ECONOMIC EVALUATION OF ON‐FARM WATER MANAGEMENT PROJECTS1

Abstract

ABSTRACT: During the last three decades, developing countries have invested enormous amounts of resources (running into billions of dollars) in the development of large surface irrigation systems. Investment funds were largely spent on the development of the main systems such as dams, canals and distributaries. Very little attention and resources have been spent on the development of below‐the‐outlet subsystems, in spite of very low levels of water use efficiency due to lack of proper land leveling, high water losses in field channels, and skewed distribution of available water among farmers served by individual water courses. This state of affairs has resulted in a lack of confidence on the part of most farmers in the reliability of surface irrigation systems to deliver water on time and in adequate quantities which, in turn, has resulted in farmers using below optimum levels of all other complementary inputs except labor. Realizing the importance of improving water use efficiency, both the domestic governments and donor agencies are increasingly paying serious attention to these problems. On‐Farm Water Management (OFWM) as a strategy to improve water use efficiency and consequently agricultural production in many developing countries has been currently receiving very wide and vigorous consideration among economists, water management experts, policymakers, and donor agencies. A judicious use of the newly allocated funds of OFWM projects obviously needs proper evaluation procedures so that money could be allocated for the most deserving purposes and projects. In particular, recently, private profitability calculations due to public investments in OFWM activities have received attention from economists and decision makers in developing countries’governments and in donor agencies are very much interested in knowing the impacts of their investments in OFWM activities on farmers’income and welfare. However, the evaluation procedures commonly used in empirical studies, using a production function approach, seem to be at variance and sometimes inconsistent with proper comparative‐static procedures. Thus, the primary objective of this paper is to develop consistent procedures for evaluating the impacts created by OFWM investments on farmers’income and resource use. In this context, the paper examines the critical relationship between the market price of the agricultural output and production function parameters which are affected by the OFWM investments.