Research Agenda Groundwater Irrigated Agriculture - Comments Welcome

In large-scale agricultural economies such as India and elsewhere, input subsidies and excessive minimum support prices (MSP) are nowadays considered to be prime culprits of environmental degradation of natural resources including freshwater and soils. In such places, it is feared that the currently observed growth of GDP at full throttle is not sustainable. The observable increases in the volatilities of the agricultural production in India may very well be an early indication of structural deficiencies rather than cyclical variability. Hence, a crucial research task is to identify a mix of public policy interventions together with private sector involvement that can address such problems by conforming to criteria of efficiency and equitability while at the same time accounting for sustainability constraints.

The relevance of efficiency, equitability and sustainability benchmarks to be accounted for cannot be overemphasized. First, there is plenty to be gained from efficiency increases. In India, for example, wheat yields obtained in research farms show the potential for per hectare productivity gains of 25 to 50 percent relative to present levels. Certainly, ongoing degradation of natural resources, declining public investments and only modest growths in private investments as well as suboptimal factor inputs into agriculture potentially threaten these potential improvements in efficiency. Similarly, well intended agricultural government intervention programs such as public food distribution systems have often shown unanticipated effects. While their primary goal is a noble one, i.e. to redistribute food surpluses to deprived areas, these programs have greatly increased welfare inequitability. In fact, they favored producers in surplus states over consumers with the rise of the marginal support prices relative to both, the costs of production and world market food prices. Finally, dramatic regional aquifer depletion (100 to 150 m drops of groundwater levels in some regions) and soil salinization (20'000 to 30'000 ha lost to water logging and soil salinization annually) is observed in India. If growth relies on depletion and degradation of essential production factors, it ultimately cannot be sustained and will turn into the opposite, namely a decline in overall welfare levels.

In the economic discipline, quantitative policy analysis has become a standard tool for the investigation of planned interventions and their effectiveness vis-a-vis the above mentioned benchmarks (e.g. GTAP and its incarnations). Usually, computable general equilibrium models are used to assess effectiveness by comparing ex ante and ex post demand, supply and prices for the markets and commodities under consideration. These models are based on the assumption of myopic, utility maximizing homogeneous economic agents. Their solution normally depends on stringent assumptions about the shape of individual demand and supply functions and on the highly idealized postulation of complete markets. By their nature, these models cannot investigate the transitional dynamics that result from policy interventions. Yet, such dynamics is crucial to account for since it might well be that the attainment of a formulated policy goal comes at a forbiddingly high cost (e.g. depletion of fossil groundwater, extinction of species, etc.) en route to that very goal. XXX Sexy historical example – do we know of one? XXX

Given such deficiencies of existing approaches, we intend to develop a hierarchical production, consumption and trade model of agricultural production. Simply put, our approach will allow to study economic dynamics and dynamic equilibrium outcomes given incomplete information and markets with potentially few participants. In the real-world economy, agricultural production to a large extent is determined by anticipated farmers revenues. These depend on local, regional, national and global market prices as well as governmental support price signals and subsidies policies. Hence our emphasis on a hierarchical approach where macro outcomes are conditional on micro decisions whereas the latter are taken given marco observables. By the explicit integration of spatial and temporal trade and environmental models (physical, stochastic and / or mixed) we aim to represent the place‐dependent dialectic between nature and society as well as the presence or absence of timely economic signals within a quantitative, interdisciplinary framework.

Invitations to come to New York and Survey data

Okay - so we kind of decided that we would invite people to come to New York in November in time for our symposium. Maybe November 9th/10th until November 18th. That will give them some time to rest up, for us to meet with them and talk about out progress thus far, to see our presentation at the symposium, and to talk about the future of the project and their possible involvement.

We want to come up with
1) overall, large-scale project goals that will require their help to accomplish; a larger macro level framework in which the micro level stuff can be embedded
2) really distinct, small questions that can be achieved while they are here or soon after. These should be questions that are embedded in the larger framework, but are useful to address very specific aspects of our research.

