Economic Analysis of Financing and Sustainability of Irrigated Agriculture in the Lower Anambra and Lower Benue Irrigation Projects, Nigeria
ABSTRACT
Irrigated agriculture provides a very important part of national food security strategies as well as individuals’ and communities livelihoods at the local level. Yet the performance of many irrigation and drainage systems in Nigeria is generally below potential due to a variety of shortcomings. The monopolistic nature of the sector and its social sensitivity has fostered extensive government intervention that has not always been conducive to financial sustainability. Insufficient cost recovery and lack of direct linkages between revenue and expenditure, and between the client and the service agency are the root of the problems resulting to lower performance. Globally, there is a consensus for irrigation sector reform to increase water productivity, bothering on the institutional structure for irrigation management and the incentives for agencies and farmers. These reforms suppose that irrigation water is to be priced and that farmers will have to pay for the cost of water supply and related services. While such arrangements are important, some questions arise: would it work in situations where the physical infrastructure is dilapidated; user ability to pay is severely constrained by macro-economic factors; market concepts and institutions are absent or in their infancy; and capability in both management and regulation is limited. These concerns informed the need for this study. The broad objective of this study was to analyze the financing and sustainability of irrigated agriculture in the Lower Anambra (LAIP) and Lower Benue (LBIP) Irrigation Projects. The specific objectives of this study were to (i) describe the sources and volume of investment;(ii) determine levels of cost recovery achieved, (iii) analyze the institutional and management patterns of irrigated farming in the two schemes; (iv)describe gender participation in the schemes; (v)Describe gender division of farm decision making and performance of activities; (vi) measure resource productivity and enterprise profitability in both schemes; (vii) determine farmers willingness to pay for irrigated agriculture ; and (viii) Identify the socio-economic factors that influence their willingness to pay.Data for this study was collected mainly through focus group discussion and administration of structured questionnaire to farmers randomly selected from the two projects. In the LAIP, a total of 143 farmers were randomly selected for the interview, while in the LBIP a total of 33 farmers were randomly selected and interviewed. In both schemes key management and technical staff were also interviewed. Information collected includes socio-economic characteristics of farmers like educational status, income, age, years of experience; institutional and management patterns of irrigated farming; farmers’ input costs and output price data, and amount they are willing to pay for improved water service. Data collected was analyzed using frequencies, percentages, gross margin, financial self-sufficiency indicator, Cobb-Douglas Production function, and Tobit regression model.The LAIP scheme is not able to sustain itself for operation and maintenance as the financial self-sufficiency indicator is 0.60. In both projects, the major interests identified by the farmers include water quality, quantity and availability and also timely maintenance and repair of irrigation infrastructure. Headship of household was indicated by 81.81% of the respondents in LAIP as a factor affecting access to land in the project. Another major factor is community membership which was indicated by 79.29% respondents. Major farming decisions like leasing land, fertilizer and pesticide use, were taken by male heads of households. The Cobb -Douglass production function analysis showed that for the LAIP rice enterprise the variables that are significant are fertilizer, seed and land; with seed being negatively related to output. The overall F-Value of the regression was significant at 5% leading to a rejection of the null hypothesis that resources used in the production do not significantly influence the output. Seed, Land and fertilizer were significant in the analysis of potato production in LBIP. Fertilizer used was negatively related to output. In the LAIP the gross margin obtained for the rice enterprise was N 92, 802, while a value of N89, 662 was obtained as profit. In the LBIP where Potato is grown, the gross margin is 119 039, while a value of N 116, 919 was obtained as profit. The mean Willingness to Pay amount is N6192.3 and N6378.80 for LAIP and LBIP respectively. The variables that influenced willingness to being a valid or invalid response were farming as an occupation, total income, start price and location being Omor. Those that influenced willingness to pay for valid responses were start price and location being Omor.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The development history of countries worldwide shows that agriculture is the engine of overall economic growth and broad based poverty reduction (Van Koppen, Namara &Safilios-Rothschild, 2005). Higher farm productivity enhanced producers incomes, in cash and in kind, and created demand for agricultural labour. The multiplier effects of this growth became the propelling force for overall economic advancement in the developed and emerging economies.
