Water Resources and Economics 1 (2013) 75 92

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Water Resources and Economics

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Rice and irrigation in West Africa: Achieving food security with agricultural water management strategies
Pamela G. Katic a,n, Regassa E. Namara a, Lesley Hope a, Eric Owusu b, Hideto Fujii c
International Water Management Institute, PMB CT 112, Cantonments, Accra, Ghana Food Research Institute, Council for Scientic and Industrial Research, P.O. Box M20, Accra, Ghana Japan International Research Centre for Agricultural Sciences (JIRCAS) 1-1, Ohwashi, Tsukuba, Ibaraki 305-8686, Japan
b c a

article info
Keywords: Irrigation Rice protability Policy Analysis Matrix West Africa Food security

a b s t r a c t
West Africa's rice imports currently satisfy 70% of the soaring local demand, worsening the food vulnerability of an increasingly urbanized population. Despite considerable rice-growing potential, lack of water control systems, access to improved seeds, agrochemicals and appropriate mechanization have resulted in modest production growth rates, unable to alter the region's dependency on imported rice. Governments aim to boost production with import duties and input subsidies. However, questions remain as to whether these policies enable the rice sector to respond to changing consumers preferences for high grade rice and to contribute to national economic growth. We present the results from a Policy Analysis Matrix (PAM) on rice production in Ghana, Burkina Faso and Niger and under three water management systems: irrigation (public scheme), supplemented rain-fed (rainfall aided by autonomously-sourced water supplies) and purely rain-fed. Our results show that policy interventions in these West African countries (i.e., input subsidies and import taxes) did not signicantly enhance the protability of rice production to farmers due to the effect of market failures (limited capital access and non-competitive market for rice) and the low quality of local milled rice. The PAM results point strongly to the importance

This article is based on a paper presented during IWREC 10th Annual Meeting hosted

Corresponding author. Tel.: 233 302 784753/4; fax: 233 302 784752. E-mail address: P.Katic@cgiar.org (P.G. Katic).

2212-4284/$ - see front matter & 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.wre.2013.03.001

76 by the Stockholm Institute.

P.G. Katic et al. / Water Resources and Economics 1 (2013) 75 92 International Water

of improving rice quality and yields through more efcient water management and post-harvest handling/processing and targeted breeding to match consumers' preferences. & 2013 Elsevier B.V. All rights reserved.

1. Introduction Rice has become a staple food for half of the world's population. In West Africa, population growth, rapid urbanization and rising per capita incomes have boosted the demand for rice, which is rising at 6% per annum, faster than anywhere else in the world, and also faster than any other grain. In 2009, rice consumption stood at 26.9 kg per capita in Ghana, 25.5 kg per capita in Burkina Faso and 8.3 kg per capita in Niger [14]. Rice demand has increased quantitatively but also changed qualitatively: consumer's preferences have changed towards aromatic and long grain white rice. Four ecological rice production systems can be found across West Africa: rain-fed upland (40% of the rice area), rain-fed lowlands (3840%), irrigated (1214%) and mangrove swamps (4%). Rice production is dominated by smallholder farmers who rely on rain-fed conditions with limited use of improved seeds, fertilizer, mechanization, post-harvest facilities and absence of water management. Poor marketing and transport infrastructure increase farmers' transaction and information costs of getting goods to the market. As a result, the quality and the quantity of local rice production have stagnated in recent years and most of the rice eaten in the region is imported from Asia [6]. As Fig. 1 shows, since 1960, rice imports in West and Central Africa have increased from 40,000 to 6 million metric tons, at an annual cost of over $1 billion [15]. In 2008, commodity and energy price spikes raised food import bills reviving food security fears, particularly in West African countries where most of the world's hungry live. After two years, rice prices almost returned to their pre-2008 levels but became much more volatile and unpredictable (Fig. 2). Thus, most governments in West Africa rely on protectionist price policy measures, such as import tariffs and fertilizer subsidies, to strengthen rice self-sufciency and minimize their exposure to the volatility of international markets. The domestic response to supportive government policies was remarkable in West Africa, where paddy production increased by 26.9% in 2008, 5.3% in 2009 and 9.7% in 2010, largely because of an expansion of the harvested area. However, demand still outstrips supply so the region continues to rely heavily on rice imports [3]. Based on expert projections, to decrease the dependency of rice-food security upon imports, a combination of both area expansion and yield increase are necessary [24,30]. In the short term, rain-fed lowlands offer the most promising environment for area expansion and intensication if supplemented with gradual improvements in water management. In the longer term, a gradual shift from a pure rain-fed to irrigated system will allow a balanced rice-food security.

Fig. 1. Rice paddy imports in West Africa since 1960 [12].

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Fig. 2. Increased volatility of the price of rice post-2008.

