Oscar Melo

Irrigation infrastructure development in the Limarí Basin in Central Chile: implications for adaptation to climate variability and climate change

One option to deal with climate variability in agriculture is to build irrigation infrastructure, although this may lead to the overdevelopment of water resources, leading to ‘basin closure’. The Limarí Basin, in central north Chile, has relied on irrigation infrastructure over the last 30 years to increase water supply reliability and extend irrigated acreage, especially for permanent crops. This situation has reduced adaptation opportunities in the basin, which is currently experiencing a severe drought that, according to climate change projections, is expected to persist in the future, with important consequences for the sustainability of agriculture production.

Right-to-Choose Auctions: A Field Study of Water Markets in the Limari Valley of Chile

Field experiments were conducted with farmers in the Limari Valley of Chile to test extant theory on right-to-choose auctions. Water volumes that differed by reservoir source and time of availability were offered for sale by the research team. The auctions were supplemented by protocols to elicit risk and time preferences of bidders. We find that the right-to-choose auctions raise significantly more revenue than the benchmark sequential auction. Risk attitudes explain a substantial amount of the difference in bidding between auction institutions, consonant with received theory. The auction bidding revealed distinct preferences for water types, which has implications for market re-design.

Water option contracts for climate change adaptation in Santiago, Chile

ABSTRACT Climate change–induced extreme events pose an important challenge for urban water managers. In Santiago (Chile), the total cost of such events can be reduced by an option contract that sets ex ante water prices and water volumes to be traded when certain triggering conditions are met. This article discusses two types of option contracts: water leasing to trade water from agriculture to urban uses during droughts; and a savings option contract to reduce urban water consumption during short-term turbidity events. We find that water option contracts are flexible instruments that improve the distribution of hydrological risks.

Participation determinants and impact assessment of the Institute of Agricultural Development (INDAP) credit program

G. Donoso, O. Melo, and E. Negrete. 2010. Participation determinants and impact assessment of the Institute of Agricultural Development (INDAP) credit program. Cien. Inv. Agr. 37(2): 87-99. This research estimates the impact of INDAP’s Credit Program on the per hectare agricultural income of small agricultural producers. To accomplish this, a Treatment Effects Model (TEM) is employed to simultaneously estimate producer incomes and program participation functions, correcting for the potential presence of selectivity bias through the correlation between the errors of both functions. The results indicate that farmers of greater age present a higher disposition to participate in the program, but their interest decreases as their age increases. Additionally, producers who are acquainted with and evaluate the financial cost of credits as well as those producers whose income comes mainly from their land, who are landowners, present a greater family size and work greater land surfaces, present a greater disposition to participate. The results also indicate the existence of selection bias due to the nonrandom participation of farmers in the program. A negative correlation between the error terms of the per hectare agricultural income and participation function is observed. This implies that Ordinary Least Squares (OLS) underestimates the true effect of the program, because it omits the different initial situations between the treated and control group, situation corrected by the TEM estimation. In addition, the results indicate that there exists a positive and significant difference in the per hectare agricultural income between both groups in favor of the participants of the Credit Programs of INDAP, thus the Credit Program presents a positive impact on producer income levels.

Water Quality Policy

This chapter describes and analyzes water quality policy in Chile. To this end, the Chilean institutions and regulations of greater relevance to water quality issues are described. Subsequently, the main regulatory instruments used, and their implementation, are presented together with the definitions of the main existing prevention or remediation instruments. Finally, the decrees that conform the environmental regulation of the country are outlined. The policies that regulate the environmental quality of the waters in Chile have advanced significantly and a system that potentially will guarantee the quality of the waters is already in place. However, water resources that have secondary quality standards in place are to this date only a very small fraction. Thus, a more decisive push to add more areas is needed for the regulation to have a significant effect in the country.

The Socio-Economic Context of Chilean Water Consumption and Water Markets Growth: 1985–2015

Chile was one of the early economic reformers in Latin America, instituting a series of pro-market policies. These reforms included, liberalization of the capital accounts, steep reduction and harmonization of import tariffs, liberalization of foreign exchange markets, and aggressive privatization of state-owned companies, including public utilities. During the 1990s Chile promoted a strong trade liberalization agenda that reinforced the export-based model by subscribing a series of Free Trade Agreements. Chile entered a virtuous cycle of strong economic growth led by exports, and strengthened by the return to democracy which put an end to social unrest. This growth is also reflected in fast poverty alleviation. However, unequal income distribution has only improved marginally. The economy is based mainly on exports that are highly dependent on water, such as mining and agriculture. Water withdrawals in Chile average approximately 4300 m3/s, equivalent to 136,000 million m3/year. Of this, almost 85% is used in non-consumptive hydroelectric generation. Consumptive water use in Chile is dominated by irrigation representing 82%, followed by industrial, mining and potable water supply, which account for 8%, 3% and 7% of total water consumptive water use, respectively. Since the 1990s total consumptive water use has increased 13%, mainly driven by economic growth.