Africa currently lags behind all other regions in terms of farm productivity levels with depressed crop and livestock yields (United Nations Economic Commission for Africa (UNECA) 2007). Africa Water Development Report (UN Water/Africa 2006) estimates that in the past three decades, agricultural production in Africa increased at an average of less than 2% per annum while population has risen at about 3%. In Nigeria, World Bank reports put the growth rate in total food production at less than 1.5 % in the 1990s, compared to an average annual population growth rate of about 3% during the same period (Kebbeh,Haefele and Fagade (2003). As Okoye (2005) observed, Nigeria’s performance in terms of agricultural production and productivity remains inadequate as farm yields and growth rates in agricultural value added are still low, in comparison with some countries in Africa and Asia. This scenario leaves the Nigerian government and agricultural producers with the challenge of increasing agricultural productivity.
Agriculture led development is fundamental to cutting hunger, reducing poverty (70 percent of which is in rural areas (UNECA 2007)), generating economic growth, reducing the burden of food imports and opening the way to an expansion of exports (Van Koppen 2005; UNECA 2007). Productivity driven increases in food production have shown to have a strong positive impact on the rural economy, leading to increased food availability and a reduction of food prices in local markets (UNECA 2007). The two major strategies that have been recommended for increased agricultural productivity are the use of higher yield variety of cereals together with fertilizer and improved irrigation (Van koppen etal 2005, Upton 1996). Irrigation can increase land productivity by between three to seven times, especially in the semi-arid zone (Upton 1996).
According to Upton (1996), irrigation, which can be broadly defined as the supplementation of precipitation by storage and or/transportation of water, increases agricultural productivity, and human carrying capacity, per hectare of land. It allows the introduction of high yielding crops and promotes higher yield of crops which may be grown without irrigation especially when complementary inputs such as seed for high yielding variety and fertilizer are used. It enables all year round cropping thereby securing food supply and providing employment for farm households. Improved water control reduces the risk of crop failure, which is critical to motivate farmers to adopt emerging production technologies (Upton 1996; Van Koppen et al 2005).
In Nigeria, the National Water Resources Master Plan prepared in 1995 concluded that food insecurity is a serious and escalating problem and water is the most critical constraint to food production (Musa, 2004). Uncertainty in the adequacy and variability in timing of the start of rainy seasons, or the occurrence of dry spells within them, represent major sources of worry for farmers (Khroda 1996). Consequently, in the humid zone agriculture usually requires supplemental water for irrigation when it is not available in the crop growing season. Such supplemental water makes it possible to attain high annual yields with double, or even triple, cropping per irrigated hectare. On the other hand, in the arid and semi arid part of the country, it is too dry to have any intense cropping without irrigation.
One major factor limiting the exploration of irrigation potential is the reluctance of governments and the private sector to invest more resources to irrigation. OECD (2004) noted that financing irrigation is not easy; typically investments involve a high capital outlay and long pay-back periods, as well as greater risks and lower rates of return than other forms of infrastructure. Musa (2004) agreed with this, stating that high unit cost coupled with scanty database and poor operational environment have made mobilizing required investment in Nigeria difficult. In Nigeria, the 2004 report of the review of public irrigation sector shows that whereas the overall capital cost of the schemes is estimated at N170 billion, and maintenance and operational costs to sustain the scheme is estimated at N2.0 billion annually, the federal Government’s budget allocations to these schemes do not cover operation and maintenance costs.. It also noted that the overall state of the 62 public irrigation schemes surveyed in the report is generally poor with dilapidated hydraulic infrastructure and conveyance structures damaged or dilapidated (ENPLAN 2004). Large scale canal irrigation are in poor condition. They are not properly maintained, operations are inadequate, water supplies do not reach the end of systems and the timing of water supply is unreliable. The wide gap between actual and desirable performance threatens the sustainability of irrigated agriculture.More importantly, the recurrent costs of operation and maintenance are seldom recovered directly from farmers, resulting in stagnation in further development of irrigated fields. Such short-sighted operation and maintenance policies have reduced the economic life of irrigation facilities and led to impaired water delivery capacities. There is a need to shift emphasis towards rehabilitation and modernization of existing systems, but the cycle of construction-deterioration-rehabilitation has to be broken through greater mobilization of resources from the farmers themselves to ensure adequate operation and maintenance of the systems (Akanm,Eluwa and .Ekpo 2007).
