Determinants of Water Price, Contract Mode and the Production Inefficiency in Groundwater Irrigation in Bangladesh

7/31/2019 Determinants of Water Price, Contract Mode and the Production Inefficiency in Groundwater Irrigation in Bangladesh

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Determinants of Water Price, ContractMode and the Production Inefficiency inGroundwater Irrigation in Bangladesh

Md. Saidur Rahman

PhD Research Scholar at SSD


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Supervisor:

Prof., Agril. Econ. & Member, Planning Commission,

Bangladesh

Co-supervisors

Scientist, IRRI, Dhaka Office

Senior Scientist, IRRI, Philippines


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Area 147 thousand sq km

Population 150 millionLand type

Cultivable land

Floodplains (80%)

8.2 mha

Major crops

Irrigated area

Rice (about 75%), wheat,maize, potato, jute, etc.

6.05 mha (75% of total CL)

Agril. GDP

Govt. priority

18.59% in 2009-10

Self-sufficiency in foodgrainby 2013

Density:1015/sq km

Staplefood:Rice


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Irrigation development in Bangladesh

Up to 1950: Swing baskets, doans, etc.Up to 1959, EPWPDA: Flood control and drainageand supplementary irrigation in the monsoon only.

Early 1960s: Modern surface irri. (LLP) introduced.

In 1961 EPADC: Groundwater irrigation & DTW

TFYP (1980-85): Short-gestation, low capital and

quick yielding projects, introduced large scale STW.

In 1987 and onward: Massive expansion of STWirrigation through market liberalization.

Motivation:


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Foodgrain production: 32.9 million tons

Boro rice: 17.81 million tons

54% ofFoodgrainproduction

57% of total rice

production

Surface water irrigation (20%): Dam/barrage,LLP, swing basket, doan, etc.

Groundwater irrigation (80%): DTW, STW, TP

DTW and TPcover: 13%

STW covers:67%

STWalone

covers84%

Motivation contd


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STW owner/seller: Those who own tubewelland sell water.

Irrigate their own land and partners landSell excess water to irrigate plots of their

neighbouring farmers

Maximise profit from selling water

Buyer: Those who have no tubewell but useirrigation water from other tubewells.

Motivation contd


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Characteristics Seller Buyer

STW Ownership Owner Non-owner

Income level Higher Lower

Non-farm income Higher Lower

Tenancy type Landlord/owncultivator

Tenant/ ownercum tenant

Farm size Larger Smaller

Risk preference Risk neutral Risk averse

Cash constrained Less More

Employment Employer at farmlevel

Employee at farmlevel

Credit access More Less

Crop diversity More Less


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Operatingsystem

Mode ofpayment

Rate ofpayment

Timing ofpayment

Pricerange

Inputprovider

Popularity

Diesel Crop share of harvest

Afterharvest

18000-25000

Seller Popular

Diesel Cash (A) Fixed/ha/

season

Beginning

the season

15000-

18000

Seller Not so

popularDiesel Cash

(B)Fixed/ha/season

Beginningthe season

12000-13000

Buyer Mostemerging

Electric. Cash Fixed/ha/

season

Beginning

the season

14000-

16000

Seller Popular

Electric. Crop share of harvest

Afterharvest

18000-25000

Seller Not sopopular

Existing contracts in irrigation water market

Source:Rahman,

200

8

Buyers pay service charge for using STW and use diesel

and other irrigation management of his own.

70%

30%


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Irrigation introduced in sixties and cropshare as major payment system for irrigationestablished from that time and it needs

evaluations.

Due to increase in bargaining power of buyer,the payment system is shifting from crop share

to cash payment.

Due to increase in diesel price and electricityprice, and also labour price, the mode ofpayment of irrigation water is changing (cropshare to cash payment).

After more than 30 years, it is high time toevaluate the payment system of irrigation and

examine whether the payment has any


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Profitability, efficiency in irrigation and commandarea management, cropping patterns, natures ofwater market, comparative analysis, existing mode

of payments, etc.

