Irrigation in Central Asia: Social, Economic and Environmental Considerations

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Categories: Central Asia | Irrigation | Publication

Publication Title	Irrigation in Central Asia: Social, Economic and Environmental Considerations
Publication Type	Report, The World Bank
Author(s)	Julia Bucknall , Irina Klytchnikova, Julian Lampietti, Mark Lundell, Monica Scatasta, and Mike Thurman
Publication Date	Feb 2003
ISBN-ISSN-EAN
Publication URL	Direct link to Report in English and Russian [1]
Contact

1 Summary
- 1.1 Objectives
2 Content
3 References
4 See also
5 External Resources
6 Attachments

Summary

Objectives

Around 22 million people in the five Central Asian countries of the Aral Sea basin depend upon irrigated agriculture for their livelihoods. Since the collapse of the Soviet Union, the irrigation and drainage (I&D) infrastructure of Central Asia has seen little maintenance. Both farm and government budgets are insufficient for operations and maintenance (O&M), and institutional structures are generally not strong enough to ensure efficient water management. Thus, much of the infrastructure is fast approaching collapse.

The need for some investment to maintain the most critical I&D infrastructure seems clear. However, there is disagreement concerning the most appropriate scale and nature of investments, their timing (as soon as possible, or only when agricultural policies and institutions improve), and the criteria for selecting investments (should they focus on economic and financial viability, or is there an argument for using the investment as a form of social protection), and whether the investments are environmentally sustainable.

This study aims primarily to help the World Bank and governments in Central Asia weigh these arguments. It aims to improve the advice the World Bank gives its clients concerning the appropriate scale of rehabilitation, what kind of schemes should be rehabilitated first, and what selection criteria would be most suitable for evaluating these investments.

Data Sources and Methods

This report is the result of several studies conducted during 2001. It also utilizes quantitative analyses of official statistical data, reports from the World Bank and other donors, and household survey data. The environmental analysis draws heavily on a complex hydrological study conducted as part of preparing a World Bank financed investment. Information was taken from a survey conducted in preparation for the World Bank’s Uzbekistan Rural Enterprise Support Project (RESP), as well as a quantitative study of trade-offs in land salinization in Uzbekistan. In addition, we use data, estimates, and analyses from various studies, including the National Action Plan of the Republic of Uzbekistan for Combating Desertification and a general study on water management conducted for the International Fund for the Aral Sea.

This work is augmented by a field assessment of the ways in which the degradation of I&D systems affects the livelihoods of rural stakeholders. Multidisciplinary teams of local experts used qualitative methods to assess the situation in 12 sites in Kazakhstan, Kyrgyz Republic, and Uzbekistan, in both upstream and downstream areas. All sites are characterized by major problems with irrigation. The field assessment was financed by the Bank Netherlands Water Partnership Programme and the Government of Switzerland.

Organization of the Report

Chapter 2 outlines the extent to which the economies of this region depend on irrigated agriculture and then analyses the causes and patterns of the degradation of I&D systems in various areas. The second half of the chapter is concerned with the effects of infrastructure degradation upon the rural population.

In Chapter 3, we explore the relationship between irrigation and poverty, first describing the rural poor then analyzing the relationship between irrigated land and household consumption. The chapter concludes with an enquiry into the likely effects of the gradual contraction of existing I&D systems upon various income groups. Chapter 4 analyses the inherent economic viability of irrigated agriculture in Tajikistan and Uzbekistan, followed by financial analysis of irrigation in the Kyrgyz Republic.

Chapter 5 deals with environmental externalities. We take a real economic analysis of a World Bank project and estimate a value of the environmental externalities. We then apply this to the cost-benefit analysis and see how it affects investment decisions. The final chapter attempts to draw conclusions from this work and suggests additional research that could be used to refine various components of the analysis. Statistical tables and methodology related to the calculations in Chapters 3-5 are included in separate Annexes, along with a complete bibliography and maps.

Why Is This Study Necessary?

