WATER P-NOTES ISSUE 33 APRIL 2009 47932 Securing Water for Agriculture A Guide to Investment Decisions H ow can the world grow more food, increase detectable in that wave of change are a stronger incomes, reduce poverty, and protect the envi- focus on poverty reduction, an awareness of the ronment with growing numbers of mouths to need to "manage scarcity," the imperatives of sus- feed and increasingly constrained resources? A big tainability and environmental stewardship, greater part of the answer lies in better management of emphasis on markets and economic incentives, and agricultural water. Agricultural water management the centrality of the political processes of democra- (AWM) encompasses irrigation on both a large and tization, decentralization, and participation. These small scale, drainage of irrigated and rainfed areas, shifts in emphasis are captured in the cross-cutting watershed restoration, recycling of water, rainwater themes of the Sourcebook. harvesting, and better in-field water management practices. To improve AWM practices in its own projects and those of other organizations, the World Bank's Box 1. Contents of the Sourcebook Agricultural Water Team compiled Shaping the Future of Water for Agriculture: A Sourcebook for Chapter 1 Building policies and incentives Investment in Agricultural Water Management. A Chapter 2 Designing institutional reforms compilation of solutions and good practices gath- ered from worldwide experience, the Sourcebook's Chapter 3 Investing in the improvement and nine chapters cover key topics in AWM, treating modernization of irrigation systems each in a series of topical notes and case studies Chapter 4 Investing in groundwater irrigation (Box 1). Chapter 5 Investing in drainage and water The range of alternative investments discussed quality management in the Sourcebook is vast. They include piloting Chapter 6 Investing in water management in innovative solutions or adapting practice from rainfed agriculture elsewhere, scaling up good practices and success- ful experiences, investing in multifunctional opera- Chapter 7 Investing in agricultural water tions (where the Bank has financial resources and management in multipurpose operations a comparative advantage), engaging in poverty- Chapter 8 Coping with extreme climatic reducing investments, and investing in technical conditions assistance. Chapter 9 Assessing the social, economic, Many countries have changed their approach and environmental impacts of agricultural water to AWM in recent years (Table 1). Among the trends investments This note reports key messages from Shaping the Future of Water for Agriculture: A Sourcebook for Invest- ment in Agricultural Water Management (Washington, DC: World Bank, 2005). The Sourcebook was produced by the World Bank's Agricultural Water Team in collaboration with colleagues from partner organizations. Readers may download the complete publication from www.worldbank.org/water. WATER P-NOTES Table 1. From quantity to quality: Changing emphasis in agricultural water management From: To: Area expansion System improvement and increased water use efficiency, intensification, and reuse Major physical investments to Targeted investment in irrigation improvement, drainage and agricultural intensifi- harness water resources, large- cation scale irrigation schemes Development of institutions and the incentive structure Resource development Resources management and environmental protection Food self-sufficiency, increasing Food security, increasing incomes, diversification, intensification, high-value output crops, poverty protection Centralized planning Demand-driven approaches, participatory planning, dialogue, and political approaches economy analysis State focus Focus on the private sector, market, and community ownership Government as service provider Government as catalyst, facilitator, and regulator Subsidies and nonmarket Market-led growth interventions Government-run and Participatory irrigation management, cost sharing, and irrigation management -subsidized irrigation schemes transfer Studies Dialogue, pragmatic political economy analysis Project focus, investments Long-term focus, program approaches, lending for selected investments and for lending policy reform Sectoral approach Integrated resource management approach Source: Shaping the Future of Water for Agriculture: A Sourcebook for Investment in Agricultural Water Management. The Strategies Behind the integrated and sustainable water management poli- World Bank's Action in AWM cies and programs. The three corporate strategies were developed The worldwide changes in AWM are reflected in the in several documents: World Bank's corporate strategies dealing with rural development, water resources, and the environ- · Reaching the Rural Poor: A Renewed Strategy for ment. All three strategies assign a vital role to agri- Rural Development (2003) highlights the pivotal culture and water management in promoting rural importance of rural areas, which are home to growth, sustaining the environment, and reducing the vast majority of the world's poor, as well as poverty. Their combined messages for AWM are the centrality of rural development to poverty clear: The productivity of existing assets and avail- reduction. The strategy calls for improved water able resources must be raised. The incomes of poor resources management, improved productivity farmers must be raised. And institutions must be of water management systems, development of improved so that governance includes expanded incentives and of the role of private investment private and user participation at every level, particu- and management, and reform of fragmented larly among women. In all these endeavors, stake- institutions and inefficient public bureaucracies. holders in the water management, agriculture, and · Water Resources Sector Strategy: Strategic environment sectors must work together to ensure Directions for World Bank Engagement (2004) 2 ISSUE 33 · APRIL 2009 emphasizes irrigation as the key to greater The Economic and Financial Challenge food production and therefore as the source of livelihood for the world's poor. The Bank's There is considerable scope for improving returns strategy emphasizes two imperatives: to expand on water from agricultural use. The key economic investment in irrigation and to change the challenge is to set up an incentive framework that way irrigation is managed. The agenda is to encourages efficient water use and profitable high- improve efficiency of water service delivery and value agriculture. Evidence indicates that such a use, support the role of demand management, framework improves efficiency and accountability, improve governance, and develop integrated raises productivity, and promotes sustainable and approaches and multi-functional technologies. environmentally responsible resource use. At the same time, irrigation schemes pose a financial · Making Sustainable Commitments: An Envi- challenge: to recover costs