The monopolistic nature of the sector, and its social sensitivity, has fostered extensive government intervention that has not always been conducive to financial sustainability (OECD, 2004). Traditional central government dominated institutional settings and its functions with top-down approach have failed to sustain irrigation services. Insufficient cost recovery and lack of direct linkages between revenue and expenditure, and between the client and the service agency are the root of the problems resulting to lower performance (DFID 2001; Akanmu, Eluwa & Ekpo 2007).
The Lower Anambra Irrigation Project in Omor (LAIP), Anambra state, and the Lower Benue Irrigation Project(LBIP)in Bokkos Plateau State were specifically chosen for this study. According to LAIP (2000), at optimal production level, the Project has the potentials to support the production of an average of 38,000 tonnes of paddy rice annually with a market worth of N 5.4 billion Naira at N 17, 500 per tone ( value in 2000). LAIP ( 2000) further noted that the inability to reach this production target, sustain it and other recorded achievements by the Project has in recent times, remained the problem of management in Anambra-Imo River Basin and Rural Development authority both past and present. This problem is attributed to reasons such as: frequent breakdown of the pumps and pump engines; breakdown of machines; erosion and collapse of canal embarkments; siltation of unlined canals; and inadequate fund to support the overall activities of the Project.
Currently, the LAIP project is in a transition phase, with its irrigation infrastructure having been in disuse due to deterioration, but currently, it is among the projects selected by the Federal government to re- invigorate and revamp. The farmers currently engage mainly in rain season rice cropping. Issues of concern for the project administrators include the ability to offset operations and maintenance costs after the new facilities are installed. The Lower Benue Irrigation Project( LBIP) also has dilapidated irrigation infrastructure but basic irrigation is still being carried out. In the (LBIP) vegetables such as carrots and lettuce in adition to irish potatos are grown.
Given the value of irrigated agriculture in any economy, concern for its sustainability becomes paramount.Various agencies and researchers have identified broad guidelines for sustainable water resources management. Sustainability is defined by Barker, Dawe &Innocencio (2003) as “the ability to continue extracting net positive social returns from a resource for an indefinite period of time”. For irrigated agriculture, the principal resource is land and water. Loucks (2000) stated that sustainable water resources management is a concept that emphasizes the need to consider the long-term future as well as the present. Cia, McKinney and Rosegrant (2001) proposed a set of manageable indicators of sustainability based on broad guidelines and principles. Cia et al (2001) further stated that in the context of arid or semi-arid basins where irrigation is the dominant water use, sustainability in irrigation water management can be indicated by: water supply system reliability, reversibility, and vulnerability; environmental system integrity; equity in water sharing, and economic acceptability.
Under the framework of Integrated Water Resource management, sustainable water management connotes economic efficiency, environmental sustainability and social equity (International Network for Capacity Building In Integrated Water Resource Management (CAP-NET) & Gender and Water Alliance (GWA) 2006). Water resource systems that are managed to satisfy the changing demands placed on them, now and on into the future, without system degradation can be called “sustainable”. Cia, McKinney & Rosegrant (2001) stated that sustainable irrigation water management should simultaneously achieve two objectives: sustaining irrigated agriculture for food security and preserving the associated natural environment.
For the purposes of this research sustainability is viewed from the context of equity in water sharing and economic efficiency and acceptability. Equity in water sharing derives from a perception of water as not just an economic resource but also as a community resource with deep emotional and symbolic value (Tsur and Dinar 1995).In this context participation of both men and women farmers in the projects is a critical factor for consideration. Economic acceptability recognizes that besides food self sufficiency, achieving net profit over the long term is the motivating factor that sustains irrigated agriculture. Economically acceptable irrigation systems provide lifestyle and social options for farmers and also contribute to the wider economy and community. Efficiency in the allocation of irrigation water includes: allocation of a given supply of water among farmers, crops, regions and time periods so as to maximize the net contribution to production. Efficiency also connotes utilizing water resources optimally to increase productivity.
