Calculating Total Cost of Agriculture Water in Irrigation Networks using ABC Method (A Case Study of Irrigation Network in Dez in North Khuzestan District)

Document Type : Research Article

Authors

F. Baktash ¹

K. Azarbayjani ²

Gh. Kiani ²

S. Daei Karimzadeh ¹

¹ Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran

² Department of Economics, University of Isfahan, Isfahan, Iran

https://doi.org/10.22067/jead2.vi0.85046

Abstract

Introduction: One of the most efficient methods of demand management that leads to the regulation of water consumption pattern is amendment of pricing system based on total price of water in agriculture sector. In fact, one of the best policies and methods to maintain water resources through proper water pricing in different regions is to utilize an optimum pattern of water consumption. Evaluating common systems of irrigation in Khouzestan (Dez network) has indicated that the functions of most of them have been decreased because of defect in design and implementation, inappropriate maintenance, delaying in repair and lack of proper management. Economically, the costs of investment and projects construction has been considerably more than the predicted amount; moreover, the projects construction mostly lasts longer than the due date. In terms of management and utilization, decimation of water leads to stagnant water and salinity problems. Therefore, inappropriate utilization causes injustice in water distribution and discrimination among utilizers.
Materials and Methods: This study aimed to calculate the total cost of agriculture water considering funding costs, utilization costs and maintaining the costs of facilities from the perspective of Water Organization of North Khuzestan district and determining the total cost of agriculture water in irrigation network using Activity-Based Costing (ABC) method in the crop year 2018. Activity based costing is a cost-finding system that uses cost stimulants of activities to assign overhead costs of products. In fact, it is a resource consumption model that can provide proper information to help making decision about the improvement of product process. Statistics and required data were collected from agricultural Jahad organization of Khouzestan province and water affair organization of North Khouzestan district.
Results and Discussion: The price of water per cubic-meter in each activity based on costing method for wheat and corn products are 1445 and 1519 Rials respectively. It can be concluded that the quantities calculated by the Water Organization for both wheat and corn are much less than the quantities of agriculture water provision cost that is equal to 1231 Rials. Thus, the prices paid by the farmers for the products, wheat and corn, which are 142.1 and 201.3 respectively, are less than the cost of water supply. Therefore, the paid price of water could not compensate the cost of water supply. In general, it is revealed that the activity based costing (ABC) system can be one of the management solution to achieve the accurate decision making to resolve the informational requirements of the management and to benefit the company by implementing and planning this system. In addition, the results show that using ABC method in computing total cost of agriculture water in North Khuzestan leads to more accurate overhead costs dedication that causes not only to obtain accurate and correct data but also to acquire simple implementation of costing system that can benefit the managers strongly.
 Conclusion: The study finds that ABC system is more accurate and correct to compute overhead costs and leads to accurate and correct data beside simplicity in executing a cost finding system that can have many profits for the managers. Considering the total cost of water, it is necessary to amend the water assignment and increase the water price gradually to decrease wasting water and prevent from overuse of water. Moreover, it is necessary to expand the area under cultivation and increase the farmers' income to improve the output of irrigation.
As water is the essential element to produce agricultural crops, costing policy based on the real cost of water should be executed gradually. It should be noticed that pricing water based on the real water price is not enough. The total costs obtained from the farmers should be applied to improve the water resources of agricultural sections and efficient management of water supply plan.

Keywords

Activity-based costing

Traditional costing

Total cost

Total cost of water

20.1001.1.20084722.1399.34.1.7.0

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©2020 The author(s). This is an open access article distributed under Creative Commons Attribution 4.0 International License (CC BY 4.0)

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