The Central Asian countries in the Aral Sea Basin ― Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan ― have some of the largest irrigation schemes in the world. Some 22 million people depend directly or indirectly on irrigated agriculture in these countries. Twenty to forty percent of the GDP of these countries is derived from agriculture, almost all of which is irrigated. Entire communities of hundreds of thousands of people came into being solely because of irrigation development and settlement schemes. Without irrigation, much of the land would revert to desert scrub.

Since the collapse of the Soviet Union, both government budgets and farm incomes have fallen dramatically, water management institutions have weakened, and infrastructure maintenance has in many places come to a standstill. Irrigation and drainage (I&D) infrastructure is beginning to fall apart. Canals are silted up or damaged, gates broken or non-existent, and pumps held together by improvised repairs and parts cannibalized from other machinery. Across vast areas, water supply has become erratic, and land salinized and waterlogged.

Farmers cannot afford to maintain the schemes and neither governments nor the combined international donors have sufficient resources to rehabilitate anything but a small proportion of the schemes. Yet, the economies of most countries in the region are not creating alternative jobs to absorb people who will be displaced as farming becomes impossible. Therefore, donors and local policy-makers are faced with a series of difficult questions:

What happens to communities as irrigation infrastructure declines? Do they move and find jobs elsewhere or do they stay? How do they cope?
What is the relationship between poverty and irrigation in Central Asia? Do the poor suffer disproportionately from a contraction in irrigated area?
Would irrigated agriculture be economically viable if all farm production and inputs (including electricity for pumping) were at world market prices?
If we considered the environmental costs of irrigation, how would that affect the economic analysis of rehabilitation projects?
Should policy-makers try to reduce the hardship that results from the contraction in infrastructure? If so, what options are available to them? In particular, could it be worth rehabilitating irrigation schemes, even when they are not economically viable, to keep people employed for a limited period? How do the financial costs of this use of irrigation as a form of social assistance compare with those of various alternatives such as income support programs?

Many detailed studies exist. Yet they tend to address a single issue or look at a particular geographic area. Few systematic analyses analyze a topic across all of the countries or attempt to weigh the relative importance of the different issues. This makes priority-setting difficult. This study aims to be a first step towards filling that gap. It uses existing household survey and project data, backed up by detailed qualitative work in communities that have already seen significant deterioration in their irrigation systems. The study does not provide definitive answers, nor does it aim to provide a roadmap for governments on which specific schemes to pick for rehabilitation. By making initial estimates of the scale and direction of each issue, it aims to test approaches for the future, to highlight future data needs and to provide some basis on which to make decisions in the period until more detailed information becomes available.

What Do We Find?

Communities are in a vicious cycle of falling income, reduced maintenance, deteriorating service and land degradation.

Irrigation and drainage benefited from massive investment during the Soviet era, but water was not well managed. Water application rates were extremely high, which reduced the quality of farmland through rising water tables and salinization. Construction and maintenance were often shoddy, with the result that I&D systems were in poor condition even before the Central Asian countries became independent in 1991.

Since independence, the situation has worsened considerably. Maintenance has been repeatedly postponed, and many I&D systems have reached the stage of advanced decay. Water supply has become unreliable in many areas. Policy, institutional and governance problems persist in most countries, to different degrees, which means that farmers often have little choice about what to grow and/or little access to information, improved seeds, inputs, agro-processing facilities and markets that might allow them to adapt. In such circumstances, unreliable water supply can have disastrous consequences. Yields per hectare have dropped precipitously, further depressing farm incomes and government revenues from agriculture. As incomes decline, farmers have less money for maintenance, infrastructure degrades, water supply becomes even less reliable, and the cycle continues.

Problems with irrigation infrastructure have compounded such problems by prejudicing soil quality. As drainage systems have deteriorated, vast tracts of land have become either salinized or waterlogged over the last decade, with a corresponding drop in crop yields. Salinization forces farmers to apply ever-greater quantities of water in an attempt to flush the salt out of the soil, making water application even more wasteful than it was before. This raises water tables further, and increases waterlogging, which further reduces yields and in some areas even damages buildings.

Many people tend not to move away when infrastructure degrades, even in the face of great hardship.

