Agricultural investment strategies: prioritizing land and water - Yoginder K. Alagh

Yoginder K. Alagh, Former Minister of Power, Science and Technology
and Planning, India

INTRODUCTION

This paper uses FAO and related studies to bring out the critical role of land and water investments in any broad based growth strategy for the developing countries of Asia and the Pacific region. Land and water investments are under field conditions, integrated with each other. As land reserves are used up, water investments and policies become the key to overcoming the land constraint and sourcing agricultural growth for food security and development. This is particularly so in the post - WTO scenario. Improved and more timely water supplies in the field are also associated with the introduction and spread of the new technologies, at the initial phase of even bio - technology varieties.

The water sector was neglected in the last decade of the last century, despite FAO’s studied interventions to the contrary. More recently, the link between sustainable rural growth and a multi - pronged land and water development strategy under alternative agro - climatic regimes in Asia and the Pacific region has been established in a fairly systematic manner. Successful newer paradigms of development include multi - financing sources, taking account of private, community and borrowed resources and newer forms of organizations, including private, cooperative, NGO - led and community organizations and 'mixed' forms. Research, however, shows the need for the state to play a major strategic and enabling role, setting up new institutional organizations, establishing financial and organizational rules and creating a framework for resolving problems that inevitably arise with innovative solutions. We illustrate some of these issues with data and carefully selected examples and best practice case studies.

STRATEGIC ROLE OF LAND AND WATER INVESTMENT

FAO moved from irrigation as an agricultural input to a perception of the synergistic role of water in the process of agricultural growth as early as the late - 1970s in Agriculture Towards 2000: “The pervasiveness of such influences is suggested by a comparison of targets for 1975 proposed in the 1969 FAO Indicative World Plan for Agricultural Development (IWP) with actual experience up to 1976. While actual production growth in most developing regions was below proposed growth rates, most identified inputs... actually exceeded growth rates proposed for them”.

For example, the targeted annual growth rate for agriculture in Asia and the Pacific was 3.7 percent, but the achieved rate was 2.6 percent. However, arable land grew at 0.6 percent annually, twice the target rate and irrigated land at 2.2 percent while the target was 1.8 percent. Since then policy and planning exercises have been more holistic with simultaneous development of land and water. Thus the planning methodologies of Agriculture Towards 2000 considered the development sequence of moving land from a soil and water regime to an alternate one. There were five land and water classes of numerical models, from bad soils with low and variable water availability to good irrigated lands. This more synergistic view was developed from FAO field experience in preparing agro - climatic regimes for appropriate cropping and farming systems. Agriculture Towards 2010 carried this process to a logical conclusion with sustainable development of land and water resources providing the basis of farming systems (Alexandratos, 1995).

These integrated views had an impact on policy recommendations and target systems. In some countries the role of irrigation in releasing the land constraint was clearly seen. One planning exercise for Asia stated that: (i) harvested area could be estimated directly as a function of past irrigated area, giving a direct estimate of elasticity of harvested area to harvested irrigated area; (ii) cropping intensity could be estimated as a relation of arable irrigated area; and that (iii) cropping intensity could be separately estimated for irrigated and non - irrigated areas and time trends analyzed and projected.

These categories are approximate and water is now treated in a more sophisticated framework which connects scarce resources with sustainable food and water security. Water flows do not follow administrative or political boundaries; geophysical and not political and administrative features confine aquifers. Climate also determines the demand for water, including evaporation. Seasonal rainfall cycles can be very different across countries. For structural understanding and policy analysis, water is now seen as central to a sustainability agenda.

Water availability is now more accurately estimated in structural analysis and advanced project design for aquifer management, drainage and conjunctive use projects, e.g. the Mike She model for Australia's Murray Darling Basin Plan used by the New South Wales Department of Land and Water Conservation. As discussed by Millington (1996) it is used for integrated catchment modelling and its main features can represent major flow features and describe dynamic interaction between surface and subsurface water systems. A simple multi level flow chart model is shown in Figure 1.

