the governments should consult with water users, listen to their interests, reduce their resistance to the policies, and implement water relief to maintain social stability when the basic water demand of some water users cannot be met due to the impact of water pricing policies.

IAWPR is a major initiative to promote sustainable agricultural development, fundamentally reducing the water waste by the current crude agricultural production, raising farmers’ awareness of water commodities, improving irrigation water use efficiency, and significantly increasing food production. Governments at all levels should enhance the efficiency of implementation to lower the price of agricultural water while ensuring that they do not increase the burden on farmers and guarantee food security and sustainable agricultural development. What's more, the governments should change their role from ‘provider’ to ‘regulator’ of water services.

By reviewing the integrated agricultural water pricing reform in China, we can draw the following conclusions:

1. The reform framework and key reform tasks determined by the central government of China have been proved in the practice of Jiangsu's reform. Through IAWPR, Jiangsu has established a set of mechanisms used for determining agricultural water prices, government agricultural subsidies, water-saving rewards, O&M of irrigation systems and water quota management, which has improved water-saving benefits, effectively promoted water-saving technologies and greatly increased the intactness rate of the secondary irrigation systems.

2. The affordability of farmers and the financial resources of local governments are the key influencing factors of the reform. With the expansion of the scope of the reform, local governments will face a more critical shortage of funds. It is essential to explore the establishment of agricultural water price sharing mechanism. Local governments should promote cooperation with enterprises, finance and other social capital to ease the pressure of farmers and government. Thus, the marketization mechanism of irrigation and water conservancy will be further developed.

3. Cultivating farmers’ awareness of the commodity value and scarcity of water resources, and eliminating resistance, is the key to IAWPR. Local governments should carry out various education campaigns through joint media to motivate farmers to spontaneously participate in the reform. Meanwhile, economic instruments such as water-saving reword, price leverage and water resources tax on excess water use are implemented to better promote IAWPR. The awareness of sustainable agriculture and a good social atmosphere will be created.

4. China's central government is responsible for the task formulation and policy design of the reform, on the basis of which local governments formulate detailed reform plans and implement specific reform tasks. In the process of IAWPR, the natural factors (i.e. water resources conditions, geography, etc.) and social factors (i.e. local customs, economic development, etc.) must be taken into account. Local governments should strengthen project linkages and inter-departmental cooperation, and enhance the efficiency of policy implementation. China's IAWPR is the most systematic and complex reform in its agricultural field so far, which faces many contradictions and problems. China's experiences or lessons from this reform can be used for reference by other developing countries.

This study was supported by the Water Resources Science and Technology Project of Jiangsu Province (Grant No. 2019043, 2019040).

All relevant data are included in the paper or its Supplementary Information.