Irrigation and drainage systems have traditionally been the largest subsector for World Bank agricultural lending, and remain important to improving agricultural productivity and reducing poverty in many countries. However, the context for irrigation and drainage investments has changed, and irrigation systems are now seen to have complex interactions with other rural social and policy issues. Decision-makers must consider these broader issues in the design and implementation of multi-component irrigation and drainage projects.

Rationale for Investment

The World Bank's current rural strategy, Reaching the Rural Poor, recognizes that water is an essential input into agricultural production, as well as the basis for livelihoods of rural communities and the quality of natural resources. Efficient agricultural production for local and export markets will become increasingly important for economic growth and poverty reduction. Over the past 30 years, the world's net irrigated area has increased by almost 60 percent, from less than 170 million hectares in 1970 to over 270 million hectares in 2000 (FAOSTAT 2002). In developing countries overall, agriculture accounts for more than 85 percent of water utilization (IWMI 2001). Globally irrigated agriculture represents only 17 percent of total land cropped, but provides 40 percent of the world's food. Meeting the food and fiber needs of the global population in the next 25-30 years requires that irrigated agricultural area be expanded by 15-20 percent (Tiwari and Dinar 2002a).

Given the present land and water resource constraints and shortage of potential areas for new development, most production gains must come from better utilization of existing irrigated area. This is a great challenge as physical deterioration, outdated infrastructure, or inadequate institutional arrangements have resulted in the existing systems performing below expectation. While there has been some institutional reform, national and local irrigation organizations need modernizing and improved management, (both operational and maintenance). These issues are increasingly related to problems of financing.

New investment in irrigation must address issues of poverty reduction through a focus on appropriate smallholder technologies, reducing water scarcity and environmental quality problems and the adoption of efficient water management practices and technologies. Private sector investment in large-scale irrigation requires an investment climate providing security for investments. Such investments must seek income generation opportunities and improved environments for a broad group of beneficiaries including resource poor farmers and the nonfarm population.

The complexity and political sensitivity of water issues have important implications for irrigation and drainage investments particularly as these relate to water allocation and its use which are strongly tied to food security and poverty, the natural environment, regional income distribution and investment profitability. Water-related investments are typically viewed as risky ventures, especially if international borders are crossed. Such investments also incur relatively high transaction costs and must accommodate various safeguard policies.

Impact

In many regions, irrigated agriculture is the main source of rural employment, has higher productivity than rainfed agriculture, and reduces risks associated with climatic uncertainty. Investment in irrigation agriculture can benefit the poor if they are included in the design of projects; they participate in management of irrigation systems; and they are exposed to new economic opportunities through increased private sector investment in irrigation.

Past Investments

The Bank has lent approximately US$20.7 billion for irrigation and drainage investments since 1980 with commitments differing widely among regions (see figure 8.1). Lending for the subsector has varied considerably, and decreased in recent years, dropping from US$1,040 million per year during 1994-96 to US$891 million per year in 1997-99, and US$490 million per year from 2000-02 (see figure 8.2). This reduced level of funding still represents about 27 percent of the total allocation to the agriculture sector, and 10 percent of total rural lending. The number of projects remained stable from 1999 to 2001, but is roughly one-half of that of the 1980s and early 1990s. In addition to financing full-scale irrigation and drainage projects, an increasing amount of investment in irrigation and drainage is being provided as part of community-based development, natural resources management, and other projects.

The historically high level of investment in irrigation can be attributed primarily to the large potential gains from greater agricultural productivity, and the reduced weather-related risk to production. Opportunities for rewarding new investments are more difficult because of increasing costs, such as water extraction and distribution; new environmental and social costs not previously recognized in irrigation projects; a growing need for drainage investments; and falling commodity prices.

Figure 8.1 Regional distribution of active irrigation and drainage Lending, 2001

Figure 8.2 World Bank investments in irrigation and drainage, 1979·2002

Key Issues for Future Investments

Issues related to irrigation and drainage sector investments are highly interrelated and there is a need for a holistic approach.

Maximizing impacts on poverty reduction. Projects will require greater emphasis on targeting the poor, focusing on their empowerment, and designing appropriate regulatory systems. Project design and implementation need to consider the following:

• Does external support improve access to water specifically for smallholders, enabling them to improve their agricultural production, incomes, and food security?
• Are the opportunities optimally used to strengthen resource-poor peoples' access to irrigated or potentially irrigated land?
• Are smallholders protected from expropriation without compensation, and is more equity in resource rights being achieved by linking water rights to the land user?
• What priority is given to women's access to water and lands, and the impact of this on their incomes?
• Are poor people being included from the start in planning procedures and processes?
• Does irrigation provide benefits for the landless?
• Is access being improved to inputs, markets, and other institutions (van Koppen 1988)?

