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Importance of Irrigated Agriculture to the Ethiopian Economy: Capturing the Direct Net Benefits of Irrigation

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Importance of Irrigated Agriculture to the Ethiopian Economy: Capturing the Direct Net Benefits of Irrigation Importance of Irrigated Agriculture to the Ethiopian Economy: Capturing the direct net benefits of irrigation Fitsum Hagos1, Godswill Makombe1, Regassa E. Namara 2, and Seleshi Bekele Awulachew1 1International Water Management Institute (IWMI) Subregional Office for the Nile Basin and East Africa, Addis Ababa, Ethiopia 2International Water Management Institute (IWMI), Africa Regional Office. Accra, Ghana. [email protected] Abstract total national GDP was about 5.7 and 2.5 percent during the 2005/06 cropping season. Irrigation development is seen as one of the means to reduce poverty and promote As a result of expansion, by the year economic growth. While a lot of effort is 2009/2010 the expected contribution of exerted towards irrigation development, little attempt is done to quantify the smallholder managed irrigation to national contribution of irrigation to national income economy, assuming that exiting cropping in Ethiopia. This study is an attempt to pattern, and the average gross margin values quantify the actual and expected for different crop categories are still valid, is contribution of irrigation to the Ethiopian expected to increase from USD 262.3 national economy for 2005/06 cropping million in 2005/2006 to about USD 414.2 season and 2009/10 using adjusted net gross million in 2009/2010, which accounts to margin analysis. about 5.5 percent of the agricultural GDP and 2.3 of the overall GDP for the same Our results show that irrigation in the study year. On the other hand, the contribution sites generates an average income of about coming from the large scale sugar growing USD 323/ ha. This compares to the estates in 2009/2010 is estimated to be USD calculated gross margin for rainfed which is 217.5 million which amounts to 2.9 and 1.2 USD 147/ha. This indicates that after percent of the agricultural and overall GDP accounting for annual investment respectively. Similarly the contribution replacement cost net gross margin from coming from large scale commercial farms irrigation is more than twice higher than growing crops other than sugar cane is gross margin from rainfed agriculture. On expected to increase to USD 35.8 million in the contribution of irrigation to national 2009/2010 which accounts to 0.4 and 0.2 economy, in 2005/06 smallholder irrigated percent of the agricultural and overall GDP agriculture contributed about 262.3 million respectively. This implies that large scale USD. This accounts for about 4.46 percent commercial farms will contribute about 3.3 of the agricultural GDP in 2005/2006 and and 1.4 of the agricultural and overall GDP 1.97 percent of the total overall GDP. The respectively. In summary, our results total income earned from large scale indicate that under conservative estimates schemes is estimated to be about 74.0 the future contribution of irrigation to million USD. This accounts for about 1.26 agricultural and overall GDP will be about 9 percent of the agricultural and 0.5 percent of and 3.7 percent respectively. the total GDP respectively. Overall, the contribution of irrigation to agricultural and When some of the assumptions related to cropping pattern, input and output prices, 127 and efficiency levels are relaxed, the Ethiopia is said to have an estimated contribution of smallholder managed irrigation potential of 3.5 million hectares irrigation to agricultural and overall GDP (Awulachew et al. 2007). However, the total will vary between 4 to 6 and 1.8 to 1.9 estimated area of irrigated agriculture in the percent respectively. Similarly, the country in 2005/2006 was 625,819 ha, contribution from large scale irrigation to which in total constitutes about 18 percent agricultural and overall GDP will be in the of the potential (MOWR, 2007). range of 3 to 6 and 1.2 to 2.5 percent respectively. Overall, the future contribution Irrigation is expected to contribute to the of irrigation to agricultural GDP will be in national economy in several ways. At the the range of 7 to 12 percent while the micro level, irrigation could lead to an contribution to overall GDP will be in the increase in yield per hectare and subsequent range of about 4 percent. To enhance the increases in income, consumption and food contribution of irrigation to national security (Bhattarai and Pandy, 1997; economy, besides increasing the presence of Vaidynathanet al., 1994; Ahmed and physical water infrastructure, however, there Sampath, 1992; Lipton et al. 2003; Hussain is a need to: i) improve provision of and Hanjra, 2004). Furthermore, Hussain agricultural inputs, ii) promote high value and Hanjra (2004), based on their studies in crops through the extension system, iii) Asia, indicated that irrigation benefits the create good market conditions, and iv) poor through higher production, higher increase the efficiency of small and large yields, lower risks of crop failure, and schemes. higher and year round farm and non-farm employment. Irrigation enables 1. Introduction smallholders to adopt more