Figure 1

Source: Nicholas Sonntag (1996)

A more detailed version with added water resources made available by more precise basin assessment is seen in the Mahi Narmada Doab model developed by Alagh and Buch with initial heads in 1980, calibrated heads for 1990 and forecasts for 2000 under alternative use assumptions. The model reflects forest cover, surface irrigation and pumps drilled (Fisher, 1995).

Integrating surface flows with local small storage projects is now more accurate. A 14 percent rise was reported in estimated water availability - not trivial in the context of water scarcity - in the Shedhi branch of the Mahi system, initially planned with no tanks (Table 1)

TABLE 1

Tank storage in the Shedhi system

Source: Alagh (2000)

Microstudy approaches to water resources availability assessment reflect complex sources compared to earlier assessments based on empirical formulas, preliminary projections and simple guesses. International programmes address such limitations, but there is a more basic problem. The synergy of water as a sustainable holistic resource can only be captured with integrated methodology, e.g. simultaneous use of tanks and surface conveyance strategies. More precise assessments can be of critical importance.

TABLE 2

Irrigated area: share and growth, 1967 to 1995 (growth rates on 3 - year moving averages)

SOURCE: FAOSTAT

Conceptually, water availability measurement is in the context of physical systems in the ecological domain. This is a strong argument for integrating such work with the FAO tradition of cooperative work with UNESCO on agro - economic zoning, including soil and land categories: dry semi - arid, moist semi - arid, subhumid and fluvisols/gleysols and marginal variations of these, plus irrigated desert (FAO, 1978/81; FAO, 1982; FAO, 1993).

Agro - economic zoning of soil/land type, water and climate by category is of central importance. Climate here means weather, i.e. temperature and rainfall levels and variations, while water is both surface and ground. The concept is well described in Sadasyuk and Sengupta (1968) who divided India into 18 agro - climatic zones and 44 subregions. Similar exercises have been developed in other large countries such as Indonesia (Nasution, 1993).

SLACKENING INVESTMENT AND STRATEGIC RESPONSES

That real investment in land and water has not progressed as suggested by the FAO Global Models, Policy Studies and Global Conferences is well known. Moreover, there is evidence that efforts and investment have fallen since the 1980s compared to earlier periods. Table 2 shows that from 1982 to 1995 growth of irrigated area was 1.56 percent annually in 13 Asian countries, compared to 2.05 percent annually from 1967 to 1982. Irrigation growth declined in 11 of 13 countries, the only exceptions being Bangladesh and Myanmar.

Countries where irrigation growth declined by 50 percent or more from 1982 to 1995 compared to 1967 to 1982 were China, Republic of Korea, Malaysia, Nepal, Philippines, Sri Lanka and Viet Nam. Given the primal role of water in a synergistic policy of widespread rural growth, these developments are of concern.

TABLE 3

Poverty removal and malnutrition amelioration based on water development Asia 2020

NOTE: A = Low Investment: Weak Reform; B = High Investment: Strong Reform; C = Eliminating Malnutrition; D = Baseline; E = Elimination.

Source: ADB, 2000 based on IFPRI data.

The need to reverse these trends is obvious. Practical steps to emphasize the need for land and water investment are necessary, such as educational campaigns with content as indicated above. These would rely on the synergy and sustainability of land and water investments. NGOs, farmers' groups, agricultural universities, schools and the media could be involved in a long term process.

As many people are more impressed by disaster predictions than by basic education an effective strategy might emphasize crisis aspects of neglect scenarios relative to water and food security as 'New Millennium' variants of earlier FAO Self - Sufficiency Ratio (SSR) indicators.

A useful way to respond to the neglect of policy and investment in land and water development is to press for an understanding of scenarios of widespread sustainable growth, food security and water security using available rural development scenarios. Agriculture Towards 2010 projections need not be repeated. Recently the Asian Development Bank (ADB) used International Food Policy Institute (IFPRI) studies to project such scenarios. Table 3 reflects the critical role of land and water development policies on eliminating poverty and malnutrition.