Additionally, investments in water management need to be complemented with soil, fertility, technology and extension policies, for local production to be able to compete in quality and quantity with imported rice [18]. Rice development in the region depends not only on government policies but also on foreign aid. First, foreign aid donors inuence the costs of rice development through their contribution to rice investment projects. Aid and/or concessional assistance may be targeted to regions that already produce rice efciently or to projects that cannot compete without support, as non-efciency objectives are usually in donors' interests (improve food security). Second, donors help shape rice policy as spokesmen for trade, price and subsidy policies. Donors engage in policy dialogs and consensus-building on the role of rice policies as part of a strategic framework for sustainable rural development, poverty reduction and food security [28]. The main goal of this study is to assess the role of investment in water management and of the micro-and macro-economic policies in three countries of West Africa (Burkina Faso, Ghana and Niger) in increasing domestic rice production while beneting both farmers and the overall economy. First, we examine how rice production under different water management systems contributes to farmers' income. Second, we evaluate whether rice production is able to compete at international prices (without any government policy interventions). Finally, we assess the sensitivity of rice protability to exogenous inuences (world price of rice) and different agricultural policies (price, investment and macroeconomic) and compare the results across countries and water management systems.

2. Materials and methods 2.1. The Policy Analysis Matrix The analytical framework chosen to advise rice policy within the context of comparative advantage and private competitiveness is the Policy Analysis Matrix. The PAM has been used exten sively to analyze the economic impacts of agricultural policies in several countries and crops [4,10,11,13,19,20,22,26,33,34,3739]. The PAM can provide decisionmakers and analysts with both a helpful and simple conceptual construct for understanding the effects of policy and a useful technique for measuring the magnitudes of policy transfers. In addition, the PAM permits the disaggregation of supply in terms of technology and agroclimatic zone, laying a basis for the analysis of investment and technological change inuencing the dynamic comparative advantage of agricultural systems [23]. Despite these strengths, the PAM approach has been criticized because of its static nature [26].

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Table 1 Policy Analysis Matrix [29]. Revenues Costs Tradable inputs Private prices Social prices Divergences A E I B F J Domestic factors C G K D H L Prot

Empirical applications often do not correctly specify all the marginal adjustments to alterations in output and input prices due to insufcient information on elasticities of output supply and input demand. Thus, the results are potentially applicable to the base year chosen and projections may not be totally accurate [23]. Table 1 depicts the general structure of the PAM. The PAM is a product of two accounting identities: the protability identity and the divergences identity. The protability identity is the accounting relationship across the columns of the matrix. Prots (D, H, L) are dened as revenues less costs. Entries in the column Prots are identically equal to the difference between the columns containing Revenues (A, E, J) and the two columns containing Costs: tradable inputs (B, F, J) and domestic factors (C, G, K). The rst row provides a measure of private protability by accounting observed revenues and costs that reect actual market prices (private) received or paid by farmers, merchants or processors in the system. This row shows the competitiveness of the agricultural system, given current technologies, output values, input costs and policy transfers. The second row measures revenues, costs and the derived prots at social (efciency) prices. These prices reect social opportunity costs, resulting in the best allocation of resources and the highest generation of income. Thus, social valuations measure the efciency or competitive advantage of the rice production system. The divergences identity is the relationship down the rows of the PAM matrix. For each column in the matrix, any divergence between the observed private (market) price and the estimates social (efciency) price must be explained by the effects of distorting policy (to further non-efciency objectives) or by the existence of market failures (monopolies, externalities or factor market imperfections). The most efcient outcome is achieved when the rst and the second row of the PAM are equal. That is, when the government enacts efcient policies to offset market failures and when it overrides non-efciency objectives by removing distorting policies [23]. 2.2. Data 2.2.1. Ghana We use data from surveys conducted in inland valleys of the Ashanti/Brong-Ahafo and Northern Regions of Ghana. Inland valleys correspond to the upstream parts of river systems and have an important potential for the intensication and diversication of agricultural production due to their specic characteristics: a zone of high water concentration, relatively fertile soils, and lower risk for ecological degradation. However, this potential varies greatly across Ghana: the Guinea Savannah Ecology in the North is characterized by low annual rainfall (1050 mm), soil erosion and scarce vegetation; while the Semi-deciduous Forest Ecology (Ashanti/Brong-Ahafo) receives two rainy seasons per year (1500 mm) and soil fertility is higher. We analyze three types of water management systems for rice production in the inland valleys of Ghana: irrigation, supplemented rain-fed and purely rain-fed. In the Ashanti and Brong-Ahafo Regions, a total of 208 rain-fed rice farmers cultivating 183 ha of paddy land were selected, of which only 57 supplemented rainfall with different types of autonomously-sourced (without support from the government or NGOs) water supplies: pumping machine, river diversion structure, pond and shallow dug-well in order of signicance. These supplementary supplies either fall in the water harvesting or in the shallow groundwater irrigation categories. We