. Water pricing reforms are among various measures designed to encourage the efficient use of water resources (UN-Water/Africa, 2006). According to Perry (1996), water service charges are potentially important and useful because a direct connection between the cost incurred in providing irrigation services and the charges to users should induce them to exert pressures for increased efficiency in the delivery agency or to suggest rearrangements of responsibilities in exchange for reduced fees. Secondly, Perry (2006) also noted that service charges that are linked to the quantity of service (water) provided should induce users to economize in its use by choosing water efficient crops or water saving irrigation technologies.
Water service charges are also potentially important and useful because recovering costs from beneficiaries of the service relieves the government of a financial burden and provides revenues to support operation and maintenance (Perry, 1996,Abu Zeid, Undated). Akanmu, Eluwa & Ekpo (2007) however noted that setting prices at the right level is not enough, but that the prices need to be paid if they are to enhance the efficient allocation of water resources. In both schemes (LAIP and LBIP), token fees are charges to the farmers before allocation of land. This fee is called “administrative charge” and does not in any way reflect the cost of the water service.
This study therefore focuses on financing and sustainability of irrigated agriculture in the Lower Anambra Irrigation Project and the Lower Benue Irrigation Project.
1.2 PROBLEM STATEMENT
Much of the required growth in food crop production will depend on investment in the irrigation sector but it has been observed that most sub-Saharan Africa (SSA) governments and international financial and development agencies are reluctant to invest more resources to this sector, not only in Nigeria but also in most of SSA (Inocencio, Kikuchi, Tonosaki, Maruyama, Merrey, Sally &de Jong,2007). High irrigation investment costs together with the perceived failures of many past irrigation projects are believed to be the main reasons for reluctance of international financial and development agencies and sub-Saharan African governments to invest more resources in irrigation (Inocencio et al 2007).
According to Musa (undated), Nigeria witnessed spectacular expansion of irrigated agriculture from 1970 to 1990s, with the Federal Government of Nigeria and its institutions as the main actors, but the situation has however been declining, especially with respect to investment for new construction. Musa (2002) identified financial constraints and growing realization of planning, management and operational problems associated with some of the formal irrigation development as factors limiting further rapid expansion of the large scale formal irrigation schemes in Nigeria. The Annual Report of the Federal Ministry of Water Resources, (FMWR 2000) stated that budgetary allocations are always too meager and inadequate to achieve the desired objectives. FMWR (2000) further noted that the problem is further compounded by the fact that fund releases are often untimely, and hence stalling good performance assessment of projects, especially during the dry season.
In the Lower Anambra Irrigation Project, Omor and Lower Benue Irrigation Project located in Bokkos, financing needs are not being met currently both for infrastructure development and for operation and maintenance.
In order to attract the required amount and types of funds, the sector as a whole will need drastic reform aimed at realigning incentives and promoting sustainability in terms of management and financing. There is a global consensus for irrigation sector reform to increase water productivity, bothering on the institutional structure for irrigation management and the incentives for agencies and farmers (Dinar 2000; UNEP 2000; PEP 2005, Gulati, Meizen-Dick and Raju 2005). Current thinking with respect to financing and sustainability of irrigated projects is that there is need for reform such that certain roles hitherto performed by the Government and international agencies are devolved to farmers. These reforms suppose that irrigation water is to be priced, and farmers will have to pay for the cost of water supply and related services, while taking on increased management responsibility (Perry 2006, Van Hofwegen 2006). In line with this, Musa ( undated) noted that the National policy on irrigation in the 1990’s was to gradually turn over operation, maintenance and management (OMM) responsibilities at tertiary and even secondary levels to farmers on public large scale irrigation schemes and to hand over fully the OMM responsibilities of smaller systems to beneficiaries. In addition, the agency is required to operate, maintain and manage the remainder of the irrigation system jointly with the farmers or non-governmental agencies in such a manner as to be self-financing from revenue collected on irrigation water charges( Musa Undated). Attempts were made to implement these reforms but the results are dissatisfactory as evidenced by the poor state of these irrigation schemes. Part of the failure to make significant progress is partly due to poor evidence base for policy decisions.