One thing that I think we should definitely talk about is the survey data that FK had suggested collecting on the microlevel. If it only takes a couple thousand to do it, we should take advantage of it and work with them to get it done.
The other thing that I would like to see done, which may also be quite cheap to accomplish in India is the collection of some biodiversity data in the different types of ag fields. This could be done in Bihar in different types of ag land where there is information on what is being grown where, as well as those larger scale rice fields. I think we can get grad students of researchers to work with us on this for very little money. And I think someone with good insect expertise at a nearby university would be ideal. Maybe they know someone in Bihar that would be interested in that type of project.

Groundwater irrigated agriculture in India

Overpopulated (~12.78 persons/ha in rural parts) and poor (... the armpit, remember) Bihar faces land and capital constraints. Bihar is the only state in India that registered an increase in absolute numbers of people living below the poverty line between the last 2 NSSO rounds. Together with the semi-feudal landholding system (yes, a couple of land-reforms, i.e. consolidation, have been tried in Bihar - all were a terrible failure), this has lead to a situation of low or even decreasing returns from land relative to labour.
Of course and since this is no magic, governmental policy from the mid-eighties onwards was increasingly geared towards the use of shallow tubewells for the intensification of irrigation. The million wells scheme was only one of these initiatives. Public push, an eased access to capital, the portability of diesel pumps lead to a four-fold increase of shallow well density in Bihar from 1986 - 1993. As of 2003, a thirty-fold increase was observed in selected places in the state. Unfortunately, the increase in wells was not based on efficiency considerations but rather also dictated by the ever increasing land fragmentation (in all India and based on the NSSO surveys, average area operated per holding in 2002-03 was 1.06 hectares compared to 1.34 hectares during 1991-92 and 1.67 hectares in 1981-82. Marginal holdings (of size 1 hectare or less) in 2002-03 constituted 70% of all operational holdings, small holdings (size 1 to 2 hectares) constituted 16%, semi-medium holdings (2 to 4 hectares), 9%, medium holdings (4 to 10 hectares), 4%, and large holdings (over 10 hectares), less than 1%. The share of marginal holdings in total operated area climbed by 6-7% since 1991-92 to reach 22-23%, drawing level with the shares of the semi-medium and medium holdings, which had the largest shares in 1991-92.).
Now, these developments have provided a feast for microscale academic studies. Conclusion, access to capital and technologies has, in fact, increased and strengthened the inequity between rich landholders and small-scale farmer in this pre-capitalist agrarian economy. However, a recent village and household level study by IWMI shows that marginal and small-scale landholders own 55% of all wells while they only cultivate 25% of the total land owned by the sample farmers. This study also refuted the tail-ender problem first described by Wood, 1995, i.e. that farmers close to water points get their water first with better conditions. Mainly due to an ever increasing density, supply points (wells) and their relative location to demand have enabled the broadening of water markets (remember the farmers we saw, selling their water to distant fields by means of those long, flexible tubes). In fact, monopoly power by the few has been strongly reduced and buyer power increased correspondingly. As an example, while diesel prices have risen three-fold between 1995-2003, irrigation water prices increased only by a factor of 2.5. (A further interesting finding of the IWMI study was that water buyers use less hours of pumped groundwater for irrigation to reap comparable levels of profits as pump owners.).
Even though almost universal access to groundwater has been facilitated over the years and markets started to operate efficiently, the intensity of GW irrigation has remained low. It appears that due to low gross yields ( e.g. 40% of Bihari farmers realize less than 6t/ha of annual wheat and rice yield), adequate amounts of irrigation water often cannot be afforded (e.g. average annual irrigation depth for the Rabi crop is estimated to be .175m, way below the recommended level by the state). Hence, further intensification is precluded.
Remarkably and very unlike in other states or even Bangladesh, tubewell irrigation did not live up to it's promise in Bihar and whatever production increase was observed, it got eaten up by population growth. Given the absence of support prices, the persistence of agrarian stagnation is also caused by the continuous increase of fuel prices (diesel) which, over time, lead to a decline in out to input price ratios since it was not matched by a corresponding increase of output prices. The reduction on fertilizer subsidies as well as the rise in agricultural wage labor prices has contributed to this correspondingly. The decrease in terms of trade has actually been shown to have slowed down agro growth in Bangladesh during the nineties. Unfortunately, public expenditure in infrastructural development in Bihar was largely non-existent. Thousands of villages remain with electrification and adequate roads. So, while in other states such as Punjab and Haryana private costs of irrgation was falling to to ever increasing electricity subsidies, many Bihari farmers were left with no choice and had to face the steady increase in production factor prices. The widespread lack of cold storage, difficult over land access, adequate flood protection and high production costs have all contributed to the uncompetitive nature of ag in Bihar and farmers remain practicing nothing more than what Tushar Shah calls cost-covering agriculture.
In fact, in Jordan we saw a similar phenomenon. In order to escape that whatever-you-want-to-call-it trap, you need to take care of every single element in the production and distribution chain. Value-adding at the source is only one element of interventions necessary to enable development in real terms. An interesting question, of course, remains, why collective action in Bihar never happened like in other states, where farmers with different status came together to extract concessions from their respective state. So, Banerjee definitely hits on something interesting. However and with regard to Brenda's last statement, I do not think that the organization of water is due to lacking collective action but rather due to those darn prices.
So, what do we conclude? Two things from my side. There is, of course, the possibility to embark on the same startegy as e.g. Haryana and Bihar and jump-start development by free-of-cost groundwater pumping. Or, alternatively / additionally wait for rising food prices as has been described in a recent article in Foreign Affairs. There, the authors claim that this likely development due to ongoing degradation of ag land, the ever increasing production of ethanol-crops and an overall growing global demand, poses an imminent threat to the poor farmers. However, I would argue that if access to international markets was provided, it might very well be that rising food prices are effectively a blessing and not a curse for the local farmers.