Why are diff. payment system emerging?

How is price and contract determined?Which factors are responsible for those?Is there any inefficiency in prod. in crop share?If commitment falls, what will be ineff. situation?


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How to determine water price of irrigation incash payment system?

What are the determinants of contractchoice of irrigation water market?

What are the production inefficienciesbetween seller and buyer under differentpayment systems?


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Data source: Gisselquist, 1991a and Pitman, 1993 (DTW and STW data from 1973-74 to 1986-87); BADC, 2008

(87-88 to 07-08); DAE, 2011 (08-09 to 10-11).

1980-90: 99% PA

1990-00: 17% PA

2000-10: 12% PA

Price of water in irrigation

1.55 million


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Water price mainly depends on:

1.Bargaining power of the buyer

2.Pumping cost3.Land and soil type4.Relationship with seller5.STW command area6.Parcel size and location7.Water quality

Hyp. 1. Increasing owner density reduces theuse right price of irrigation water.


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Risk Crop share

Interest rate Crop share

Creditinaccessibility

Crop share

Commitment Crop share

Asset position Cash payment

Mode of payment depends on:

Factors Preferred payment mode


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Hyp. 2. Higher risk in crop production leads to crop

share contract.Hyp. 2.1. Higher interest rate of credit leads buyer to

prefer the payment after harvesting (crop share).

Hyp. 2.2. Inaccessibility to credit or unavailability ofmicrofinance lead buyer to prefer the payment afterharvesting (crop share).

Hyp. 2.3. If there is less commitment of seller tobuyer, buyer prefers cash payment.

Hyp. 2.4. If asset position of the buyer improves, cropshare becomes less popular.


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MPL(1-)MPL

QL1 QL*

PLP1

Quantity of lab.

MPL

O

Marshallian Inefficiency analysis (1890)

Source: Hayami, et al. 1993

Production inefficiency issue


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Why monitoring and supervision are moredifficult in water market?

Landrentalmkt.

Watermkt.

Landlor

dTenant

SellerBuyer

Position as a landlord:

StrongPunishment: Land userightAlternative: Very less

Asymmetric info.: More

Position as a water lord:

WeakPunishment: Water use rightAlternative: MoreMoral strength: Weak

Asymmetric info.: Less


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MPL(1-)MPL

QL1 QL*

PLP1

Quantity of lab.

MPL

O

Marshallian Inefficiency analysis (1890)

Source: Hayami, et al. 1993

Production inefficiency issue


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Hyp. 3.1. More difficult in monitoring andsupervision of buyers farming irrigation, the moreinefficiency in production under crop sharepayment.

Hyp. 3.2. Productivity of land (yield) is lower ifthere is less commitment of seller to buyer under

crop share payment.

Hypothesis for VDSA data:

Hyp. 3.3. Land productivity (yield) of tubewellowners are higher than buyers over the years in

Bangladesh.


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Sample selection and size:

Village level data: 120 villages will be selectedrandomly from 12 VDSA districts covering

cash and crop sharing.

Household level data: 10 farmers from each

village will be selected randomly consideringthe ratio of seller and buyer of that village.Targeted HHs: 1200


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Last Boro rice 2012 (Dec.- May)

: Sept. to Dec., 2012

Checklist and questionnaire

FGD and personal interviews

Analytical methods:

Descriptive statistics

Two-stage instrumental variable (IV) reg. approachProbit/Logit or Multinomial-Probit/Multinomial-Logit

SFA for production inefficiency


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The composite form of the model:

Yi=

0+ X

i +

iY

i: Water Price (BDT/ha)

iiii

iiii

iii

iiiiii

myVillageDumbXZbPC

myVillageDumaXZaBP

eXPSL

SCARSLSTPCBPY

++++=

++++=

++

++++++=

)()(

)()(

)(

)()()()()(

10

10

6

543210

2nd Stage Regression

1st Stage Regression


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Category ofvariables

Source type

Bargaining power VILQ & HHQ

Pumping cost HHQ

Land and soil type VILQ

Relationship with seller HHQ

STW command area HHQ

Parcel size and location HHQ

Xiare the explanatory variables:


