Supporting Adoption of New Tools, Techniques and Innovations for Improved Agricultural Water Management

Hans Woldring
Session 6b: Tools, Techniques, Innovations

Introduction In our lifetime we can expect (i) climate change to reduce river flows and / or flows to become more variable in many Asian river basins, (ii) competition for water resources between users to significantly increase, (iii) unsustainable ground water extraction practices in areas of south and east Asia (which presently supports 600 million people) to reach crisis levels, and (iv) demand for the products of irrigated agriculture to rise at an average of at least 2.0% per annum. Adequate output from irrigated agriculture is fundamental to ensure food security. However, improved agricultural water management and production practices will be required to ensure the calorific and nutritional productivity of water (WP) rises to meet demand. The Asian urban poor, swelling in number by millions every year, depend on sustained access to affordable food. Irrigated agriculture will provide a large proportion of the increased food production required. What are the options and tools to improve agricultural water management and WP , and in what way can ADB facilitate the change and investment process required to meet real needs that are facing Asian irrigated agriculture? Key Issues and Challenges Adoption of new tools and innovations for improved agricultural WP frequently involves investment decisions by farmers and agricultural service providers. In the Asian context, these are frequently relatively small business owners. What constrains these small business owners from making investments into technologies such as micro irrigation, laser leveling, minimum tillage, low energy center pivot irrigation systems and the like? And what leads to crop management decisions leading to suboptimal yields? Some key issues and challenges to improved agricultural WP are: Water Policy: The policy environment should pass the test of whether each and every policy setting, and its supporting regulations and actual implementation, encourages sound agricultural water management. The list of those which don’t is long. At policy level, water reform is a complex task, especially when trans-

boundary issues are added to the list of problems that need resolution. It is easy for reform gridlock to overtake the process. In Australia, the current reform process was initiated in at least 1994/95, and although progress has been substantial, it is not complete. High level leadership is essential, and a major crisis may be required to initiate change. Vested interests can be a useful group to drive change, as the outcomes can be beneficial to them, though this is not widely recognized. Policy settings have typically meant that water scarcity and price have not driven improved water management, a dismal policy failure. Governments should lead with an openness and honesty in disclosure to users of the gravity of the water crisis and its true cost. The use of free or heavily subsidized irrigation water to gain political advantage should no longer be acceptable. Land tenure issues are a perennial social and political issue, but are solvable. Farmers will hesitate to invest in improved technologies when they do not have adequate security. This can be in the form of a lease; however lease rights must be secure, respected and ideally inheritable and tradable. Inheritance practices leading to small and fragmented farms constrain agricultural and irrigation efficiency. Farmer profitability: The importance of a profitable agricultural sector, particularly at the farmer level, is frequently not well recognized or understood by politicians. Farm profitability is essential to allow investment in human capital, care of the land, technologies to improve labor productivity and farm management changes which involve risk. Low profitability farming businesses, be they large or small, struggle to retain the next generation in the business. In some Asian countries and sub-sectors, smallholder agriculture is profitable, in some it is not. But the problem is manifest, while many farmer households can rely on external income sources to make ends meet, a lack of profitability in the farming business still discourages further investment. Water reliability: Access to water also needs to be secure, with a surety of supply. Millions of hectares of irrigated agriculture in Asia rely on government managed irrigation schemes as the only supply of water. Unfortunately the farmers cannot rely on water to be delivered as needed in both timing and volume terms. The development of millions of (unlicensed) tube wells was in part a response by farmers to unreliable surface water delivery. On a range of key performance indicators—technical and financial—government run surface water irrigation schemes are often poorly managed. The challenge is how to move these systems into more modern management and possibly ownership structures when the status quo is entrenched in government departments. Fiscal pressures may drive the ministry of finance in many Asian countries to be the catalyst for change. Risk: small business owners, especially farmers and people with few assets, are risk averse. Reducing the risk associated with production and change will enable technologies to be more rapidly adopted.