Villagers try to adapt to this situation in many ways ― for example, switching to drought- or salt-resistant crops, or performing makeshift repairs ― but are hampered by several factors. In some countries, government policies may limit their choices of what to grow where, as well as the timing of planting, input application, and harvesting. Farmers often cannot get information to help them diversify or adopt new water and soil management techniques. And in almost all of the countries, the influence of strong local elites and/or corruption reduces the voice of ordinary farmers in collective decisions.

As irrigation fails and production falls, villagers are often forced to abandon cultivation. Some turn to animal husbandry, some migrate within the country or to Russia, and others become day laborers or work in the local bazaar. Few seem to migrate, even in the face of great hardship in the area. Villagers report that this is because of the scarcity of alternative opportunities elsewhere, because of strong cultural and family ties to the area, and because most villagers cannot afford the relocation costs.

Institutions are weak or missing, allowing local elites to dominate.

The central agencies that once controlled the operation and maintenance (O&M) of I&D structures in Central Asia in Soviet times have been severely weakened. Declining budgets mean that salaries in the water management ministries and their local branches have fallen dramatically, and many skilled technical staff have left. Decentralized institutions, such as water users associations, have begun forming to fill that gap, but are not yet operating properly.

Local elites are able to capture the allocation of the water that is delivered to the area. Villagers reported that well-connected and wealthy individuals with land on the upstream portion of canals are often able to take water first, leaving only that which is left over to the less well-off water users downstream. There is also widespread theft of water from irrigation channels, in many cases by better-off farmers.

Inequitable water allocation is creating enormous social tension. Existing enforcement and conflict resolution mechanisms are often unable to handle the disputes, which have led to violent confrontations in some areas. Problems of this nature were reported in all three countries covered by the field assessment conducted for this study (Kazakhstan, the Kyrgyz Republic, and Uzbekistan), in upstream as well as downstream areas.

Irrigation in Central Asia is pro-poor.

Quantitative analysis of household surveys demonstrates that poverty in these countries is overwhelmingly rural. Within rural areas, the poor are more likely to be employed in agriculture than the non-poor. The surveys indicate little relationship between the size of the land holding and poverty. In some cases, this is because land has not yet been distributed from the former state and collective farms; in others, it is because land distribution has recently taken place, with similarly sized plots allocated to each household, and land markets have not yet developed to allow consolidation. The household data does not include information on land quality, but field work using qualitative methods indicates strongly that the better off households have more fertile plots, which are typically located closer to the water source than the land of other villagers.

Irrigation is important to the poor. Poor households have irrigation on a smaller percentage of their land than non-poor households, and irrigated land contributes three times more to per capita expenditure (a proxy for income) than does rainfed land. The household surveys do not allow us to distinguish the quality of service in different areas, but the qualitative work indicates strongly that better off households have more reliable supply.

Contraction of irrigation systems reduces household expenditure considerably. The extent of the impact depends on the share of land that is irrigated, and increases rapidly as the percentage of land irrigated approaches zero. Therefore, households with a large percentage of their land irrigated would not see a major fall in expenditure from a small contraction in irrigation, whereas households with only a small portion of their land irrigated would see a much sharper drop as a result of the same marginal contraction. Since poorer households have irrigation on a lower proportion of their land, we conclude that a contraction of irrigation systems will hurt the poor disproportionately.

A surprising number of schemes seem to be economically viable.

The agricultural economies of Central Asia have historically been distorted by price supports, production quotas, fixed prices of inputs and outputs, and the like. Even in the countries that have liberalized their economies, some distortions, such as subsidized electricity, remain in place. Conventional wisdom outside Central Asia holds that farming in many of the irrigation schemes would not be economically viable if the farms were subject to world economic prices for all inputs and for farm production. Many experts believe that this is particularly true for the schemes that pump water to irrigate elevated plateaux.