Integrated irrigation and drainage area development. Irrigation and drainage need complementary investments in financial services, research and extension, input supply, and market development in order to achieve substantial diversification and intensification of production systems, and to increase the system's productivity and profitability.

Multiple interests in water. Competing interests may result in conflicts over water allocation and use. The main water subsectors, namely irrigation and drainage, water supply, hydropower, flood control, and environment, have increasingly adopted a cooperative approach to water management. But, there is still room for improvement in cross-sectoral planning and coordination as only modest progress has been made in integrating water management activities within river basins. Stakeholder participation and the resultant sense of ownership is important in each phase of project design, implementation, and post-project management. Irrigation agencies need to establish links with appropriate basin agencies and various interests (agricultural, urban, industrial, and environmental) to prepare seasonal water management plans with clear water allocation rules. This will ensure that decisionmakers consider the potential impacts that seemingly desirable activities may impose on other interest groups. For example, while there may be agricultural benefits from more efficient farm water use, this may have negative consequences for rural households that rely on seepage and runoff for their domestic water requirements.

Policy and institutional reform issues. Sustainable water management improvements inevitably require significant adjustment in existing institutional arrangements because past irrigation investments had done little to restructure irrigation agencies and expand private sector participation, within the context of broader national reforms. A few countries, such as China and Mexico, have emphasized financially autonomous utilities that sell bulk water to users. Key policy issues influencing irrigation investments include: effective and efficient institutional structures, transparent and effective regulatory frameworks (water rights and irrigation laws), land tenure, decentralized irrigation and drainage management, and reform of public sector agencies that manage large irrigation systems. Addressing these issues will require improved interaction between ministries of agriculture, finance, planning, and environment.

Land rights. As land ownership is typically a prerequisite for water rights, an effective land administration system should ensure that land rights are secure and tradable. Smallholders and especially women have less secure land rights even though they are often the main users. If social, economic, and gender equity issues are to be enhanced, effective land administration systems need to include mechanisms that recognize traditional and formal rights to land.

Capacity building. Training and technical assistance for building country capacity of individuals and institutions, such as local governmental bodies, and public sector water agencies, to reform irrigation and drainage policies and their organizational structures is necessary. The World Bank Institute and other capacity-building partners, such as, the IWRM International Network for Capacity BuildingCAPNET, and strengthening university curricula on irrigation systems operation and management, can be useful.

Water pricing and cost recovery. A key policy issue is water pricing and cost recovery of investments in irrigation and drainage development or at least of covering system operation and management costs. This requires that managers and users be aware of the value and quantities of water used in order to develop incentive frameworks aimed at recovering costs and reducing water wastage. In many areas institutionalizing water pricing systems and full cost recovery will require many years to fully implement.

Privatizing water use rights. Private ownership of water and water rights is a contentious issue in many countries, where water has traditionally been seen as a free good, though one controlled to varying degrees by the state or by private individuals. Private ownership is a useful tool in establishing the value of and market for irrigation water. Many reforms in the irrigation and larger water sector would be strengthened by such a policy shift, though enforcement of changes in water rights and water prices are difficult on both technical and political grounds.

In countries where there is acute competition for water, a forum for water users, including the resource poor, should be established to negotiate management plans and the policies and regulations, such as a national water act; to protect all parties; and to carry out these plans. Trade in water rights needs to be established and regulated.

Concept of "real" water savings. Experience in China and elsewhere has shown that, if projects concentrate only on improvements to physical irrigation and drainage systems, this may improve water use efficiency, but may not result in much "real" water savings because of the "return-flow factor" (see box 8.2). That is, some losses from existing inefficient systems return to groundwater aquifers or downstream surface water systems and become available for other users and are therefore not lost to the hydrologic system. Even if individual systems are inefficient, overall basin efficiency may be quite high in such areas. Improvements in water use efficiencies by upstream users might reduce water available for downstream use. However, some losses due to inefficiencies are absolute and unrecoverable, and "real" water savings result from reductions of nonrecoverable losses such as evapo-transpiration or losses to nonusable water bodies such as saline aquifers or the ocean. Thus, for water quantity management, the starting point needs to be the water balance (hydrologic cycle) to provide the basis for allocation of water.

Emphasis on productivity improvement. Increased water supply for agriculture must come from within the sector by increasing "use efficiency" through improved management practices that minimize evapo-transpiration, such as cropping patterns, cultivation methods, timely availability of inputs, and soil-moisture management. New investments may be needed, in areas such as crop genetics, and nontraditional crops such as horticulture, floriculture, and fodder. Investment may also be required to improve marketing infrastructure to respond to changes market opportunities.