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will denote these elds supplemented rain-fed rice so as to differentiate them from rain-fed rice, whose only water source is rainfall. For the Northern Region, a total of 300 rice farmers were selected of which 200 are lowland rice farmers and 100 are irrigated rice farmers. Despite the availability of bunds in one-quarter of the lowland rain-fed rice elds, farmers did not make use of any supplementary water supply due to heavy ooding in that year. Thus, we classify these farmers in the rain-fed category. The irrigated rice farmers are from the Gollinga Irrigation Scheme, which is a gravity irrigation scheme managed by the Ghana Irrigation Development Authority (GIDA). In this year, these farmers, who usually farm twice a year, only farmed during the dry season. We will refer to these elds as irrigated rice (irrigation facilities are assisted by the government and farming is possible year-round). 2.2.2. Burkina Faso and Niger In Burkina Faso and Niger, data was obtained from the West African Irrigation Project (WAIPRO), conducted from 2009 to 2011, by a consortium of regional and national institutions led by the Comit Inter-Etats de Lutte contre la Scheresse au Sahel (CILSS) and the International Water Management Institute (IWMI). Five public irrigation schemes in Niger and Burkina Faso were selected for this study. We use data from two of these schemes, one in Burkina Faso (Karguela) and one in Niger (Daibery), which are dedicated mainly to rice production. While rainfall is higher in Karguela (9001000 mm) than in Daibery (350 mm), in both sites it is concentrated in one season (June October) and is characterized by intense inter-annual variability. The high organic matter content and permeability of the soils in the two locations render them particularly apt for irrigated rice cultivation. In Burkina Faso, a survey was conducted on 225 farmers, of which 100 practice irrigation with small motor pumps; while in Niger 120 farmers practicing irrigation with canals and pumps were interviewed. 2.2.3. PAM data needs Table 2 represents the rst step in an empirical application of the PAM. The entries in the table are measures of average quantity per hectare of input used and output produced in the two regions and under different water management regimes. The second step in the construction of a PAM is to compile a table of private (actual market) and social (opportunity costs) prices for each of the inputs used and outputs produced by the system (Table 3). In the baseline analysis, we assume that family members would be able to nd a job in the market at the competitive wage rate, so the private cost of
Table 2 Means. I/O Description Ghana Ashanti/Brong-Ahafo Region Northern Region Burkina Faso Niger

Rain-fed Supplemented rain-fed Rain-fed Irrigated Rain-fed Irrigated Irrigated Tradables Round-up (l/ha) Urea (kg/ha) NPK (kg/ha) Ammonia (kg/ha) Herbicide (l/ha) Pesticide (l/ha) Factors Labor (hours/ha) Working capital (USD/ha) Hired services (USD/ha) Yield (kg/ha) 7.5 7.9 64.2 45.9 5.2 0.3 1718 795 25.1 3084 5.1 51.5 80.4 29.5 4.1 0.3 2125 957 76.8 3704a 0.6 17.7 71.7 67.4 2.3 0.0 1097 431 56.6 2249 0 36.4 209.6 153.4 5.6 0.1 2524 867 75.3 4500 0 37.11 36.67 0 0.46 0.18 1318 387 14.7 1725 0 148.98 184.46 0 2.91 1.21 2588 861 31.19 4151 0 252.47 312.1 0 0.12 0.44 1039 928 50.44 3859

Output

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Table 3 Private and social prices. Ghana Ashanti/Brong-Ahafo Region Private prices Paddy rice at farm gate (USD/kg) Tradable inputs Round-up (USD/l) Urea (USD/kg) NPK (USD/kg) Ammonia (USD/kg) Herbicide (USD/l) Herbicide B (USD/l) Pesticide (USD/l) Labor (USD/h) Working capital (interest rate%) Land (rental rate) (USD/ha) Exchange rate (GHC or FCFA/USD) 0.27 Social prices 0.4 Northern Region Private prices 0.13 (Rain-fed) 0.27 (Irrigated) 6.67 0.33 0.33 0.27 6.67 7.13 0.27 0.4 32.67 1.5 Social prices 0.4 (Rain-fed) 0.6 (Irrigated) 3.13 0.4 0.47 0.4 3.13 4.8 0.27 0.2 94 1.5 Private prices 0.33 (Rain-fed) 0.34 (Irrigated) 0.61 0.66 9.45 9.08 7.15 0.21 0.36 0 446 Social prices 0.45 (Rain-fed) 0.45 (Irrigated) 0.39 0.47 3.19 3.19 4.84 0.21 0.215 276 446 Private prices 0.43 Social prices 0.43 Burkina Faso Niger P.G. Katic et al. / Water Resources and Economics 1 (2013) 75 92

7.67 0.33 0.33 0.27 7.67 7.13 0.33 0.3 49.33 1.5

3.07 0.33 0.4 0.4 3.07 4.67 0.33 0.2 444.67 1.5

0.31.04 0.34 0 446

0.39 0.47 3.19 3.19 4.84 0.31.04 0.21 0 446

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Table 4 PAM results. Revenues Costs Tradable inputs A. Ghana (US$/ha) Ashanti/Brong-Ahafo Region Rain-fed Private prices 940 Social prices 1107 Divergences 167 Supplemented rain-fed Private prices 1130 Social prices 1329 Divergences 199 Northern Region Rain-fed Private prices 491 Social prices 844 Divergences 353 Irrigated Private prices 982 Social prices 1689 Divergences 707 B. Burkina Faso (US$/ha) Rain-fed Private prices Social prices Divergences Irrigated Private prices Social prices Divergences Domestic factors Prot