at a rate sufficient to ronment Strategy for the World Bank (2001) finance services to farmers. The broad challenge is recognizes irrigation's vital contribution to rural to encourage both large- and small-scale private economies and addresses the need for greater investment. attention to mitigating adverse environmental impacts. The strategy supports participatory approaches to address problems of groundwa- The Problem of Declining Investment ter depletion and drainage. Public investment in irrigation, drainage, and other facets of AWM has been declining worldwide. World Bank lending for new irrigation and drain- To Raise Water Productivity--Six age projects dropped to a low of $220 million in Challenges fiscal 2003, a dramatic plunge from the levels of the 1980s and early 1990s, when lending averaged AWM poses six major challenges, each of which between $1.0 billion and $1.2 billion annually. The is profiled below and examined in detail in one or reasons for the decline are several--chief among more chapters of the Sourcebook. them that investment costs have risen as irrigation has moved into more marginal areas; that the per- formance of large surface schemes has been disap- The Policy and Institutional Challenge pointing; and that the focus on large schemes has A public-private paradigm for irrigation has gained shifted to rehabilitation and management changes to ground in recent years, with the government tak- improve water delivery service. The safeguard poli- ing on the role of a facilitator and regulator while cies of the World Bank are seen by many as adding users and markets play a growing role in manage- to the transaction costs of project preparation. ment and finance. The new paradigm represents an important change from the earlier approach to irrigation, in which governments implemented top- The Challenge of Technology down solutions that often resulted in poor choices, and Water Resources to high costs, poor service, low cost recovery, and a Supply Growing Demand culture of dependency on the state. Now, as then, Today, irrigated agriculture supplies about 40 per- governments must adjust agricultural policies with cent of the world's food, although just 17 percent macroeconomic policies to establish a balance of cultivated land is irrigated. The threat of global between support for agriculture and an economi- food shortages has diminished through innovations cally efficient food security policy. AWM issues must and investments in the Green Revolution and water be integrated into broader agricultural policy, and control technologies. However, the UN Food and investment and incentive policies must be inte- Agriculture Organization estimates that between grated within the country's broader agricultural now and 2030 food production must increase by policy. Water management priorities, in turn, must 1.4 percent a year. About half of that growth will be integrated at the basin and national levels. New have to be generated from irrigated agriculture. water management skills and institutional capacity Meeting the demand will be difficult. Intersectoral building often are needed to ensure effective policy competition for water has sharpened, as pollution development and integration. and climate change have reduced water resources. 3 WATER P-NOTES The pace of technological innovation has slowed as will be needed where environmental concerns and the sector has matured, and the efficiency of agri- poverty reduction goals cannot both be met. cultural water supply and use falls persistently below its technical potential. Today's water resources challenge calls for better resource allocation, with Lessons and Next Steps systems of integrated management and incentives that allow water to flow to the highest social and The worldwide experience gathered together in the economic priorities. The intensity of land and water Sourcebook offers many lessons to guide future use must continue to be raised. investment in AWM. Among the most important are these: The Challenge of Poverty · Trade and markets play a key role in improving Agricultural growth is central to poverty reduc- agricultural water investment. tion. Seventy percent of the world's poor live in · Adequate cost recovery and governance rural areas, often on marginal lands or drylands, improvements are critical for sustainable irriga- with little or no access to controlled water sources tion modernization. and limited options for improved water manage- ment. The poor are also exceptionally vulnerable to · New tools are available to help improve invest- disaster through drought, floods, effluent discharge, ment quality, often by facilitating necessary inte- aquifer depletion, and other hazards. Achieving gration (a key theme across the whole range of the Millennium Development Goals for eradicat- water investments). ing poverty and hunger, addressing gender equal- · A broad array of technology is available for ity, improving child nutrition, and widening market large-scale irrigation and for small farmers. access depend directly or indirectly on pro-poor Investment in technology needs to be backed agricultural growth and related management of by a conducive incentive framework. scarce water. The key challenges for the poor are food security, risk mitigation, and income growth. · Participation improves the quality of investments. · AWM is a vital component of poverty reduction Environmental Concerns and the strategies. Imperative of Sustainability The World Bank can support partner countries Rural people are central to achieving environmen- through key instruments such as the Country Water tal sustainability, the topic of the sixth Millennium Resources Assistance Strategy (CWRAS), which Development Goal. However, the same people must links the Bank's program to national strategies and also increase food production. The challenges are ensures an integrated approach to water in the growing, as demand for water has led to irreversible investment and sector work program detailed in decline in water tables, increased salinization and country assistance strategies. waterlogging, and loss of farmland. The multifunc- Further support is available through "program- tional dimension of much agricultural water use and matic economic and sector work," which allows for the prevalence of environmental side-effects paint a multiyear program of technical assistance to sup- a complex picture. Informed policy decisions are port reform. A broad range of lending instruments crucial in selecting alternative approaches; tradeoffs can be selected according to intended objectives. The Water Sector Board Practitioner Notes (P-Notes) series is published by the Water Sector Board of the Sustainable Development Network of the World Bank Group. P-Notes are available online at www.worldbank.org/water. P-Notes are a synopsis of larger World Bank documents in the water sector. 4 THE WORLD BANK | 1818 H Street, NW | Washington, DC 20433 www.worldbank.org/water | whelpdesk@worldbank.org