Examining economies of scale and cost-benefit of small multi-purpose storage ponds in the Zhanghe irrigation system, China

Abstract

Ponds are small reservoirs located in irrigation areas that allow farmers to capture rainfall, store surplus water from irrigation canals, recycle and use water on a needs basis. Though ponds have been widespread in some irrigated areas in China for many years, recent increases in the construction of ponds due to growing water shortages and government policies generate interest in understanding the economies of scale and effectiveness of the investment. The results of a multi-output, multi-input translog cost function show that moderate economies of scale exist for large-size ponds (>10 000m3) and trivial economies of scale exist for medium-size ponds (>1000m3 to <10 000m3). Small-size ponds (<1000m3) reveal diseconomies of scale. The economic evaluation indices indicate that all ponds were profitable with healthy internal rates of return, positive net present values and cost–benefit ratios >1. However, when family labour cost was included, small and medium ponds failed to justify their investment. Overall, larger ponds offer higher economic benefits than small and medium-size ponds. Efficiency gains could result by constructing large size community ponds that are also economically viable. However, technical guidelines and optimum size limits may effectively need to be established to reduce the possible occurrence of serious environmental and social problems