153 108 45 146 116 30

918 1213 295 1142 1418 276

131 214 83 158 205 47

86 108 22 179 218 39

507 506 1 1041 972 69

102 230 332 238 499 737

563 737 174 1411 1772 361

68 54 14 249 176 73

455 676 221 922 1076 154

40 7 33 240 520 280

C. Niger (US$/ha) Irrigated Private prices Social prices Divergences

1064 1676 612

429 340 89

1367 1248 119

732 88 820

family labor is the same as that of hired. The private interest rate was calculated as the weighted average of interest rates obtained from a variety of sources (own savings, formal credit market institutions, kiosk-owners and other traders, local money lenders) by farmers of the different surveys. Social prices for tradable inputs and output were calculated following Pearson et al. [29] (data used for these calculations can be found in Tables A1 and A2 of Appendix A). The import prices of rice and tradable inputs were calculated using CiF prices from the World Bank [36] and from the Ghana Customs, Excise and Preventive Service (CEPS) respectively. Handling and distribution costs were derived from interviews with rice importers and agro-dealers. Prices are higher in the Northern Region and land-locked countries of Burkina Faso and Niger due to transport costs. In terms of domestic factors, social wage rates are the same as private ones since there are no market failures or policy distortions in the market for unskilled labor. Minimum wage laws exist in the region but they are not well enforced in the agricultural sector [32]. The social interest rate (in nominal terms) was obtained from the opportunity cost of capital and the ination rate calculated by the African Development Fund [1,2].

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Table 5 Private and social indicators of competitiveness. Description Formula derived from PAM (Table 1) Ghana Ashanti/Brong-Ahafo Rain- Supplemented fed rain-fed Private cost ratio (PCR) Domestic resource cost ratio (DRC) Nominal protection coefcient on output Nominal protection coefcient on inputs Protability coefcient C/(A-B) G/(E-F) A/E B/F D/H 1.16 1.21 0.85 1.42 0.61 1.16 1.17 0.85 1.25 0.77 Northern Rain- Irrigated fed 1.25 0.69 0.58 0.8 1.3 0.66 0.58 0.82 0.92 0.99 0.76 1.25 6.46 0.81 0.67 0.8 1.49 0.43 2.15 0.93 0.64 1.26 8.32 Burkina Faso Niger

Rain- Irrigated Irrigated fed

0.45 0.48

Vegetables in Ashanti/Brong-Ahafo and maize in the North were considered the next best alternative crops in Ghana because most farmers in the study locations mentioned them as crops grown in the rice eld. Thus, we approximate the social value of land with the prots earned by the average of representative pepper and okro farms in the Forest Ecology (Ashanti/Brong-Ahafo), and by a representative maize farm in the Northern Savannah Ecology, as calculated in ofcial national crop budgets [21]. For Burkina Faso, we derived the social value of land directly from the survey, by calculating the prots of maize production because this is the most popular crop (22% of elds) after rice (28% of elds). Finally, we assumed a social value of land of zero in Niger due to lack of information on alternative crops.

3. Results 3.1. Baseline results The PAM results for the representative farm in each region and water management regime are presented in Table 4. To allow comparison among the different countries, ratios free of monetary designation are presented in Table 5. These indicators refer to relative degree of competitiveness, efciency and policy transfers. The main ndings, which are explained in detail below, are as follows: (i) Private incentives/disincentives to produce rice vary geographically according to the local price of rice and wage rate in each country. Irrigation does not increase prots necessarily. (ii) The social protability of local rice production increases with distance to the import port. (iii) If the social price of rice is not adjusted for the quality difference between imported and local rice, local production may appear socially efcient (positive social prots) even though farmers are actually operating at a loss (negative private prots). (iv) The contrast between low private protability and high social protability of local production is greater in irrigated elds.