Rural poverty is very high in Asia and the Pacific region (669 million in the 1990s), with 266 million poor in China and 250 million poor in India, according to IFPRI studies used by ADB. IFPRI’s global IMPACT model projects a 'business as usual' scenario of 'low investment - weak reform' and a preferred scenario of 'high investment - strong reforms'. Water investments and policies are central differences in the two scenarios: Scenario A 'low investment - weak reform', 0 percent water growth and 10 percent drop in usage compared to Scenario B: 'high investment - strong reform', 5 percent water growth and 10 percent increased usage.

Source: Alagh, 2000d.

Table 3 shows the importance of the growth of irrigation and improved water use on poverty and malnutrition amelioration. By 2010, if land and water scarcity and degradation are avoided by better policies, river basin management improves, user - managed irrigation is implemented, water rights, pricing and markets are introduced and groundwater management is enforced, average per capita daily availability of calories in developing Asia will rise from some 2 500 kcal per capita in 2001 to 2 850 kcal. By 2020 or before, malnutrition can be eliminated. Land and water policies must be part of a larger reform of good governance and economic reform.

EMERGING SCARCITIES

Some studies of large developing economies including China, Brazil, India and Indonesia indicate that in terms of current and anticipated growth trends (apart from shortages of water for direct use), sustainable requirements for water to intensify land use in agriculture, forestry, urban sanitation and energy requirements will require sharp breaks with past attitudes and policies. Business as usual will not work. An Indian illustration shows that cropping intensity must rise dramatically, non - coal - based energy expand rapidly and that BOD disposal strategies will be critical as Box 1 shows. Similar scenarios were presented for China and Indonesia.

While present studies suggest technology and ‘appropriate’ institutions as an urgent panacea, the work is of a preliminary nature and needs considerable focus. Most models bring out the cost of delay in starting on the preferred policy paths.

Studies bring out the conflict in sharing of water between agricultural and non - agricultural needs and rural and urban requirements. Such conflicts show up in ‘land scarcity’ or sustainability crises, for example deforestation. Improved water use is invariably an important part of the mediating strategy in terms of allowing intensive agriculture and releasing land for sustainable use. In India, Singh (1994) suggests that non - agricultural land use is growing at 6 to 10 percent per decade. With arable area not expanding, he calls for a land use policy. Alagh (2000d) calls for a changed emphasis from urban land ceilings and control of each plot to a land use and transportation policy, showing that the pattern of urbanization can determine the quantum of BOD and water demand. Brown (1995) projects worrisome projections for land conflicts between urban and rural use in China, are different from the lower figures in UNU - IAS (Lindert, 1996).

There is much variation in estimates of waterlogged and otherwise degraded land. For India estimates vary from 50 million ha to 13 million ha. There is similar variability in global estimates. The author tends to agree with Alexandratos (1995) that many so - called global estimates are simply informed opinions, problems are less severe and sustainable development strategies can make an appreciable impact.

Pricing of water use is clearly important when such scarcities emerge. This is particularly true for irrigation and groundwater use. Investments in technology are also seen as particularly beneficial, both on water supply and distribution and on water using activities like newer crop varieties (ADB, 2000). In projections for the United Nations University regarding India, Alagh (2000d) shows that there are at present no water saving technologies in the field. Hybrid paddy in both India and China needs more water per hectare than HYVs and is also more demanding in terms of stress. But more appropriate cropping sequences across agroclimatic regions will save water. It would be useful to precisely outline the role of water development and management strategies in some large countries with different agro - climatic regimes which are a 'World within the World' (Alagh, 1994) to systematically determine these issues.

