In North China, irrigated agriculture still accounts for more than 60 percent of total water use. With declining water availability due to competing uses, coupled with increasing climate variability, irrigated agriculture faces enormous challenges. Barring substantial improvements in water productivity, current practices of irrigated agriculture will no longer be viable.

The cause for the chronic waste and overuse of water lies in the fact that water for farmers is virtually free. For example, the cost of groundwater use is just that of electricity/diesel for pumping. Farmers, as entrepreneurial as they are, have been driven by financial incentives to withdraw water up to the point where the marginal returns of crop production increases equalize the pumping costs. In reality, in most cases they go beyond that point (with no additional income) as they are not sensitive to water waste. The additional gains in agriculture production are far less than the economic cost of water used.

Even without changing the status quo of water allocation, substantial water saving potential can be tapped in agriculture if only the farmers' current water use rights can be recognized and traded like land use rights by according a fair value to the groundwater that farmers are currently entitled to use.

Once farmers realize their water rights can be readily tradable, with monetary value above the additional crops produced, they will optimize their water consumption, combined with good agronomic practices, to increase water productivity. The government can pilot this by paying unused water consumption quotas at the price equivalent to or above the incremental agricultural production, but still significantly lower than the economic value of water. This will lay the groundwork for a nationwide water right trading platform, based on enforcement of a water consumption quota system at the basin and different administrative levels.

"Waste not, want not". The value of water conservation should be fostered and reinforced by a host of economic and regulatory remedies, such as sizing economies based on water availability, consumptive water-use licensing, rational water pricing, government payment for water conservation and participatory water governance. Such "go-local" demand-side management approaches could go much further than thousands of miles of canals built or to be built in addressing the water crisis in North China. "Water from afar cannot quench thirst at hand", goes aptly one Chinese proverb.

Liu Xueming is a senior economist with the Food and Agriculture Organization of the United Nations, and Li Xiaokai is a senior water resource management specialist with the World Bank.