Impact Evaluation Study Shallow Tubewell Irrigation in Nepal Impacts of the Community Groundwater Irrigation Sector Project Independent Evaluation Impact Evaluation Study December 2012 Shallow Tubewell Irrigation in Nepal: Impacts of the Community Groundwater Irrigation Sector Project Reference Number: IES: NEP 2012-25 Independent Evaluation: IE-75 NOTE In this report, “$” refers to US dollars. Director General V. Thomas, Independent Evaluation Department (IED) Director W. Kolkma, Independent Evaluation Division 1, IED Team leader G. Rauniyar, Principal Evaluation Specialist, IED Team members A. Morales, Evaluation Officer, IED (until 14 November 2012) V. Melo, Evaluation Assistant, IED The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of IED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, IED does not intend to make any judgments as to the legal or other status of any territory or area. Abbreviations ADB – Asian Development Bank ADBN – Agricultural Development Bank of Nepal APP – Agriculture Perspective Plan ATT – average treatment effect on the treated CGISP – Community Groundwater Irrigation Sector Project DOA – Department of Agriculture DOI – Department of Irrigation DVN – Development Vision Nepal EIRR – economic internal rate of return FGD – focus group discussion FIRR – financial internal rate of return GFO – groundwater field office ha – hectare IED – Independent Evaluation Department IIDS – Institute for Integrated Development Studies kg – kilogram NGO – nongovernment organization NPV – net present value NRB – Nepal Rastra Bank PCR – project completion report PFI – participating financial institution PMU – project management unit STW – shallow tubewell TA – technical assistance tpha – ton per hectare VDC – village development committee vs – versus WUA – water users association WUG – water user group Currency Equivalents Currency Unit – Nepalese Rupee (NRe/NRs) As of 30 November 2012 NRe1.00 = $0.01138 $1.00 = NRs87.88 Contents Acknowledgments i Executive Summary iii Chapter 1: Introduction 1 A. Rationale, Objectives, and Scope of the Study 2 B. Structure of the Report 4 Chapter 2: The Community Groundwater Irrigation Sector Project 5 A. Project Rationale and Objectives 5 B. Unique Features in Project Design 6 C. Implementation Arrangements 6 D. Project Performance 7 Chapter 3: Evidence from Literature on Impact of Irrigation 8 A. Poverty Impacts 8 B. Impact on Crop Diversity, Cropping Intensity, and Crop Productivity 8 C. Impacts on Complementary Investments 9 D. Intervening Variables 9 E. Methodologies Adopted in Quantifying the Outcomes and Impacts of Irrigation 10 F. Summary 11 Chapter 4: Methodology and Data 14 A. Conceptual Framework 14 B. Evaluation Approach and Design 14 C. Analytical Methods 18 D. Sample Size and Sampling Strategy 20 E. Survey Instruments, Data Collection, and Database Management 20 Chapter 5: Survey Results: Difference-in-Means Analysis 22 A. Socioeconomic Characteristics 22 B. Agricultural Landholding 23 C. Income and Expenditure Patterns 24 D. Input Use and Crop Performance 26 E. Access to Energy 27 F. Water User Groups 28 Chapter 6: Economic Impact 29 A. Economic Reevaluation 29 B. Economic Impacts of STW Irrigation (Counterfactual Analysis) 29 Chapter 7: Noneconomic Impacts 36 A. Education 36 B. Health 38 C. Consumption 40 D. Asset Formation 41 E. Firewood Consumption 42 Chapter 8: Effectiveness and Sustainability of Water User Groups 44 A. General Attributes of the Project’s Water User Groups 44 B. Effectiveness of Water User Groups 45 C. Sustainability of Water User Groups 45 Chapter 9: Environmental Impacts 49 A. Groundwater Extraction 49 B. Use of Chemical Fertilizers 51 C. Plant Protection Chemicals 52 Chapter 10: Key Findings, Issues, Lessons, and Recommendations 54 A. Key Findings 54 B. Issues 57 C. Lessons 59 D. Recommendations 60 APPENDIXES 1. Basic Data: Community Groundwater Irrigation Sector Project 64 2. Selected Empirical Literature on the Irrigation-Poverty Nexus 65 3. Methodology and Data 66 4. Per Hectare Crop Inputs and Outputs, By Farm Type, Mean Values (2010–2011 Season) 72 5. Crop Level Input Use and Production per Hectare 73 6. Financial and Economic Reevaluation 75 7. Propensity Score Estimates for Impact Evaluation of Shallow Tubewells 89 8. Impact Estimates by Status of Water User Groups, ATT Values —Nearest Neighbor Matching Method 90 Acknowledgments This impact evaluation study is a product of the Independent Evaluation Department (IED) of the Asian Development Bank (ADB). The evaluation was led by Ganesh Rauniyar, Principal Evaluation Specialist, IED. Alvin Morales