INSTITUTIONS: STRUCTURE AND INCENTIVES

Near consensus among water sector institutions focuses on three essential elements: privatization, decentralization and the role of the market. As with earlier World Bank research, a recent study on Asian agriculture by the Asian Development Bank (2000). There is much to be said for these approaches. Agriculture is atomistic: farmer response to economic incentives and direct intervention by large government agencies regarding input or output is often counterproductive. In Asia the powerful work of Hayaami for example has shown the vitality of peasant markets (Hayaami, 1981). Continued agricultural growth reduces unemployment and poverty. In good soil and water conditions, given available market infrastructure, the competitive model works.

The state can play a role in technology generation, infrastructure creation, introducing new technology, market intervention and risk reduction, but the success or failure of the green revolution still relies on the farmers themselves and their organization. It is now recognized that hunger, deprivation and unemployment were minimized in areas where widespread agricultural growth took place, generally supported by market incentives. Growth was fast in areas with good soils and assured rainfall or irrigation, but arid regions, hill slopes, difficult aquifers - hard rock or coastal areas prone to salinity ingress - were bypassed because they were problem areas. Peasants are rational. Markets work here as well but reality is more complex. The performance of areas with low and/or uncertain rainfall regimes was poor and uneven. 'Marketization', 'commercialization and sometimes 'globalization' led to serious problems, with socio-economic deprivation, destabilization, and environmental disaster, as two sides of the same coin. Helleiner, later chair of the International Food Policy Institute (IFPRI), showed that associated with the disasters in Saharan and Sub - Saharan Africa was the systematic decline of peasant and community organizations in rural areas (Helleiner, 1986).

Varied agro - economic regimes in difficult areas historically evolved to a balance between social activity and resources because of traditional economics and culture related to soils, climate and resources. These are again being incorporated in watershed and other water and soil development projects. This traditional equilibrium was in many cases cruel, especially to women. Nonetheless society had coped with the crisis of resource endowments. This fragile equilibrium was being disturbed, before the current emphasis on globalization. Diminishing mortality, rising population pressure, commercialization and marketization were leading to the breakdown of traditional practices. Increasing desertification, soil erosion, flood proneness and forest clearing could be traced to water harvesting or drainage breakdown and rising commercialization - including a decline of in kind labour contributions.

These vicious circles coexist with positive experiences. Some households and communities have coped with similar fragile land and water endowments and have met energy, food, basic employment and income deficits in a sustainable manner. While in the early 1990s these were considered 'experimental' in nature, today they are of such magnitude to be called 'alternative' organizational methods rather than demonstration projects. In the late 1980s under the author’s supervision, eight case studies were studied by independent research institutions in India, where community effort with private landownership, food and energy gaps were met in a sustainable manner. These studies described the land and water development project implemented in a defined homogenous micro geographical area such as a hill slope, a micro watershed, a tributary branch, an aquifer, or an irrigation distributory (Alagh, 1991). They estimated land and water development costs, labour, ‘outside finance’, output as food requirements met, energy requirements met and fodder supplies. There were estimates of ‘economic rates of return on the investment’, i.e. at accounting border prices, with a shadow wage rate 25 percent higher than the market rate. Financial rates of return at market prices were also estimated. The studies showed high economic rates of return (18 percent plus) making them very productive investments.

The initial studies were widely replicated (Chopra and Kadekodi, 1993). A recent study by the United Nations University and an ADB review of Asian agricultural experience has some insights (ADB, 2000). There is yet no theory of such development, but there are preliminary pointers which we review. The projects examined have varied considerably. Watershed development for settled agriculture, alternate tree crops, salinity reclamation, farmer - run lower level irrigation systems, aquifer management in difficult situations, such as coastal aquifers, tribal lift irrigation cooperatives, and tank irrigation have been reported and studied.

The success stories are community and leadership based, with leadership coming from diverse sources - an NGO, an army retiree, a concerned civil servant and a scientist. The leaders either had science backgrounds or knew enough to adapt from nearby science institutions. Organization structures were mixed neither purely private nor fully community - based control. The leadership invariably argued for aggressively functioning markets, private landownership and household level agricultural operations, but there was limited, well - defined land or water management cooperation. This could be drainage, soil shaping, contour management, improvement and management of lower level canals, controlled grazing and so on.

