6.1. Policy Reforms
6.2. Transitional Issues
6.3. New Market Compatible Polices
Recent policy reforms designed to reduce the fiscal burden of irrigation systems and to increase the efficiency of these systems include: (i) lowering subsidies and raising user fees to cover operation and management costs; (ii) decentralizing the management of irrigation systems and in some cases transferring (devolution) the management and even the ownership of the projects to water users; and (iii) developing the use of water markets. Governments have reduced budgets for the construction of new irrigation projects, and current policies emphasize the rehabilitation and consolidation of existing facilities. New projects now face stricter economic criteria in evaluating their feasibility, and smaller projects are given preference over larger ones.
In Colombia, Law 41 of 1993 emphasized both efficiency and equity criteria in irrigation project construction. The law mandates community participation in project design, access by small farmers, and requires that 100% of operation and maintenance costs be recovered by users. HIMAT's role was redefined to be more in technical assistance rather than administration. In Mexico, expansion of irrigated land slowed and even became negative in the early 1990's. Slow growth was caused by reduced government expenditures on new irrigation projects that fell from US$ 3,600 million in 1981 to $230 million in 1990. Water policy reforms have: (i) raised the costs of water to producers in public irrigation districts, with users paying an estimated 83% of costs in 1992 compared to 18% in 1988; (ii) decentralized water management units and begun to transfer irrigation districts to water users' organizations; (iii) enacted stricter economic criteria for new project appraisal and emphasized rehabilitation and consolidation of existing facilities over new construction; and (iv) changed the national water law to permit the development of water markets. The New Water Law of 1992 makes it legal to lease or sell water separate from land. In Peru, the Agricultural Investment Promotion Law of 1991 began the process of transferring the management and operation of public irrigation projects to user groups, and set water tariffs for full cost recovery of operation and maintenance.
Obstacles to policy changes. There have been both bureaucratic and political obstacles to the implementation of policy reforms. It has proven difficult to raise user fees and lower subsidies. Vested interest groups that benefited from the construction or allocation of new irrigation projects have also resisted reforms. In Ecuador, irrigation continues to absorb a large fraction of the agricultural budget, and beneficiaries bear only a small part of project costs. Colombia has transferred systems to users but at a slow rate.
Property rights and water markets. Water markets require the separation of land and water rights. In most countries, property rights over water are poorly defined, limiting the emergence of water rights markets. In Chile, by far the most advanced Latin American country in organizing a market in water rights, a new water code was introduced by the military government in 1981. A distinction was made between owners of "consumptive" water rights (farmers) and owners of "non-consumptive" water rights (hydroelectric companies) who can divert water for their own use as long as they return it for use by downstream users. The objective of this separation was to give private incentives to the development of hydroelectrical capacity in the foothills of the Sierra above the irrigation districts. The double set of rights creates a conflict over the timing of release of the water flow which is not regulated by "non-consumptive" water rights. Hydroelectrical companies can store water when farmers need it and release it when they may not, without legal interference with farmers' water rights, yet creating strong inconveniences for them. Private bargaining between farmers and hydroelectrical companies has proved unable to resolve this conflict. This suggests that the currently incomplete definition of water rights will require further government intervention to introduce a time dimension in the definition of water rights. Technologically, water markets also require an ability to monitor and control water use on each plot. It may not be feasible to upgrade or retrofit existing projects with technology suitable for water markets. New projects will consequently need to be designed with this technological requirement in mind.
Private investment. Positive externalities may justify public investment in irrigation systems. Private investment can be encouraged via financial incentives and by constructing complementary infrastructure, such as roads and electricity. In most countries, particularly those emerging recently from stabilization policies, interest rates are extremely high and long term credit is not available. Until such credit is available, it is unrealistic to expect that private investment can substitute for the traditional role of governments in investing in irrigation projects.
Environment. Many feasibility studies and evaluations of irrigation projects fail to adequately account for the actual or potential environmental degradation resulting from irrigation, including salinization and alkalization of soils. In addition, watershed management to control soil erosion and the siltage of reservoirs must be an integral component of the management of irrigation schemes to achieve sustainability. This requires integrating the upstream and downstream interests under a single authority (such as the Cauca Valley authority in Colombia) or giving irrigated land to upstream households to create private incentives for soil conservation by upstream users, typically slash-and-burn subsistence farmers or extensive herders (Haiti).
Many international lending agencies have decided to add the constraint of sustainability to the requirements that new construction projects must satisfy. There is no accepted single definition of sustainability, but in general the concept refers to constraining resource use by the present generation so it does not imply lower welfare levels for future generations compared to the present generation (Brundtland, 1987). Sustainability is thus equivalent to inter-generational equity in resource use. In general, satisfying this criterion will imply resource transfers (tax-subsidies) from the present to future generations (for example by taxing part of the rent derived from use of a natural resource by present users and investing it into conservation or technological change). This raises a host of important issues for the management and the credible implementation of these transfers. In general, the institutions necessary to implement these tasks are missing or, if they exist, they do not have the instruments to commit that the transfers necessary to achieve sustainability will effectively be implemented (see de Janvry, Sadoulet, and Santos, 1995).
Producers organizations. The successful decentralization of the management of irrigation systems or the devolution of ownership of the system to the users requires well functioning producers organizations. There is a role for government and NGOs in promoting these producers organizations and assisting them achieve effective cooperative behavior in the management of irrigation systems and other common property resources (Ostrom, 1993).