provided technical support in conducting economic reevaluation of the project, while Valerie Anne Melo provided administrative support at various stages of the report preparation. The evaluation was supported by Asa Sajise (econometrician/consultant), and primary data collection in Nepal was undertaken by the Institute for Integrated Development Studies based in Kathmandu. The report was peer reviewed by Hyun H. Son and Binh Nguyen of IED; Fabrizio Felloni and Konstantin Atanesyan of the International Fund for Agricultural Development, Rome; and Hari Krishna Upadhyaya of the Center for Environmental and Agricultural Policy Research, Extension and Development, Kathmandu. We thank ADB’s Nepal Resident Mission and the Department of Irrigation and its field staff for their full cooperation during the conduct of the study. We also acknowledge the valuable time given by participating household members, water user group executives, and key informants in responding to the survey questions and participating in focus group discussions, without which this study would not have been possible. We further appreciate comments on an earlier version of this report, as provided by relevant departments and offices of ADB. This report was prepared under the overall guidance of Vinod Thomas, Director General, and Walter Kolkma, Director, Division 1, IED. IED retains full responsibility for the report. Executive Summary Achieving and maintaining food security and food price stability are major challenges for many of the developing countries in Asia and the Pacific. High, unstable food prices affect the poor in particular, because poor households must allocate a major share of their incomes to food purchases. Providing farmers with reliable irrigation systems boosts and stabilizes agricultural production by increasing the overall water supply for a country’s crops and reducing the uncertainties that result from variable rainfall patterns. This in turn reduces food prices and makes them less volatile. The exploitation of groundwater is a viable way to provide irrigation in areas that have ample groundwater and present challenges to the development of systems that use surface water. The share of groundwater extraction in overall global irrigation has been growing, because it requires less capital investment than other methods and raises relatively fewer concerns with respect to property rights. In 2010, 38% of the world’s irrigated areas were using groundwater rather than surface water. As countries strive to improve agricultural production, the demand for groundwater irrigation will remain strong. Context Nepal has exploited only a fraction of its tremendous groundwater resources. This is partly due to a government focus during the 1970s and 1980s on providing surface water irrigation and to inadequate efforts to make use of the country’s groundwater potential during the same period. Fluctuating weather patterns and a decline in the availability of water from rivers and streams, particularly during the dry seasons, led to greater emphasis by the government on groundwater irrigation in the mid-1990s. The 20-year Agricultural Perspective Plan (APP) that was approved in 1994 with the support of the Asian Development Bank (ADB) recognized the expansion of groundwater-based irrigation as a priority input in agricultural development, along with such complementary improvements as construction of all-weather agricultural roads, electrification, greater use of fertilizers, and better marketing activities. The number of shallow tubewells (STWs) has rapidly increased as an integral part of the APP. The plan period ends in 2015, but, in the face of several constraints and in the absence of an enabling environment to complement groundwater irrigation expansion, the development of the agriculture sector has fallen far short of expectations. Working with other development partners, ADB is now helping Nepal formulate a new agricultural development strategy. This evaluation study by ADB’s Independent Evaluation Department (IED) provides lessons that will be useful in this effort. The findings will also inform ADB activities in its core area of operations in irrigation infrastructure and add to the overall knowledge base on the impacts of groundwater irrigation systems. The Project The evaluation drew on the experience of the ADB-supported Community Groundwater Irrigation Sector Project (CGISP), which was implemented during 1999– 2007. The project aimed to increase agricultural productivity on a sustainable basis and to raise the incomes of farmers with less than 1 hectare (ha) of land