Even though the economic rates of return were high, they incurred financial losses. These have at least been estimated in the initial stages of operation. The reasons are not fully understood. Some pointers are to the effect that invariably output prices are lower than border prices and input prices are higher. Markets are poorly developed in fragile regions and soil; amendments, pump sets, seed prices and interest rates will be higher than in developed regions Another reason could be that input rates may in poor soils be high initially and may go down as the organic composition of the soil improves. In saline lands for example, initial irrigation requirements for leeching may be high, seed rates and soil amendments may cost substantially and low value crops may need to be grown in rotation to improve the organic composition of the soil. Financial support to such efforts also needs effort at institutional reform. Collateral becomes difficult to organize in partial cooperative forms of organizations and bankers generally find community collateral unacceptable. Many of these projects require lending through a weather cycle, for example a watershed development cycle. The fact that that some of the resource requirements of such projects emerge from labour contributions of the community makes it difficult to work out margin requirements. There is an interesting discussion of reform issues from a bankers perspective to refinance the loan component of such projects in an annual report of a national bank for agricultural and rural development (NABARD, 1991).

There is need to design a policy of initial and targeted subsidies for such efforts and also financing reform. This is a complex issue. The intention has to be to help those who help themselves. But the rules of such help systems are not easy to design, as they have to work at a highly decentralised level. The economic imperative will be to operate a hard budget constraint; otherwise resources will be wasted. On the other hand viable projects must be supported. There are also questions of financial reform mechanism design. Until recently, it was easier to buy a tax - free New York Municipal corporation bond than a local bond for infrastructure support of the kind being discussed. There is now a vast literature on irrigation performance and management systems. Many case studies are available, including those initiated by the International Institute of Irrigation Management. More recent attempts have been made to generalise from them. The need to integrate new technology with community and socio-economic institutions has been indicated (Small and Carruthers, 1991; Ostrom 1994, 1996 and IIIM studies summarized in Shaul, Manor and J. Chambouleyron, 1991). The relative inefficiency of state - run systems is known, and their impingement on historically evolved communal systems (Wade, 1982 and Chambers, 1988; Siy, 1987; de los Reyes and Jopillo, 1987). Newer studies report on the fragile nature of traditional irrigation system rules, their vulnerability to outside interference and commercialization - particularly in terms of contributed labour and maintenance. The struggle to define rules which permit local initiative without open - ended subsidies is recognized. Moreover there is now an awareness that disincentives to perverse behaviour must be put in place. Paradigms for land and water policies in different agro - climatic regimes must be developed, with organizational and financial rules for practical working systems.

An emerging literature questions the proposition that decentralization and self - management will automatically increase performance levels. Government expenditures in the water sector may decline. Lacking a policy to monitor performance and anticipate systemic solutions to emerging problems is a problem in itself. Empirical studies show mixed results from some decentralized participatory experiments (Vermillon, 1997; ADB, 2000a). ADB quotes a study by Rice that poor operations and management have a little impact on irrigated crops (ADB, 2000b).

On land and water and problems of ecologically fragile areas, Agenda 21 seeks a comprehensive approach and asks for implementation of sustainable development investment plans and strategies at national level through international cooperation. The Technical Annexe to The Hague Meeting Pronk - Mahabubul Haq paper by I. Sachs commends an agroclimatic approach to land and water development costs.

Alagh (1991b) gives many examples of watershed development projects with a short - pay - back period. Techniques for such projects are well known and their impact at community level would be favourable. Yet they need public funding for the front - up costs. Alagh argues for agro - climatic planning in terms of alternative agricultural and framing systems to overcome the shortcomings of favoured crop/region approach (Sachs in Pronk and Haq, 1992).