We modeled the effects of applying world market prices to irrigated agriculture at the provincial (oblast or viloyat) level for the entire country in Uzbekistan and for a representative group of districts (rayony) in Tajikistan. The results were quite different for the two countries. Even under the most pessimistic assumptions concerning future prices and farmer response to increased prices for inputs (i.e. if we assume they neither switch to more profitable crops nor use inputs more efficiently), only 12% of the irrigated land in Uzbekistan would become unprofitable. Even without the important economic benefits that would result from policy reform, therefore, most of the irrigation schemes in Uzbekistan would make a profit if full economic costs were applied. Moreover, the margins appear to be high. With policy reform, and farmers switching to higher value crops, the profits would be considerably more. Nevertheless, under the scenarios considered here, nearly a million people in Uzbekistan appear to depend at present on agriculture that is inherently unprofitable. The unprofitable land is highly concentrated ― two-thirds of the people affected live in one province.

In Tajikistan, introducing full economic prices would be more problematic. Depending upon the assumptions about future prices, between one- and two-thirds of the land in the representative districts appears to be unprofitable. Again, though, if we assume that farmers use inputs more efficiently and switch to more profitable crops, or crops that have higher returns per cubic meter of water, many more schemes would become profitable. The areas that are profitable in Tajikistan, those that currently grow cotton, still have a strong margins.

However, governments make decisions on the basis of financial rather than economic analysis. To address this, we analyzed agriculture at the district level in the Kyrgyz Republic over a period of ten years. We found that the net present value of costs of rehabilitation of the on-farm infrastructure was substantially less than the net present value of farmers’ income attributable to irrigation. That means it would cost the government less to rehabilitate the on-farm structures than to compensate people for their lost income. This analysis is disaggregated to the district level, which shows some important regional variations and points to the importance of conducting site-specific analysis.

Incorporating a value for environmental damage does not fundamentally change decisions about whether to rehabilitate one specific scheme.

Irrigation upstream has negative environmental effects downstream. Significant quantities of salt are trapped in the soils of Central Asia. Irrigation dissolves them and brings them to the surface, where they are drained off and discharged either into desert sinks or returned to the river. When they are returned to the river, they increase river salinity and thus the salinity of water used for irrigation downstream. Irrigation upstream also reduces the quantity of water available downstream. Both of these phenomena affect ecosystems, human health and agriculture downstream. Rehabilitation upstream, even if it caused water to be used more efficiently upstream, would continue the environmental effects downstream. We concentrate on the effects of continuing irrigation upstream on agriculture downstream.

We quantify the effects on agriculture downstream of continuing to irrigate upstream (i.e. the foregone benefits of not contracting irrigation upstream). We consider these foregone benefits as the negative environmental externality of a rehabilitation project upstream. Because we do not have reliable information, we do not consider health nor ecosystem damage, so ours is only a partial value of the externality. We estimated these foregone benefits from a project that the World Bank is currently considering financing on the Uzbekistan portion of the Amu Darya River. In the original project economic analysis, which does not consider environmental externalities, the project has a positive net present value under all of the scenarios the project economic analysis uses to test the sensitivity of its results. We changed this project economic analysis by subtracting an estimate of the environmental costs from the net benefits. We found that this does not greatly alter the conclusions, as none of our scenarios cause the NPV to switch sign in the original base case. It does, however, make the case for the project less clear-cut, as the NPV becomes negative in some sensitivity analysis scenarios.

Where schemes are not economically viable, it may be cheaper to subsidize the irrigation scheme, in combination with economic reform, than to use financial incentives to soften the social impact.

Policymakers need to consider their options when rehabilitation cannot be justified on economic grounds. Liberalization of agricultural policies and development of related support services combined with policies to promote economic growth in the off-farm sector would be the best long term solution to the current dependence on unprofitable irrigation schemes. In the short and medium terms, however, given the structural rigidities and institutional weaknesses in some of the economies, we cannot expect the market to create significant employment outside agriculture and thus stimulate large numbers of villagers to move to alternative employment elsewhere. Communities will continue to depend on irrigated agriculture. Governments that choose not to, or cannot afford to rehabilitate infrastructure may therefore consider providing some sort of assistance to the households that will lose their livelihoods as the infrastructure crumbles.