Business environment hurdles can prevent new technologies being adopted. For example: high customs duties on imported micro irrigation products, business environment difficulties for entrepreneurs to offer contracting services to farmers, or fertilizer subsidies which make non-chemical fertilizer inputs less attractive for farmers. The availability of finance for soft and hard investments may or may not be a constraint. Development partners can provide catalytic finance, however finance should become self-sustaining from a within country basis. While higher risk in agriculture results in high interest rates, high interest rates from both formal and informal finance sources also results in high risk for agriculture, and is a cause of unmanageable indebtedness for many Indian small farmers. Opportunities Fortunately there are many opportunities to bring solutions for improved water management and WP I will focus on opportunities where ADB can add value. . Water Policy: Through technical assistance operations, ADB, with other development partners, can provide support to governments to examine existing policy, legislative and regulatory arrangements and sensible ways forward. Two recent examples include “Preparation of the Nepal Agricultural Development Strategy” and “The Report of the Water Sector Task Force of the Friends of Democratic Pakistan: Infrastructure and Institutions for a Productive and water-secure Pakistan.” The highest economic and financial return on effort and investment comes from having the correct policy, regulatory and legislative settings. Governments and ADB need to recognize that developing and implementing a water reform agenda is a long term process, and real commitment from both sides is essential. Land tenure and business environment issues and challenges are largely policy, regulatory and legislative in nature, however also require investment when the direction has been set. ADB provides both advisory assistance and investment to developing member countries (DMCs). Water reliability: Many irrigation farmers and irrigation districts in Asia face issues relating to irrigation reliability—timeliness of delivery, water shortages, variable and often decreasing annual allocations, absence of property rights, ground water over-extraction and declining water tables. While some of these issues are policy related, at the operational level most Asian irrigation schemes are still government owned and managed. Corporatization of electricity and urban water and sanitation services has worked well in many DMCs, and of bulk water in many developed countries, so why can’t corporatization of state run irrigation systems work well in DMCs as a first step to improved performance (as demonstrated in Viet Nam)? Passing management and financial responsibility to the irrigators is also a sensible and viable step. More sophisticated ownership and management arrangements

can be considered at a later point. ADB can assist with the required technical assistance and finance through public and private sector modalities. Adoption of technologies: ADB projects can develop project components to assist investments at the farm level for improved farm level WP Four examples are: . • ADB has often provided finance to state or privately owned banks, and micro-finance institutions for directed lending to the agricultural sector. Provided rational lending criteria are strictly applied to credit applications, good portfolio performance can be achieved. Portfolio performance can suffer when lending officers or credit committees find their “reject” recommendations are not followed, or borrowers develop a sense that loans do not need to be serviced, a real risk with state owned lending institutions. Debt forgiveness in some DMCs has undermined the credit culture and continues to jeopardize future credit availability. • In many DMC’s, lease finance as an equipment financing modality is not well developed. ADB can assist with legislative development, finance to leasing companies, and if required, combine this with partial credit guarantees and stimulus programs to facilitate sectoral change and new business development. • Where the business environment is more difficult and a higher level of stimulus is required to initiate investment and change, subsidy programs can be considered if this is compatible with government planning. Similar programs were recently prepared in Nepal. • There is a need to promote high value crops and intensive cropping systems. This can require the expansion of micro-irrigation to small farmers, requiring strong extension support and promotion of private sector input provision and product marketing. Recommendations 1. A first step to enable improved water management (and WP) is an open, transparent and inclusive dialogue between government and all water users, including green groups supporting environmental issues. Discussions must encompass the state of water use, emerging issues, problems, and possible solutions. This requires commitment and engagement from the bureaucracy, and may not be part of their bureaucratic culture. The need for change is urgent. However, politicians and bureaucrats typically prefer to avoid getting ahead of public sentiment when considering change for fear of backlash. I suggest that the reality is that many water users are well aware of the problems. They are unhappy with the limited engagement and lack of action from political leaders and bureaucrats in tackling water reform and improved water management. A lot can be done, but the process is complex, and faces a number of vested interests seeking to protect their situation. Stakeholders need to be assisted to understand how improved water management can be to their advantage, and then help drive the reform as a win-win process.

2. There needs to be broad understanding and policy support from Government that farm businesses of all sizes should be profitable, with only targeted use of subsidies. Presently many irrigation farmers growing staple crops manage their crops to minimize risk and therefore a locked into low – medium yield potential as surface water delivery is unreliable. In turn this means they are not profitable, and demand subsidies to survive. The underlying problem is surface water irrigation system performance and in some cases over-development in river basins (as occurred widely in Australia, requiring expensive buy-back of licenses) The ministry of finance in many DMCs should take a closer look at the micro economics of what is really going on. 3. Adoption, and indeed rapid adoption, of new technologies through investment to improve water productivity is possible by water users, when the business environment, including land tenure, water reliability and security, and business profitability, are well established. In the myriad of situations where this is not the case, adoption rates are slower, sometimes to the point of zero adoption. An interesting development at this time is the very rapid growth of laser leveling and drip irrigation in India, both excellent developments to improve water productivity, but most importantly profitability for the farmer. Both technologies have sound business models, underpinned by the need for water to become more productive. 4. ADB is able to assist DMCs with TA services and carefully designed finance facilities to assist them with the complex issues and requirements of improved water management and water productivity.