Expanding Small-Scale Irrigation in Ethiopia: Do Pump Prices Matter?
This post was written by Dr. Marie-Charlotte Buisson, research group leader — Economics and Impact Assessment (International Water Management Institute (IWMI)), and Cecily Layzell, IWMI consultant.
Governments in sub-Saharan Africa (SSA) are keen to expand irrigation to improve food security and climate resilience and are increasingly emphasizing the role of private, farmer-led irrigation using groundwater.
In Ethiopia, the government has prioritized solar pumps, although diesel pumps are also common. Policy action has focused on removing import taxes on irrigation pumps, which account for around a third of pump prices. Efforts are also being made at the national level, for example by the Development Bank of Ethiopia, to address credit constraints for smallholders to buy pumps.
But new research by IWMI suggests that a further barrier to pump adoption that has received less attention could potentially be vital for policies aimed at expanding smallholder groundwater-based irrigation. This is the uncertainty associated with successfully drilling boreholes to reach groundwater.
Groundwater-based irrigation is a multistage technology. This means that a water-yielding borehole has to be drilled before a pump can be installed. Farmers’ decisions to adopt technologies that require investments in multiple stages can be affected by fiscal support as well as extension services that are offered at different stages. However, fiscal support may not be enough to boost technology adoption if investments at other stages are expensive, or if the outcomes of these stages are characterized by unquantifiable uncertainties or ambiguities. In Ethiopia, the cost of drilling boreholes is high, and the uncertainty around successfully “hitting water” is considerable.
Identifying Farmers’ Preferences
As part of the USAID-funded Innovation Lab for Small Scale Irrigation (ILSSI) project, IWMI conducted research in two regions of Ethiopia: Amhara and Southern Nations, Nationalities, and Peoples’ Region (SNNPR). The team interviewed 400 farmers from 16 villages in woredas (subdistricts) with high potential for groundwater-based irrigation. Since market access affects the ability of farmers to sell their surplus produce and acquire inputs, such as seeds and fertilizer, the villages were selected to allow for variation in road connectivity and access to markets.
The study was designed to elicit farmers’ preferences by presenting them with a series of irrigation packages and asking them to choose their preferred option. The assumption underlying this approach is that people decide whether to acquire goods or services depending on the attributes of those goods or services. The irrigation packages were characterized with the following four attributes: type of pump, reduction in pump price through a tax break, availability of a loan for pump purchase, and well drilling arrangements.
Pump Prices Least Important Factor for Farmers
The results showed that access to loans was the most important attribute affecting farmers’ choice of irrigation package, while provision of government drilling services was the second most important. Prices did not matter as much as access to loans and uncertainty around drilling.
Access to loans increased the probability of an irrigation package being chosen by 12 percentage points on average, whereas providing government drilling services increased the probability by nine percentage points. Respondents were seven percentage points more likely to choose an irrigation package if it had a motor pump in it rather than a rope and washer pump, and six percentage points more likely to choose it if it had a solar pump.
Reductions in pump prices had the smallest effect. A 30 percent price reduction increased the probability of choosing the package by only four percentage points on average, while a 15 percent price reduction had no statistically significant effect on the probability of an irrigation package being chosen (see visualization below).
Farmers with greater market access (shorter travel time) had a higher preference for loans and government well drilling. Preferences for solar and motor pumps decreased slightly with greater market access. Finally, there was no discernible pattern between the reduction in pump prices through tax breaks and travel time to markets.
Implications for Agricultural Policy
Our results suggest that uncertainty-reducing policies may be a cost-effective approach to increase the adoption of groundwater-based irrigation by smallholders in Ethiopia. Publicly funded research that improves understanding of the availability of groundwater and is made publicly available to farmers and borehole drillers is likely an important component of accelerating irrigation.
At the same time, policies that transfer losses from unsuccessful borehole installations to a limited extent may also have a role to play. Given that farmers in the study were more likely to be influenced by uncertainty reduction in their irrigation adoption decisions than by lower prices through tax breaks, it would make sense to pursue the former approach if it costs no more than the latter to implement. Based on back-of-the-envelope calculations, this appears to be the case.
To illustrate, removing the 30 percent import tax on an Ethiopian birr (ETB) 16,000 ($300) pump costs the Ethiopian government ETB 4,800 ($90) in foregone tax revenues for each farmer who adopts the technology. According to our research data, it took a farmer an average of two attempts to hit water, which cost them roughly ETB 3,500 ($65) per drilling. So, if the government absorbed the cost of the first failed attempt (with the farmer paying the full cost of the successful second attempt), the government’s average cost of uncertainty reduction of ETB 3,500 ($65) per farmer (the cost of one additional drilling attempt per farmer on average) is less than the foregone tax revenues from the import tax break.
Overall, the findings indicate that reducing uncertainty around borehole drilling through publicly funded hydrogeology and limited sharing of losses due to uncertainties in drilling may not only be an essential step toward expanding groundwater-based irrigation in Ethiopia, but it may also be a cost-effective one.