For the same rehabilitation project considered in the previous section, we estimate the budgetary cost of softening the social burden. We find that subsidizing the rehabilitation, even when it is not economically viable, may be cheaper than other courses of action that the Bank is discussing with policy-makers. In present value terms, it would cost more to provide an income transfer equal to the lost income from irrigation to the affected population than it would to subsidize the project to break-even point under every scenario but one.

This result does not mean that any uneconomic rehabilitation should be undertaken for social purposes. It does, however, mean that irrigation rehabilitation may be worth considering as a short term option even under circumstances that render an investment un-profitable. Even in that case, economic liberalization is vital. Price changes and associated adaptations may cause some irrigation schemes to be economically sound and/or lead to creation of jobs in other parts of the economy. Where the schemes are inherently un-profitable, liberalized prices would provide signals and give incentives to farmers to move away from agriculture, which and allow those schemes to contract gradually.

What Additional Work Is Needed?

Clearly, further information and more detailed analysis are needed to refute or confirm and refine the conclusions outlined above. Improved household survey data will be important. More precise questions on rural issues are needed in household surveys, and, if possible, consistent across countries. Household survey data will ideally permit us to analyze the relationship between key rural assets (such as land and access to irrigation) and poverty. In addition, consumption measures need to be constructed in order to ensure proper differentiation between the situation in rural and urban areas.

We need to make further enquiry into the responses of communities to the decay of their irrigation and drainage systems. We particularly need to understand what drives decisions to migrate. In addition, we need more information concerning how farmers respond to changing conditions in production, such as prices and availability of water. This study also shows that the Bank needs to make the assumptions underpinning the economic analyses of investment projects consistent across and even within Central Asian countries.

Qualitative analysis indicated the importance of institutions in managing water distribution and maintaining infrastructure. The viability of institutions will be a key factor in determining the success or failure of future rehabilitation investments. Future work could usefully address how donors and policy makers can identify strong local institutions or those that, with appropriate support, could be strengthened.

Hydrological and water quality modeling is crucial to understanding the interaction between variables that affect water availability and use. The Bank and other donors are involved in financing such models in Central Asia, sometimes at high cost, and usually aimed at answering specific project-related questions. The experience of this study indicates that the models can be difficult for third parties to use. It may be possible to develop less complex models that serve the project needs and also serve broader strategic and policy needs. This will involve striking a careful balance between precision, flexibility, cost, ease of maintenance and use and potential for integration with economic modeling tools.

The Bottom Line

This study finds that the case for the rehabilitation of many irrigation and drainage schemes in Central Asia is strong for several reasons.

Many schemes appear to be economically viable, even before necessary policy and institutional reform takes place. If government policies allowed farmers more freedom of choice and the enabling institutions and markets were in place, the schemes could generate considerable profit.
Halting the deterioration of irrigation infrastructure would benefit the poor more than the non-poor.
The environmental costs to agriculture downstream of irrigation schemes may not be as major as some commentators have thought. Including a partial estimate of environmental costs into the cost benefit analysis of one specific project did not fundamentally change decisions about whether to invest in one specific project.

For these reasons, the study concludes that governments and the Bank should consider increasing investments in rehabilitating those systems that meet sound economic criteria and have reasonably strong institutions, while always continuing vital policy and institutional reforms.

Schemes that are not economically viable pose major problems because, if irrigation were to stop, much of the land could not sustain agriculture more intensive than nomadic herding. Huge numbers of people that depend on the irrigation schemes have few other livelihood options. In the long term, governments need to promote off-farm economic growth and targeted re-training and education efforts on communities which depend on un-profitable irrigation systems. In the short term, however, governments will need to consider ways to reduce the social costs of contraction of these schemes until the benefits of economic reforms are felt in rural areas. This study suggests that, if carefully designed, rehabilitation of irrigation and drainage infrastructure may be worth considering as one mechanism to maintain rural incomes in the short term.

These conclusions do not represent a blanket endorsement of large-scale investment in rehabilitation. Implementing macroeconomic, agricultural sector, water resources management and irrigation institution reforms will be key to success. This study simply suggests that irrigation rehabilitation – if carefully designed – should be considered as one important component in a strategy for social and economic recovery in Central Asia.