Devolving roles to farmers and other stakeholders could raise efficiency, equity, and financial viability. Equity, efficiency and effectiveness all demand greater attention to gender issues in water policies, programmes and projects (World Bank 1995; Orama &Ogbu 1995; Van Koppen 2002; UN-Water/Africa 2006). CAP-NET and GWA (2006) noted that a gender approach to irrigated agriculture would contribute to social equity through improvement in agricultural productivity and a fairer distribution of benefits across gender. This would in turn contribute to sustainability.
In assessing financial sustainability for Operation, maintenance and management(OMM) of an irrigation system, Musa ( Undated) stated that there are four basic elements that need to be considered: the resource limitations; the specific costs associated with OMM activities; the farming systems (and farmers) using the irrigation systems; and the infrastructure forming the irrigation systems and the agency responsible for its management.
While reforms are important and will promote sustainability in terms of financing and management , the African water Development Report noted that some questions arise about these concepts: would it work in situations where the physical infrastructure is dilapidated; user ability to pay is severely constrained by macro-economic factors; market concepts and institutions are absent or in their infancy; water law and property rights are inadequately defined; capability in both management and regulation is limited and the social and environmental risks of getting it wrong are considerable. Musa (2002) while deliberating on the implications of privatizing irrigation sub-sector as proposed by the then administration of President Olusegun Obasanjo, stated that the questions to ask when the state finally withdraws from irrigation are: who will hold the ring, and protect the interests of the rural poor? Would the farmer be sufficiently enabled to take on the added responsibilities shifted to them? In other words, critical questions that need to be answered before selecting sustainable management options for Nigeria’s irrigation schemes include:
- What are the sources of investment in the Projects and are the projects financially self sufficient?
- What is the essential set of elements (rights, responsibilities and powers) which should be included in irrigation management devolution?
- What gender issues are relevant in the projects?
- Do the farmers’ production systems allow them to pay and are they willing to pay?
These questions require deep scientific analysis so that current efforts to revamp irrigated agriculture will be well guided and based on sound judgement. Moreover the widespread failure to fully understand and value the economic significance of water investments is in many cases the root cause of difficulties in generating adequate levels of finance for water investments. Evidence from literature show that in terms of irrigation pricing in Africa, there is an urgent need, in the absence of working markets for water and in the presence of growing conflicts over water use, to understand the underlying economics of water demand and value in various economic sectors (Borgoyary 2002).
Past studies on irrigated agriculture in Nigeria focused mainly on technical efficiency of production systems, agronomic aspects of crops under irrigation and environmental impact of irrigated agriculture (Urama &Hodge, 2004:Kebbeh, Haefele & Fagade 2005; Akinbile 2010 ).While the issue of low water price and poor collection rate in irrigation water projects has been addressed in some studies (Akanmu, Eluwa &Ekpo 2007 and Olubode-Awosola, Idowu &Van Schalkwyk (2005), very few previous studies focused on cost recovery in irrigation, and most looked at it from the perspective of the determinants of farmers ability to pay for irrigation services (Fakayode, Ogunlade, Ayinde, &. Olabode 2010) or irrigation sector performance in Nigeria (Olubode-Awosola, Idowu &Van Schalkwyk 2005).These studies focused on irrigation schemes in the Western part of Nigeria. In Southeastern Nigeria, previous studies in irrigation focused on the gains in crop yield per unit of land per year due to the opportunity to grow crops twice in the year and on environmental externalities associated with irrigation (see: Urama & Hodge, 2004), ignoring the issues of farmer’s willingness and ability to pay, financing questions and community participation in irrigation despite the fact that these impact on irrigation system sustainability. While these studies are important they do not alone provide the critical information required by policy makers to guide Nigeria’s transition to reforms in the irrigation sector. This therefore informs the need for this study which will contribute to bridge this research knowledge gaps.