diversified cropping pattern, and to switch from low Unreliable rainfall, recurrent drought and value subsistence production to high-value limited use of the available water resources, market-oriented production (Hagos et al., coupled with heavy reliance on rain-fed 2007). subsistence agriculture, have contributed adversely to the economy of Ethiopia. In Macro level impacts manifest themselves fact, the World Bank (2006) estimates that through agricultural impacts on economic unmitigated hydrological variability growth. At the aggregate level irrigation currently costs the economy over one-third investments act as production and supply of its growth potential and leads to 25 shifters, and have a positive effect on percent increase in poverty rates. Hence, economic growth. Studies in Asia show that enhancing public and private investment in agricultural growth serves as an “engine” of irrigation development has been identified economic growth, and irrigation-led as one of the core strategies aimed to de-link technological changes are the key drivers economic performance from rainfall and to behind productivity growth in the enable sustainable growth and development agricultural sector (Hussain and Hanjra (World Bank 2006; MoWRa, 2002; MoWR, 2004; Alagh, 2001; Dhawan, 1988). Other 2002b; MOFED, 2006). In the government effects of irrigation on changes in the policy documents, irrigation development is environment and other social impacts have identified as an important tool to stimulate been reported in the literature such as on the sustainable economic growth and rural economic value of wetlands (Barbier and development and is considered as a corner Thompson, 1998); employment impact of stone of food security and poverty reduction irrigation (Berck and Hoffman, 2002) and (MoWRa, 2002; MoWR, 2002b; MOFED, non-farm sector benefits from irrigation 2006). investment (Bhattarai, et al. 2003). 128 The methodological approaches applied to 2002b; MOFED, 2006) and associated capture these diverse impacts of irrigation changes in cropping patterns. In so doing, varied from linear programming, to we tried to determine how much irrigation is regression models, to partial equilibrium contributing and will contribute to national models, to economy–wide models such as income relative to rain fed agriculture. This input-output models, Social Accounting method of adjusted gross margin analysis Matrices (SAM) and Computable General accords with the System of Environmental Equilibrium (CGE) Models. For instance, and Economic Accounts (SEEA) Bhattarai and Pandy (1997) used a linear recommendations (UN, 2003) and provides programming technique to isolate the impact a “best estimate” of the change in GDP of irrigation from other factors (such as road generated by irrigation at the farm gate and market) on crop production and (Doak, 2005). However, it should be noted productivity in Nepal. Vaidynathan et al. that a large number of estimates and (1994) used regression analysis at the assumptions are required to estimate the aggregate level to assess the difference in impact on GDP, and the results should be land productivity between irrigated and un interpreted with caution. In addition, the irrigated lands in India. Ahmed and Sampath increased output from irrigated farms will (1992) used a partial equilibrium model that have different multiplier effects in the wider incorporates demand and supply shifts to economy, so the total impact of irrigation on assess the impact of irrigation on efficiency GDP is likely to be higher than the farm gate and equity in Bangladesh. Makombe (2000) impact. used a similar partial equilibrium model to estimate the impact of irrigation induced For estimating the contribution of technological change in Zimbabwe. Bell smallholder irrigation we relied on data and Hazel (1980) used SAM and a semi collected during the 2005/6 season from input-out model to measure the magnitude eight smallholder irrigation schemes in and incidence of regional downstream four regional states in Ethiopia, namely effects of the Muda irrigation project in Amhara, Oromia, Southern Nations Malaysia. While there are various studies Nationalities and Peoples Regional that have tried to capture the diverse impacts Government (SNNPR) and Tigray. The data of irrigation, there are, however, few studies collected included command area, actual that attempted to capture the direct cultivated area cropping pattern, output contribution of irrigation to the national types and value, input use and input economy. One such study is by Doak et al., expenditure and information on the level of (2004) and Doak (2005) which develop a operation, (e.g. fully operational, medium, simple methodological framework to low or not operational). Moreover, we used measure the economic value of irrigation to secondary data gathered from selected large the New Zealand’s National economy. Our scale commercial farms in the Awash and study builds on the approach followed by Nile Valleys and price data and production Doak et al., (2004) and Doak (2005). data from the Central Statistical Authority (CSA). The objective of this study, hence, was to estimate the net contribution of irrigation to The research report is presented as follows.
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