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Information on food and public distribution

Information on food and (targeted) public distribution systems (PDS / TPDS) and their various incarnations can be found here (official government of India website). Many more relevant documents can be found on the internet, e.g. this Woldbank study which exposes major flaws ion the PDS system.

A detailed study on the Wheat and Rice Sector policies in India including data can be found here. There, the dynamics of governmental programs for the redistribution of staple food is nicely discussed and put into the larger perspective of policy effectiveness. Also, the authors develop a multi-regional partial equilibrium model of wheat and rice sectors with which they study impacts on commodity markets of alternative farm support programs. The model is described in greater detail in Jha and Srinivasan (2006) and Jha and Srinivasan (2004). what follows is a short condensation of the article by Jha, Srinivasan and Landes (2007).

The goal of the government intervention programs (mainly food grain price support, procurement, storage and distribution) is simple, i.e. to redistribute food surpluses to deprived areas. However, increasing wheat and rice sector volatilities render the established system inefficient due to lacking responsiveness. A central question for ongoing research thus has become how to reform the distribution system so that distributive effectiveness by improved logistics, minimized storage holdings (and, for that, losses) relative to imminent and future anticipated excess demand as well as monetary efficiency can be attained.

The observed volatility increase gives rise to concern, namely that its causal factors are structural and not cyclical. These factors include a declining scope for further gains from existing HYV's, deteriorating soils and groundwater conditions as well as the reduced public investment in irrigation. However, wheat yields obtained in research farms show the potential for productivity gains of 25 to 50 percent relative to present levels. Certainly, ongoing degradation of natural resources (soils and water) declining public investments and only modest growths in private investments as well as suboptimal factor inputs into agriculture potentially threaten these potential improvements.

Both, input subsidies and excessive minimum support prices (MSP) are considered to be prime culprits of environmental degradation. Furthermore and since the rise of the MSP relative to costs of production, both governmental policies have started to favor producers in high output states whereas consumers and the state were not benefiting from these developments. Increasing MSPs were pushed through by the powerful agricultural lobby as a response to decreasing world market prices.