The literature on capacities and designs leads to interesting questions. On the one hand it is argued that there has been an excessive emphasis on building physical capacities and management and institutional issues have been ignored in irrigation systems. Traditional management systems in particular it is argued are being swamped. On the other hand it is argued that physical capacities have fallen short (IMMI, 1987, 1991). Ambler's plea that “The link between techno - managerial arrangements and local performance goals must be understood before measuring performance or proposing interventions” probably contains an important clue (Ambler, 1991). Alagh and Buch (1995) have shown that in planning distribution systems in developing countries using hydraulic techniques developed elsewhere - for example full supply hydraulic distribution systems operating in the developed world - need much innovative systems work. In the California aqueduct and the Canal de Provence, there were few farmers as compared to the examples they studied. The behaviour of large farming populations must be studied and built into capacity and design parameters. They show the use of acreage response studies and water allocation and distribution systems working on conjunctive use principles with the operation authority monitoring and if necessary intervening. The Mekong Basin Indicative Plan asks for such work to be intensified and refers to the Alagh - Buch model as “an excellent example of how agricultural econometric models are used in water resource planning to help design and manage large irrigation systems.” (Mekong River Commission, 1996). This is an area of high priority work for project design and policies.

While recognition of water rights will generally lead to smaller dams, the need for basin and interbasin transfers of water will remain. For example the Mekong agreement stipulates cooperation on maintaining flows “To enable the acceptable natural reverse flow of the Tonle Sap to take place during the wet season”. The agreement emphasizes sustainable development (article 6) and shows sensitivity to water rights not seen earlier. Such awarenesses will have important design and structural implications on interdisciplinary work not seen earlier, when the economist, social anthropologist and social worker were seen as add - ons after project design rather than a part of the engineering design team. Replication of these examples will need systematic work, training and manuals.

LOCAL AND GLOBAL RULES

The problem of imposing budget constraints at local level and helping those who help themselves is difficult to address. Another way of setting the problem is to harness the great vitality of decentralized markets in replicating widespread rural growth within the core areas of local and global concern. Some lessons:

• Financial institutions must design structures to enable community collateral such as self help financing groups. Land and water development groups, local infrastructure projects in road or communication sectors (Alagh, 2000), making products developed in R&D institutions, training for production with improved techniques, and market development schemes developed by local and community groups are other examples (ADB, 2000a);
• Lending through a weather or project cycle is necessary. NABARD began such a scheme in 1991, gave it up in 1993 and is again starting it now (Reserve Bank of India, 2000);
• Developing 'policy champions' to set administrative, financial and procedural issues at local, regional and national levels, when problems arise with these kind of development strategies. It is reasonably certain that problems are going to arise in development experiments which are off the beaten track. The question then is, is there anyone in the policy decision making structure to sort out the problem. ADB reports in a study of farmer managed irrigation systems, that failures were those where such support did not exist. Failure here is defined as performance levels in water delivery lower than by government agencies (ADB, 2000a).

Such problems arise in part because existing legal and administrative systems and financial rules are structured for formal organizations in the public or private corporate sectors, as are global financial institutions. Newer institutions with strategic mixtures of organizations and styles - such as cooperatives and corporations, NGOs and government, NGOs and cooperatives - do not have a level playing field: for example a loss - making subsidized electricity system can underprice a renewables group and drive it out of the market. Legislation for a recommended structure for cooperative companies is in India's Parliament (Alagh, 2000c). Eventually subsidies and protection given to established groups must be withdrawn. In the meantime equal protection must be given to each group. Incentives and disincentives for such growth should begin with basic policies such spending cannot exceed available resources. Resources which are short or binding constraints at national and global levels are elastic at local levels but using them requires policy changes at higher levels. For example, it is easy to buy a New York City tax free bond, but little attention has been given to developing markets for such bonds to raise funds for local bodies in developing countries - and the fiscal reform that must precede them, as demonstrated in Ahmedabad (Vaidya, 1999).

The last three problems essentially work out that the reform process has to be fairly deep rooted for widespread land and water based poverty reducing growth processes to take place. This might be the appropriate tone to conclude.

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