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water use efficiency. Short-run effects should consist primarily of better water management techniques. Long-run effects should include increased investment in efficient irrigation systems and switching to high-value crops. It may, however, take a long time to realize a shift in water use due to the implementation of price re- forms. Water conservation induced via the water rate structure cannot be effectively measured in two to three years, but will need to be measured over the course of a decade. This suggests the need to initiate conservation incentives as early as pos- sible, before supply crises emerge. Influencing Water Conservation These studies have shown that water price is an important policy tool for encouraging water use efficiency. Not only the level, but the structure of the water rate is impor- tant. Setting the fixed component of a water rate too high may have little effect on reducing water use and will reduce a grower's flexibility in making production decisions. The structure and level of the use-based component will also affect water use incentives. However, there is no one "best" policy that will fit all water dis- tricts. The best rate structure for a given water district will depend on the character- istics of that district, the district's water conservation goals and the agronomic conditions faced by growers in that district. There are many factors influencing decisions to conserve water in the agricul- tural sector. In the Arvin Edison study, the farmers indicated that the price of water was only the fifth most important factor to induce farmer conservation. The other factors include commodity marketing arrangements, soil types and, at the top of the list, the different perceptions of the new versus the old generation of farmers. New-generation farmers are more aware of the competing demands for water and of the need to adopt more efficient irrigation ethods. While the study indicates that water prices are only the fifth-ranked factor influencing farm water management decisions, the study determined that price is the factor that can be most influenced by government policy. Thus, it is important for policy makers to focus on pricing programs to influence change in on-farm water man- agement. Reallocating Conserved Water to the Environment To obtain farmer participation in the Arvin Edison experiments, it was necessary to give farmers discretion on how to use the "saved" water -whether the water saved should be reallocated to other agricultural users or transferred to the environment. This suggests that effectively using water conservation to reallocate water to the environment will require that the environ- ment effectively compete with agriculture and urban water users for conserved water. Some of the ways in which agricultural water has been reallocated to the environ- ment are discussed in the WATER RIGHTS TRANSFERS FOR INSTREAM FLOWS section. For More Information Contact: Gregory Thomas, President Natural Heritage Institute 114 Sansome Street, Suite 1200 San Francisco, CA 94104 Phone: (41S) 288-OSSO Fax: (41S) 288-OSSS E-mail: nhi@igc.apc.org Lj O 61 Drought-dependent factors in rate structure ^ Increase in cost to the District of increasing water supply ^ Value of water to the grower ^ How growers will respond to a tiered price rate structure