Abstract
Capturing the economic value of water use is an integral part in the design of economic incentives and institutional arrangements that can ensure sustainable, efficient and equitable allocation of water. Irrigation water values of small‐scale irrigators are, however, seldom studied and too little attention is paid to the determinants of the variability of water values. In South Africa issues like the call for more efficient water allocation resulting from growing water scarcity, the approaching introduction of water charges for smallholders and the crucial role in rural development attributed to small‐scale schemes, render this knowledge even more important. This study therefore first assesses irrigation water values at small‐scale irrigation schemes in South Africa using the residual imputation method. Results reveal that, without input subsidies, smallholders have difficulties generating a profit from certain irrigated crops. This raises doubts about the capacity of smallholders to pay for water. The average economic value of irrigation water in this study is US$0.188 m −3 . The water values are, however, shown to be highly variable. The General Linear Model shows that this variability can be mainly attributed to the crop choice and to the irrigation scheme design and institutional setting. Copyright © 2009 John Wiley & Sons, Ltd.