The development and testing of an integrated Hydro-economicmodel to evaluate the financial impact of curtailment decisions on a farm case study in the Crocodile catchment.

Background, motivation and objectives Globally, South Africa is classified as a water scarce country – due to below world average rainfall and comparatively high evaporation with significant spatial variability. Despite South Africa’s classification as being water scarce, the potential water supply of the country is enough to satisfy demand (DWA, 2012). The problem is that the National Water Act (Act No. 36 of 1998) stipulates that water must be allocated to sustain an Ecological Water Requirement (EWR), described in the National Water Act as the Ecological component of the “Reserve”. After considering the Ecological Water Requirements (EWRs), the catchment water balances published in the First Edition of the National Water Resources Strategy (NWRS-1) show that half of the water management areas (WMAs) are over-allocated. The water balances give consideration to multi-year wet and dry cycles; and consider the assurance of water supply required by various water users. A water balance showing over-allocation indicates that, during dry years, or sequences of dry years, water users will not get the assurance of water supply that they require. Water managers will try to address the over-allocation so as to meet the assurances of water supply required by the various water-user and water-use sectors in the catchment. The over-allocation problem is not easily solved, because it is often neither practical nor economically feasible to transfer water from surplus areas to deficit areas (DWAF, 2004). Therefore localised water scarcities exist in many catchments. Thus, the traditional water management model that purely relies on an engineering (i.e. supply-side) approach through infrastructure development to reconcile imbalances, fails. The Second Edition of the National Water resources Strategy (NWRS-2) emphasises the need for “smart water management” (DWA, 2012:50) to complement the engineering and technologically based approaches to water management. “Smart water management” entails, amongst others, the inclusion of business principles and sustainability into water management – with strong stakeholder involvement in the planning and managing of water resources. An important stakeholder group in the water sector is irrigated agriculture, which accounts for 62% of all surface- and groundwater use in the country. Its water use is, in some cases, is characterised by high inefficiencies (DWAF, 2004).