3.1.1. Geographical variation in private incentives/disincentives to produce rice The combination of low prices for local rice and high labor costs results in production not being privately protable in Ghana and Niger. Prots in private prices provide a measure of the short to medium-term nancial viability of the commodity system from the operator's perspective, and suggest to what degree the system may attract further investment. Our result is in contrast to previous studies which have found, for different regions and farming systems in these two countries (and

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under different assumptions on labor costs and local prices), that rice production always breaks-even or earns positive prots [8,21,31,32,35]. In contrast, rice farmers in Burkina Faso are earning supernormal prots due to higher local rice prices and lower agricultural wages than in Ghana and Niger. Rice prices are higher for two reasons. First, the parity price of imported rice increases with transport costs, which is transmitted to the price of local rice at a rate of 23%.1 Second, the quality difference between local and imported rice is less signicant, resulting in a smaller price difference between these two. What is the impact of water management on private prots of rice farmers? Our results are not conclusive in this respect. Irrigation raises rice revenues by increasing yields but also incurs higher labor costs. In the Ghanaian sites, the cost of implementing water management (both supplemented rain-fed and irrigated systems) outweighs modest increases in rice yields valued at low prices.2 Economic losses (relative to rain-fed farms in each region) are 21% higher for supplemented rain-fed rice than for rain-fed rice and more than double for irrigated rice in the North. This result coincides with Winter-Nelson and Aggrey-Fynn [35] but differs from Seini and Asante [32] and Seini [31], who derive higher prots for irrigated than rain-fed rice production systems, probably because they do not account for family labor in their cost calculations. In Burkina Faso, the effect of irrigation is opposite. Lower wage rates and a higher price for local rice mean that the value of greater yields is more than sufcient to cover the costs of irrigation. Thus, farmers in the gravity-fed irrigation scheme earn signicantly higher prots than those in rain-fed farms. The private cost ratio (PCR) in Table 5 gives the ratio of domestic factor costs to value added in private prices, where value added is the difference between the value of output and the costs of tradable inputs. A PCR over 1 in all production systems of Ghana and Niger validate our previous result: the private cost of domestic factors exceeds the value added by rice production. The reverse is true for both rain-fed and irrigated lowland rice farms in Burkina Faso: value added exceeds domestic factor costs by 819%.

3.1.2. Social protability and distance to the import port The parity value of the most similar imported rice (25% broken) was used as the social opportunity cost of rice. Local production is found to generate positive social prots in most regions, which coincides with Seini and Asante [32], Seini [31] and Winter-Nelson and Aggrey-Fynn [35] for Ghana. This result can also be derived from the domestic resource cost (DRC) ratio, dened as the ratio of social factor cost to social value added. In Table 5 we see that the DRC ratio is smaller than 1 in almost every case: rice production represents an efcient use of the countries' resources and its expansion is socially benecial. Social prots differ across the region. In the Ashanti/Brong-Ahafo Regions of Ghana social prots are negative, which implies that it is more costly for the economy to produce a unit of rice locally than to import it. However, being land-locked, the Northern Region of Ghana, Burkina Faso and Niger inherently benet by natural protection from the world market. Here, the opportunity cost of spent domestic resources (social factor cost) can be as low as 40% of the net foreign exchange the country saves by substituting rice imports (social value added) in some production systems of the region. This geographical difference arises from the high transport costs on imported rice to travel from the port in the south to the north of the country, which decrease its competitiveness compared to local rice.

3.1.3. Social protability and rice quality One of the key ndings of this study is that although local rice is protected by an import tariff, farmers earn less than if their production was valued at import parity prices (price for imported rice before tariff). The main reason for this result is that the import parity price was calculated for the lowest-quality imported rice (Thai 25% broken), which is still better than the rice produced in all study
A 1% increase in the import parity price translates into an increase of 0.23% on the price of local rice. Note however that the 2007/2008 season was exceptionally wet and at some locations, even ooding was observed affecting paddy yield and quality.
2 1

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areas. Imported rice earns a higher price because most local consumers prefer it due to its non-price attributes (absence of stone, less broken rice, uniformity and appearance). This result agrees with Seini [31], who also mentions the existence of a segmented market for various commodities, but does not elaborate further on the causes and solutions of this implicit tax on rice operators in Ghana. In contrast, Winter-Nelson and Aggrey-Fynn [35] conclude that rice producers in Ghana are being subsidized by the rest of the economy. However, the validity of this result can be questioned because they derive the private price of rice to be equal to the import parity price plus taxes minus an arbitrary quality discount of 20%. This derivation has no relation to and is not representative of the prices actually observed in the local market and received by producers. The price gap between imported and local rice conrms that the two categories of product are not considered as equivalent by consumers. The rice market is strongly segmented on the basis of quality attributes, matching different consumers' requirements and preferences. This rather weak interdependence between price level and supply and demand dynamics results in one important problem but also creates an opportunity. On the one hand, market segmentation hinders the expected impact of tariff enforcements, thus making this popular policy instrument almost futile. On the other hand, if the local industry upgrades rice quality via effective policies/investments, the expansion of rice production will address food security concerns while contributing to agricultural and national income at the same time. Note that result (iii) does not hold in the Ashanti Region of Ghana and in rain-fed farms of Burkina Faso. In these cases, two factors generate lower social than private prots. First, the opportunity or social cost of land is much higher than its actual rental value. Second, the higher social price of rice does not have a signicant impact on social revenues because it is calculated on a low yield. 3.1.4. Irrigation and the divergence between private and social prots The higher yields realized by irrigated farms means that the quality discount in the price of local rice is applied to a greater production level. Thus, the contrast between low private prots and high social prots is more pronounced in irrigated farms. To realize the major potential of irrigated elds, a greater policy shift is needed to provide sufcient incentives to encourage private investment in upgrading rice quality in the region. 3.2. Policy simulations Achieving increased growth and competitiveness in domestic production requires the right combination of policies that provide the ideal environment to increase investment and production. This section analyses the impact of exogenous or policy-induced changes on different determinants of production costs and revenues, namely labor and land costs, local price of rice (as determined by quality, conversion rate, import duty, and world price of rice) and yields. 3.2.1. Labor costs The low level of mechanization of rice production systems in the region implies that labor still accounts for the largest share of costs (2558% in the region). We analyze the impact of a decrease in labor costs for two reasons. First, the market wage rate used to value labor may not be accurate because most labor in small scale farms is family-based. Thus, its private cost is likely to be lower than the market rate.3 Second, even if workers are paid the market rate, policies aimed at increasing yield through improved rice varieties, weed management and mechanization are likely to reduce the intensity of on-farm labor use and consequently total labor costs. Prots are highly sensitive to labor costs in PAM calculations. Every system, except in Niger, is privately protable when labor is valued at a rate lower than 70% of the market wage (or the quantity of labor employed falls below 70% of its original value). When comparing rain-fed elds with those under some type water management, private prots are more responsive to labor costs in the latter
3 Since the agricultural labor market in Ghana is characterized by substantial underemployment, most of these family workers would struggle to nd a full-time job in the market at the competitive wage rate.