Sustainable natural resources management. Investments in irrigation and drainage must also provide for sustainable management of natural resources and the physical environment. This is particularly so given that water allocation and use for agricultural purposes are inevitably associated with externalities and conflicts between water development for irrigation for agriculture and for domestic and industrial uses, and the ecological functions of water in the natural environment. Use of irrigation water must be carefully regulated and monitored to ensure sufficient environmental stream flows and to avoid "mining" groundwater aquifers.

Future irrigation development must identify environmental externalities (both positive and negative) related to management, and address these in design and implementation of projects (see box 8.3). As an example, improving the marginal productivity of water use may require increased nitrogen fertilizer application, which may contaminate nearby wetlands resulting in loss of biodiversity. An alternative approach might use legume crops, such as alfalfa, clover, and soybean, in crop rotations for nitrogen fixation. Technological and managerial innovations from an effective research and extension system can, with cooperation of the different groups, help resolve conflicts over resource use. Development of such mechanisms is a key investment area for the Bank.

Future Priorities for Investment

Irrigation and drainage investments must recognize the political sensitivities relating to water access and use, as well as the multiple and competing interests regarding its allocation. A long-term holistic view must see water as a vital resource that needs careful stewardship to ensure sustainability and equitable access and use. Cross sectoral planning and cooperation and a water basin-wide perspective are important, and objectives set should be time specific, realistic, and measurable.

Investments, in addition to achieving greater productivity from land (agriculture) and water resources, need to be linked to broader issues of development and the political economy, including poverty reduction, land reform, and institutional development. Establishing leadership and ownership (from farmer to politician) and building capacity (organizational and managerial skills, and databases) in irrigation and drainage projects and related reforms of policies and organizational structures are important for sustainability of investments.

Information systems for decision-making. Improved information systems are needed for irrigation and drainage decision-makers. These must measure and routinely monitor project impacts relating to water extraction, allocation, and pricing; environmental impacts; farm water efficiency improvements; and groundwater changes. Governments have a role in establishing such systems and the private sector, the research and development community, and WUAs have critical interests in these information systems.

Infrastructure and technical issues. Irrigation and drainage infrastructure is identified as a priority in the Bank's rural strategy. New infrastructure and service investments should be linked to existing infrastructure and services. There are trade-offs between new system development, renovations to bring systems back to original specifications, and upgrading or modernizing infrastructure to accommodate new needs. Priority should be given to making better use of existing infrastructure. Rehabilitation of major distribution systems should focus on modernization to account for present and future needs, rather than those needs for which the system was initially designed. Modernization of infrastructure must be accompanied by improvements in management systems to optimize the use of the infrastructure, and infrastructure design should be demand-driven such that the technologies are well understood and accepted. Access to information and markets for agro-inputs and agro-products, agricultural credit, farm roads, and telecommunications services, are basic requirements to achieve full benefits of irrigation and drainage investments.

Improved infrastructure and technical capacity will also be important for improving reliability of supplies and services. This may require development of new storage facilities to replace capacity lost to sedimentation, minimizing/eliminating sedimentation, and saving water lost during flood flows. Improved reliability will foster innovative investments that may otherwise not occur because of high production risks associated with unreliable supply.

Focus on smallholders. Promoting technologies and services tailored for smallholders is likely to have greater impact on poverty reduction. Such technologies include treadle and small-engine powered pumps, low-cost drip/sprinkler systems, technologies for groundwater extraction, and training and technical advisory services specifically for smallholders. The private sector has much potential to provide these services but is constrained by the high costs associated with transactions with small-scale producers. Rural producer organizations (RPOs) may be a means of overcoming this scale-related problem, and thereby encourage private sector provision of services to small-scale producers. Targeting smallholders (and the diverse interest groups identified by gender and ethnicity) is consistent with the need to more effectively address poverty.

Economic incentives and financial sustainability of investment. Irrigated agriculture systems should ultimately be financially sustainable and not require continuing investment by donors. This may require a rethinking of the roles of government and the private sector in irrigation and drainage projects and the nature of their involvement in design and implementation. The government's functions will include environmental monitoring, auditing, and regulation of land and water markets and establishing the policy framework within which the private sector can function. This may require policy changes that provide incentives (for example, taxes, subsidies, water rights) that incorporate principles of equity within the context of customary rights, and provide a workable basis for water transfers among owners and users. While more recent programs focus on recovery of operation and maintenance costs, relatively little has been done on recovery of investment costs. This is particularly important to future proposals for expansion and intensification of existing schemes and is a continuing policy issue.