1.3 RESEARCH OBJECTIVES
The overall objective of the study is to assess the financing and sustainability of irrigated agriculture in the Lower Anambra and Lower Benue Irrigation Projects in Nigeria. The specific objectives are to:
- describe the sources and volume of investment;
- determine levels of financial self suffiency achieved ;
- analyze the institutional and management patterns of irrigated farming;
- describe gender participation in the two projects;
- describe gender division of farm decision making and performance of activities ;
- measure resource productivity and enterprise profitability in the projects;
- determine farmers willingness to pay for irrigation water;
- determine the socio-economic factors influencing farmers willingness to pay for irrigation.
- Make Policy recommendations based on the findings.
- 4.RESEARCH HYPOTHESES
The research hypotheses are based on the premises that farmers’ ability and willingness to pay for irrigation water are twin prerequisites for financing sustainability, and in turn that the efficient utilization of resources in the farmland is prerequisite for farmers’ ability to pay for irrigation water, and that both farmers ability and willingness to pay for irrigation water are crucial for the overall sustainability of irrigated farming in the projects.
Deriving from these, the following null Hypothesis will be tested:
H01: fund generated in the irrigation scheme offsets operation and maintenance costs.
H02: The resources (land, labour, fertilizer, seed) used for production (of rice and Potato) in both schemes do not significantly influence their output.
H03: Gender category of respondents does not influence the performance of farm activities in the two schemes.
H04: The socio-economic characteristics( like age, income, occupation, sex, marital status, education) of farmers do not influence their willingness to pay for irrigation water.
1.5 JUSTIFICATION OF THE STUDY
According to Nigerian National Commission for Irrigation and Drainage (NINCID2007) irrigation and drainage infrastructure is a vital and necessary leg of the Green Revolution triangle of seeds, fertilizer, and water control. As such, it has played a critical role in the prevention of famines and widespread starvation and in the rising standard of living of millions of farmers in Nigeria. According to Molden, Frenken, Randolph, de Fraiture, Mati, Svendsen, Sadoff & Finlayson (2007) investments in water for agriculture have made a positive contribution to rural livelihoods, food security, and poverty reduction. The positive impact is felt through employment gains, affordable food prices, and more stable outputs. Through a multiplier effect investments in irrigation lead to a rise in crop yields and farm incomes that result in higher demand for goods and services in nonfarm sector- multiplying the benefits of the original investment.
This work will provide evidence to support policy in the irrigation sector in Nigeria. Particularly, findings from this study will inform the links between farmers socio-economic characteristics and their willingness to pay for irrigation water as it has not been fully explored in previous studies in Nigeria. As policy makers deliberate on reforms in the sector, information from this work will come in handy. It will be useful to policy makers, administrators, and planners in the policy formulation, implementation and planning process.
The study will also provide important research material for academics, students and researchers in this field and other related disciplines. It will add and contribute to existing literature in the field.
1.6 LIMITATIONS OF THE STUDY
This study focuses on the sustainability of irrigation in terms of financing and management and does not study environmental sustainability of irrigation. The major limitation in conducting this study is that of the reluctance of the irrigation management staff to give information related to the costs associated with irrigation management. Several visits were paid to the Project administrative offices to no avail. A referral was made to the Administrative head quarter office and after careful explanation of the purposes of the survey, there was still a reluctance to divulge information.
In terms of scope the study focused on only two irrigation schemes, one in the south-east and one in the north central part of the country. Another limitation is that of insufficient data to quantify irrigation water demand. There is need for more constructive model and data to extend research for greater policy implication.
The information provided by the farmers used in this study was mainly from memory recall as many of them do not keep records of operation. However in view of this some important questions were rephrased another way in order to verify the accuracy of the information being supplied. In spite of these limitations, the results of the study represents a good approximation of the current state of irrigation in the projects studied.
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