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simply because they are more labor intensive. In Niger, rice production still generates economic losses to the farmer even if labor costs are assumed to be zero. 3.2.2. Land costs Despite land being the most important factor in agricultural production, its private and/or social cost is usually not readily available. A negligible private value is generally considered because titles to private occupancy of land are non-existent in this region [31]. Thus, no information on rental values is collected. In terms of social costs, in the absence of clearly specied cropping alternatives, imputing social opportunity costs to xed factors within a single commodity budgeting framework is arbitrary. Consequently, a social value of zero is assumed. In this study, due to lack of data on rental values and the protability of alternative crops, we include both private and social values in the budgets of only Ghanaian rice systems (see Table 3). PAM calculations can be very sensitive to the choice of alternative land use and its valuation. If we increase all land values across the region equal to those derived for the Ashanti/Brong-Ahafo Regions in Ghana, social returns are much lower than the baseline results and in some cases, turn negative.4 Thus, if the opportunity cost of land in alternative crops is undervalued, social prots may be considerably overestimated. 3.2.3. International price of rice The most relevant exogenous factor that affects the price of local rice is the volatility in the international market for rice. According to the OECD [27], world rice prices are expected to weaken in the coming years, amid ample availabilities and erce competition among suppliers. However, volatility continues to exceed the levels seen prior to the 2008 crisis. Our sensitivity results show that if prices fell to pre-2008 levels and technology was unchanged, rice production throughout the whole region would become unprotable for farmers. It will also lose its comparative advantage after a pronounced fall, with rain-fed systems less resilient to the competition of cheaper imported rice. This means that it will be less costly to rely on imported rice than to produce it even if local rice is upgraded to a 25% broken quality equivalent. Both private and public incentives to invest in the sector will disappear and food vulnerability increase if an output downturn in Asia forces prices back up. These results suggest a need for holistic interventions if local rice is to contribute to long term sustained income and enhance food security in the face of volatile international prices. 3.2.4. Import duty The most controversial price policy in the region is the import duty level. On one hand, there are concerns that imports of rice are acting as a disincentive to local production in West Africa and the duty should be raised. On the other hand, imported and local rice are viewed as two different products and the impact of tightened trade policies will only be a small short-term boost to farmers' prot at the expense of consumers. In our analysis, we assume that local and imported sources of rice supply compete against the other on the basis of one price. In consequence, changes on the price of imported rice are assumed to be fully transmitted to the price of local rice. As a result, our estimates are upper bounds on the real effect import tariffs may have on the market for local rice. Fig. 3 portrays the response of farmer's income to increased levels of trade protection. Our results show that, in Ghana, increasing the current import duty of 20% to the CET (Common External Tariff) of 35% proposed by ECOWAS (Economic Community of West African States) will not have a signicant impact on private prots. Economic losses of rice production just disappear in the Ashanti Region but are still one-third of their actual value in the Northern Region, indicating that there is little room to increase protability by tightening trade intervention policies. In the West African Economic and Monetary Union (WAEMU) countries of Burkina Faso and Niger, increasing the classication of the common external tariff (CET) for rice from the actual category 2 (10%) to category 3 (20%), increases prots in Burkina Faso slightly and does not revert losses in Nigerien farms.
4 The social values used in the baseline calculations are ve times lower in the Northern Region, less than half in Burkina Faso and zero in Niger.

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Fig. 3. Sensitivity of rice prots to the import tariff.