Water user associations. Water user associations, usually formed around a group of potential users (farmers), are increasingly important for irrigation management (organizing the extraction, allocation, and distribution of water). They can also undertake other activities, including the provision of extension, technical, and marketing services relating to on-farm agricultural production. These services enhance productivity of the irrigation systems, but may stretch the capacity of the associations. User groups have been found to work well, (that is internalize costs and benefits of schemes) when there is no public body that will "rescue" the group if it fails to mobilize the required funds for operation and maintenance. There are, however, few cases of water user associations covering 100 percent of the costs of operations and maintenance. More work is therefore needed to develop management systems that can make these associations fully sustainable.

Scaling up Investments

Monitoring and evaluation of irrigation and drainage investments is increasingly important given the growing competition with other sectors for scarce investments and the need to respond to changing circumstances during project implementation. Monitoring and evaluation systems must measure the full range of irrigation and drainage-related benefits economic, environmental, and social. Key outcome indicators relate to production per unit of water use, real water savings, and changes in land use. Impact indicators focus on incomes, poverty reduction, and system sustainability. Such monitoring can also contribute to the adaptive planning of current programs and scaling up.

Investments will need to conform to World Bank Safeguard guidelines, as summarized in box 8.4 and must be accompanied by clear plans for eventual phasing out of support and for the financial independence of the irrigation system that may rely increasingly on private sector investment (see box 8.4). Improved analysis of existing knowledge regarding successes and failures of past investments will provide a basis for identifying key elements of good practice, and innovative approaches for scaling-up irrigation and drainage investments with a high probability of success and beneficial impact on the poor.

Good practice guidelines are needed with reference to irrigation investment and: (i) poverty reduction, (ii) the context of increasing water scarcity and competition for water, (iii) impacts on the environment, and (iv) policies for enhanced private sector investment.

Selected Readings

Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appendix for a full list of Web sites.

Easter, W., H. Plusquellec, and A. Subramanian. 1998. "Irrigation Improvement Strategy Review." Water Resources Thematic Group Draft Final Report. World Bank, Washington, D.C.*

IWMI. 2001. "Water for Rural Development." Draft Background Paper on Water for Rural Development Prepared for the World Bank. International Water Management Institute, Colombo, Sri Lanka.*

Rosegrant, M. W., X. Cai, and S. A. Cline. 2002. World Water and Food to 2025: Dealing with Scarcity. IFPRI: Washington, D.C.*

Tiwari, D. N., and A. Dinar. 2002a. "Prospects of Irrigated Agriculture: Whether the Irrigated Area and Irrigation Water Must Increase to Meet Food Needs of the Future." Agriculture and Rural Development Department Water Team. World Bank, Washington, D.C.*

References Cited

World Bank. 2003. Reaching the Rural Poor: A Renewed Strategy for Rural Development. Washington, D.C.: World Bank.

FAOSTAT. 2002. FAO Statistical Databases. http://apps.fao.org/default.htm.

IWMI. 2001. "Water for Rural Development." Draft Background Paper on Water for Rural Development Prepared for the World Bank. International Water Management Institute, Colombo, Sri Lanka.

Olson, D. 2003. "Real Water Savings and ET Reduction: The Hai Basin Paradigm." Draft. World Bank, Washington, D.C.

Tiwari, D. N., and A. Dinar. 2002a. "Prospects of Irrigated Agriculture: Whether the Irrigated Area and Irrigation Water Must Increase to Meet Food Needs of the Future." Agriculture and Rural Development Department Water Team, World Bank, Washington, D.C.

Tiwari, D., and A. Dinar. 2002b. "The Role and Use of Economic Incentives in Irrigated Agriculture." Working Paper. World Bank, Washington, D.C.

van Koppen, B. 1988. "Water Rights and Poverty Alleviation: Inclusion and Exclusion of Resource-Poor Women and Men as Rights Holders in Externally Supported Irrigation Development." In D. Merrey, and S. Baviskar, eds. Gender Analysis and Reform of Irrigation Management: Concepts, Cases and Gaps in Knowledge. Proceedings of the Workshop on Gender and Water, 15-19 September 1997, Habarana, Sri Lanka. IWMI, Colombo, Sri Lanka.

World Bank. Operational Manual. http://wbln0018.worldbank.org/institutional/manuals/opmanual.nsf/.

This Overview was prepared by Safwat Abdel-Dayem, Ariel Dinar, and Sam Kane with inputs from irrigation and drainage specialists in the Irrigation and Drainage Network of the World Bank. Peer review comments were provided by Ohn Myint and Ijsbrand de Jong.