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1 if crop sharing; Yi,1

> Yi*,2

& Yi*,1

> Yi*,3

2 if cash payment (A); Yi*,2

> Yi*,1

& Yi*,2

> Yi,3

*

3 if cash payment (B); Yi*,3

> Yi*,1

& Yi*,3

> Yi*,2

i~ type-1 extreme value distribution

Yi* =

Model for choosing any technology:Multinomial Logit Model

Yi*,1

= Xi,11 + i,1

Yi*,2

= Xi,22 + i,2

Yi*,3

= Xi,33 + i,3


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Category ofvariables Source type

Risk factors VILQ & WSD

Level of interest rate VILQ

Credit inaccessibility VILQ & HHQ

Commitment level HHQ

Asset position HHQ

Xiare the explanatory variables:


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III. Determinants of production inefficiency:

Functional form of the model:

jj

n

i

ijjj UVXY ++= =1

lnln

where:

J= observation of thejth farm household

Yj= rice production yield in tons ha-1

Xi

= vector of production inputs

Vj

= random error term

Uj= half-normal distribution inefficiency component


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=+=n

i

ijijjj ZU1

The technical inefficiency model is:

where:

Zij= determinants of inefficiency (i= 1, 2, ... n)

Land productivity (Yield) HHQ

Monitoring and supervision HHQCommitment level HHQ

Land productivity of VDSA farmers VDSA


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Expected policy suggestions:

1. Some suggestions to take care by thegovernment regarding water price for itsinstitutionalization.

2. Some indications for farmers and the agriculturalpolicy makers about the directions of contract

choice.

3. Some suggestions will have based on productioninefficiency analysis and possible solutions for

that and it may be cash payment.4. Finally suggestions for the betterment of the

irrigation system and irrigated rice production inBangladesh.


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Timeframe of the study


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Supervisors

1.Professor Dr. M. A. Sattar Mandal

2.Dr. Humnath Bhandari

Dr. Samarendu MohantyHead, SSD, IRRI

BAU

&

IRRI

Department of Agri. EconomicsBangladesh Agril. University


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Category ofvariables

Explanatory variables Datasource

Bargainingpower

i. Total number of sellers

ii. Total number of non-owneriii. Total no. of non-owner irrigable parcelsiv. Total number of STWv. Arable land (ha)vi. Rice land (ha)vii. No. of sellers parcelviii. Area of sellers land

ix. No. of buyers parcelx. Area of buyers landxi. STW command area (ha)xii. Contract of the nearest village

VILQ

i. Farm sizeii. Total no. of potential seller and buyer

iii. Total number of potential buyeriv. Social position of seller and buyerv. Relationship between seller and buyervi. Parcel distancevii. Residual distanceviii. Education of seller and buyerix. Gender of buyer

HHQ

Explanatory variables forprice determination


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Pumping cost

i. Initial cost of engineii. Horse power of engine

iii. Life duration of STWiv. Electricity connection costv. STW diesel/electric costvi. Engine oil costvii.STW operating costviii.STW maintenance costix. Parcel distance from tubewellx. Education of sellerxi. Education of buyer

HHQ

Land and soiltype

i. High land areaii. Medium land area

iii. Low land areaiv. Clay soil areav. Loam soil areavi. Sand soil areavii.Clay loam soil area

viii.Sandy loam soil area

VILQ



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Relationship with

seller

i. Caste/social group of sellerii. Caste/social group of buyers

iii. Home distance of buyer and selleriv. Relation among buyers

HHQ

STW commandarea

i. Engine capacityii. Depth of groundwater tableiii. Owners land area

iv. No. of STW owners of that areav. No. of buyersvi. Land typevii.Soil typeviii.Rainfall