3.2.5. Rice quality The low quality of rice obtained after milling is explained by a combination of factors that include poor seed variety, lack of soil and water management, low input use, inappropriate farming, harvesting and postharvesting techniques, and milling technology. Fig. 4 shows that there is huge potential to raise private

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Fig. 4. Sensitivity of rice prots to quality.

prots with quality improvements. If local rice were considered equivalent to imported rice (quality discount equal zero), prots would be over US$400/ha. Irrigated systems benet more from rice quality upgrades because the effect on prots is complemented with greater yields. Further, these are more resilient (prots remain positive) to increases in quality discounts. As a result, policies to improve both physical and quality loss should be complementary to reap the greatest potential from this use of land.

3.2.6. Yields The quantity of rice obtained after milling depends on paddy yields and on the milling ratio (rate of conversion from paddy to milled rice). Fig. 5 depicts the prots attained by each rice system at feasible yield levels.5 Rain-fed systems in Ghana only become privately protable if maximum potential yields of 3 or 4 MT/ha are obtained. Conversely, for irrigated rice, private prots become positive over a relatively high yield of 5 MT/ha (except for the Burkina Faso case). These results suggest that investing on yield enhancement alone will not provide sufcient incentives for farmers to expand rice production.
5 Assumptions on minimum and maximum attainable yields for each rice system (rain-fed, supplemented rain-fed and irrigated) are based on JICA [16].

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Fig. 5. Sensitivity of rice prots to yield levels.

3.2.7. Milling ratio The second determinant of the quantity of milled rice obtained is the milling ratio. The ratio used in our base calculations is 65%, equal to the international standard (1 kg of paddy converts to 0.65 kg of milled rice). However, the results from survey questions indicate that milling ratios were as low as 40% in some areas. At this rate, local rice becomes socially unprotable in all sites, with losses above US$100/ha. Even if milling machines are assumed to be efcient, in that their yields are close to the international standard, farm incomes would still be vulnerable to negative shocks. This is because milling technology also determines the level of broken grains, which dene the quality of the rice. In the region, the level of broken grains is usually much higher than the internationally acceptable limits (5060%) and might not even qualify for the lowest grades in the international market (15% Japan and 25% USA). This result highlights the importance of improving the quality as well as the quantity of the end product by investing in all stages of production.

4. Conclusions and recommendations Our PAM results for rice production in three West African countries indicate that private incentives to produce rice vary geographically according to the local price of rice in each country and the valuation of family labor. Under 2010 prices and technology levels, rice production is unprotable for

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farmers in the sites studied in Ghana and Niger. Rice yields and quality remain low, so that the value added by rice production does not cover the cost of domestic factors. Irrigation does not increase prots necessarily. In the Ghanaian sites, the cost of implementing water management systems, both supplemented rain-fed and irrigation, outweighs modest increases in rice yields valued at low prices. In Burkina Faso, the effect of irrigation is opposite. Lower wage rates and a higher price for local rice mean that the value of greater yields is more than sufcient to cover the costs of irrigation.
Table A1 Rice import parity calculations. Price A. Free on boardThailand ($/ton) B. Freight & Insurance ($/ton) C. Cost, insurance and freightTemma ($/ton) 444 177.23 621.23 Source Calculation A B CAB D E F D/(1 E) G C/ F H I G/H J K

[36] Interviews Own calculations D. Exchange rate (GHC/$) 0.67 [5] E. Exchange rate premium (%) 0 Assumption F. Equilibrium exchange rate (GHC/$) 0.67 Own calculations G. Cost, insurance and freightTemma in domestic currency (GHC/ton) 927.2089552 Own calculations H. Weight conversion factor (kg/ton) 1000 Own calculations I. Cost, insurance and freightTemma in domestic currency (GHC/kg) 0.927208955 Own calculations J. Warehousing costs 0.43936 Interviews K. Transportation and handling costs to wholesale market, 0.0120824 Interviews Accra (GHC/kg) Ashanti/Brong-Ahafo Region L. Transportation and handling costs to wholesale market, Kumasi (GHC/kg) M. Value before processing (GHC/kg) N. Processing conversion factor (%) O. Cost of rice milling P. Import parity value (GHC/kg) Q. Distribution costs to farm (GHC/kg) R. Import parity value at farm gate (GHC/kg) Northern Region L. Transportation and handling costs to wholesale market, Tamale (GHC/kg) M. Value before processing (GHC/kg) Rain-fed N. Processing conversion factor (%) O. Cost of rice milling P. Import parity value (GHC/kg) Q. Distribution costs to farm (GHC/kg) R. Import parity value at farm gate (GHC/kg) Irrigated N. Processing conversion factor (%) O. Cost of rice milling P. Import parity value (GHC/kg) Q. Distribution costs to farm (GHC/kg) R. Import parity value at farm gate (GHC/kg) 0.0263616 Interviews

L MIJKL N O P (M*N)O Q R PQ

1.405012955 Own calculations 0.5236 Survey 0.0755286 Survey 0.660136183 Own calculations 0.01373 Interviews 0.646406183 Own calculations 0.064322 1.442974 Interviews Own calculations Survey Survey Own calculations Interviews Own calculations Survey Survey Own calculations Interviews Own calculations

L MIJKL

0.458256 0.053234 0.608017 0.01373 0.594287

N O P (M*N)O Q R PQ

0.682324 0.054265 0.930311 0.01373 0.916581

N O P (M*N)O Q R PQ

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Table A2 Inputs import parity calculations. P.G. Katic et al. / Water Resources and Economics 1 (2013) 75 92 Ammonia Ashanti/Brong-Ahafo Region Cost, insurance and freight (GHC) Travel and transportationwarehouse Off loading Reloading Travel and transportationKumasi Off loading Import parity value (GHC) Northern Region Cost, insurance and freight (GHC) Travel and transportationwarehouse Off loading Reloading Travel and transportationTamale Off loading Import parity value (GHC) NPK Urea Herbicides Pesticides Source

28.423/50 kg 0.24/50 kg 0.1/50 kg 0.1/50 kg 0.9/50 kg 0.1/50 kg 29.863/50 kg 28.423/50 kg 0.24/50 kg 0.1/50 kg 0.1/50 kg 2.196/50 kg 0.1/50 kg 31.159/50 kg

30.745/50 kg 0.24/50 kg 0.1/50 kg 0.1/50 kg 0.9/50 kg 0.1/50 kg 32.185/50 kg 30.745 /50 kg 0.24/50 kg 0.1/50 kg 0.1/50 kg 2.196/50 kg 0.1/50 kg 33.481/50 kg

25.089/50 kg 0.24/50 kg 0.1/50 kg 0.1/50 kg 0.9/50 kg 0.1/50 kg 26.529/50 kg 25.089/50 kg 0.24/50 kg 0.1/50 kg 0.1/50 kg 2.196/50 kg 0.1/50 kg 27.825/50 kg

4.416/l 0.05/l 0.05/l 0.008/l 0.067/l 0.008/l 4.557/l 4.416/l 0.05/l 0.05/l 0.008/l 0.163/l 0.008/l 4.695/l

6.89/l 0.05/l 0.05/l 0.008/l 0.067/l 0.008/l 7.031/l 6.89/l 0.05/l 0.05/l 0.008/l 0.163/l 0.008/l 7.169/l

[7] Interviews Interviews Interviews Interviews Interviews Own calculations [7] Interviews Interviews Interviews Interviews Interviews Own calculations

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These ndings show that in order to be nancially viable to small scale farmers, water management must increase yields signicantly and be complemented with an increase in the price of paddy. It is somewhat surprising that farmers are still growing a crop which is generating a nancial loss. However, it is important to note that the market wage rate used to value labor may not be accurate because most labor in small scale farms is family-based. We found that prots are highly sensitive to labor costs in PAM calculations. Every system, except for Niger, is privately protable when labor is valued at a rate lower than 70% of the market wage (or the quantity of labor employed falls below 70% of its original value). In terms of the economy-wide contribution of local rice production, we nd that private prots are still lower than social prots when protectionist policies are in place. The divergence between private and social prots is mainly driven by substantial quality differences and the high price premium accorded to the imported rice by consumers. The price gap between imported and local rice conrms that the two categories of product are not considered as equivalent by consumers. The rice market is strongly segmented on the basis of quality attributes, matching different consumers' requirements and preferences. This segmentation explains why although local rice is protected by an import duty, the effect of quality differences on price is larger than that of trade protection. Regarding price policies, public opinion favoring rice farmers argues for maintaining or even raising the rice tariff. However, even after assuming that changes on the price of imported rice are fully transmitted to the price of local rice, we nd that increasing the import duty to the ECOWAS or WAEMU CET will not have a signicant impact on private prots. In contrast, investment policies, such as irrigation developments, have a huge potential to raise the returns to rice producers or lower the costs of production. However, to simultaneously enhance farm incomes, contribute to national economic growth and increase food security, water management must be complemented with further farm interventions to reduce quantity and quality losses such as mechanization and improved seed, harvesting and milling technology. In addition, supporting investments in extension services and farmer training are key for an efcient use of irrigation water and agricultural inputs [7]. Finally, this paper shows a strong level of commonality in rice production constraints in West Africa. The transition from a smallholder sector to a semi-industrial sector that is more integrated and capable of competing with imported rice requires the implementation of a regional response. National policies should be coordinated in order to avoid measures that have unwanted effects. Appendix A The second row of the accounting matrix utilizes social prices to measure the comparative advantage or efciency in the agricultural commodity system. The social price of a tradable output or input at the wholesale market nearest to the farm gate equals the international or border price adjusted for exchange rates and domestic transportation, processing, and marketing costs. The resulting farm gate prices are called import and export parity prices [23]. The data used and the required intermediate calculations for developing export and import parity prices are shown in Tables A1 and A2. References
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