HHQ

Parcel size andlocation

i. Parcel sizeii. Parcel soil typeiii. Distance from the tubewell

HHQ

Water quality i. Arsenic percentii. Iron percent

iii. Colour of water

VILQ



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Category ofvariable

Explanatory variables Category

Risk factors

(Yield)

i. No. of flood

ii. Duration of floodiii. No. of droughtiv. No. of cyclone/stormv. Frequency of sevier diseases/insectsvi. Rainfall during the season

vii.Price in the normal yearviii.Price in the stressed year

VILQ

i. Rainfallii. Temperature

WSD

Level ofinterest rate

i. Sources of loan

ii. No. of loan receiversiii. Duration of loaniv. Amount of loanv. Payment with interestvi. Interest rate of loan from bankvii.Interest rate of loan from NGOviii.Interest rate of loan from moneylender

VILQ

Explanatory variables forcontract mode determination

Explanatory variables for contract mode determination


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Creditinaccessibility

i. Average farm sizeii. Average hh sizeiii. No. of credit receiversiv. Amount of credit neededv. Amount of credit received

HHQ

i. No. of farm householdsii. No. of banks in the villageiii. No. of money lendersiv. No. of NGOs

VILQ

Commitment level

i. Ageii. Relationship

iii. Caste/social groupiv. Social position of sellerv. No. of irrigation demandedvi. No. of irrigation supplied sufficientlyvii. No. of irrigation supplied insufficientlyviii. No. of times refusedix. No. of social meeting called to solve the problem between

seller and buyer regarding irrigation

x. No. of sellers parcelxi. Area of sellers landxii. No. of buyers parcel, xiii. Area of buyers landxiv. Diesel/elect. Price, xv. Severe crop diseases

HHQ

Asset position

i. Initial asset of householdii. Fixed assetiii. Durable asset

iv. House conditionv. Cash in hand

HHQ

Explanatory variables forcontract mode determination


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Category of variables Explanatory variables Data source

Land productivity(Yield)

i. Human labour/ha

ii. Animal lababour/haiii. Power tiller cost/haiv. Seed cost/hav. Fertilizer cost/havi. Manure cost/havii. Insecticide or pesticide cost/haviii. Irrigation cost/haix. Harvested crop/hax. Farm sizexi. Family sizexii. Distance from the source of dieselxiii. Transportation cost

HHQ

Monitoring andsupervision

i. Social relationship at family level

ii. Average distance of parcel from the buyers houseiii. Average distance of parcel from the tubewelliv. Average distance from well owners parcelv. No. of share holders of STWvi. No. of meets with the seller during the pick

irrigation season

HHQ

Explanatory variables forprod. inefficiency determination


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3. Commitmentlevel

i. Ageii. Relationshipiii. Caste/social group

iv. Social position of sellerv. No. of irrigation demandedvi. No. of irrigation supplied sufficientlyvii. No. of irrigation supplied insufficientlyviii. No. of times refusedix. No. of social meeting called to solve the

problem between them regarding irrigation

x. Commitment situation for the last yearxi. No. of sellers parcelxii. Area of sellers landxiii. No. of buyers parcelxiv. Area of buyers land

HHQ

4. Landproductivityof VDSAfarmers

i. No. of STW owner

ii. No. of non-owner/irrigated farmeriii. Harvest/ha of STW owneriv. Harvest/ha of non-owner/irrigated farmerv. STW owner/non-owners agevi. STW owner/non-owners educationvii. STW owner/non-owners family sizeviii. STW owner/non-owners farm size

ix. STW owner/non-owners cost of production

VDSA

Explanatory variables for land productivity determination


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My expectations from the audience:

Questions for queries and clarifications

Constructive comments to improve this research

Title

Motivation

Research questions

Hypotheses

Design of the research

Others if any


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Thank you very much for patience hearing

Documents

Determinants of Water Price, Contract Mode and the Production Inefficiency in Groundwater Irrigation in Bangladesh