PhD Dissertation Proposal Title:

Determinants of Water Price, Contract Mode and the Production Inefficiency in Groundwater Irrigation in Bangladesh Md. Saidur Rahman PhD Research Scholar at SSD

Supervisory Committee
Supervisor: Dr. M. A. Sattar Mandal
Prof., Agril. Econ. & Member, Planning Commission, Bangladesh

Co-supervisors 1. Dr. Humnath Bhandari

Scientist, IRRI, Dhaka Office

2. Dr. Kei Kajisa

Senior Scientist, IRRI, Philippines

Some Features of Bangladesh

Area Population Land type Cultivable land Major crops Irrigated area Agril. GDP Govt. priority 147 thousand sq km Density: 150 million 1015/sq km Floodplains (80%) Staple 8.2 mha food: Rice (about 75%),Rice wheat, maize, potato, jute, etc. 6.05 mha (75% of total CL) 18.59% in 2009-10 Self-sufficiency in foodgrain by 2013

Motivation:

Irrigation development in Bangladesh

Up to 1950: Swing baskets, doans, etc. Up to 1959, EPWPDA: Flood control and drainage and 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 STW irrigation through market liberalization.

Motivation contd

Foodgrain production: 32.9 million tons Boro rice: 17.81 million tons

54% of 57% of total rice Foodgrain production production Surface water irrigation (20%): Dam/barrage, LLP, swing basket, doan, etc. Groundwater irrigation (80%): DTW, STW, TP
DTW and TP cover: 13%
STW alone covers 84%

STW covers: 67%

Motivation contd

The characteristics of the water market

STW owner/seller: Those who own tubewell and sell water. Irrigate their own land and partners land Sell excess water to irrigate plots of their neighbouring farmers Maximise profit from selling water Buyer: Those who have no tubewell but use irrigation water from other tubewells.
Nature of WM: Monopoly >Oligopoly > Competitive

Characteristics Seller STW Ownership Income level Owner Higher

Buyer Non-owner Lower Lower Tenant/ owner cum tenant Smaller Risk averse More

Non-farm income Higher Tenancy type Farm size Risk preference Landlord/own cultivator Larger Risk neutral

Cash constrained Less Employment Credit access Crop diversity

Employer at farm Employee at farm level level More More Less Less

Existing contracts in irrigation water market

Operating Mode ofRate ofTiming ofPrice system payment payment payment range Diesel Diesel
Source:Rahman, 2008

Input Popularity provider Popular Not so popular Most emerging Popular Not so popular

Crop

share ofAfter harvest harvest

18000- Seller 25000

Cash (A) Fixed/ha/ Beginning 15000- Seller season the season 18000 70% Cash (B) Cash Crop Fixed/ha/ Beginning 12000- Buyer season the season 13000 Fixed/ha/ Beginning 14000- Seller season the season 16000 share ofAfter harvest harvest 18000- Seller 25000

Diesel Electric.

30%
Electric.

Buyers pay service charge for using STW and use diesel and other irrigation management of his own.

 Irrigation introduced in sixties and crop share as major payment system for irrigation established 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 electricity price, and also labour price, the mode of payment of irrigation water is changing (crop share to cash payment). After more than 30 years, it is high time to evaluate the payment system of irrigation and examine whether the payment has any

Research gap: Literature reviewed

Answers are already known: Profitability, efficiency in irrigation and command area management, cropping patterns, natures of water market, comparative analysis, existing mode of payments, etc. Answer still need to be explored: 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?

Research questions:
How to determine water price of irrigation in cash payment system? What are the determinants of contract choice of irrigation water market? What are the production inefficiencies between seller and buyer under different payment systems?

Price of water in irrigation

1980-90: 99% PA

2000-10: 12% PA 1.55 million

1990-00: 17% PA

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).

Water price mainly depends on:

1.Bargaining power of the buyer 2.Pumping cost 3.Land and soil type 4.Relationship with seller 5.STW command area 6.Parcel size and location 7.Water quality Hypothesis for research question 1.

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

Mode of payment depends on:

Factors
Risk Interest rate Credit inaccessibility Commitment Asset position

Preferred payment mode

Crop share Crop share Crop share Crop share Cash payment

Hypotheses for research question 2.

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 of microfinance lead buyer to prefer the payment after harvesting (crop share). Hyp. 2.3. If there is less commitment of seller to buyer, buyer prefers cash payment. Hyp. 2.4. If asset position of the buyer improves, crop share becomes less popular.

Production inefficiency issue

Marshallian Inefficiency analysis (1890)

MPL

Cheung, 1969 MPL Hayami and Otsuka, 1993 (1-)MPL Johnson and Others studies

P1

PL

QL1

QL*

Quantity of lab.

Source: Hayami, et al. 1993

Why monitoring and supervision are more difficult in water market?

Land rental mkt. Landlor d Tenant
Position as a landlord: Strong Punishment: Land use right Alternative: Very less Asymmetric info.: More

Water mkt. Seller Buyer

Position as a water lord: Weak Punishment: Water use right Alternative: More Moral strength: Weak Asymmetric info.: Less

Production inefficiency issue

Marshallian Inefficiency analysis (1890)

MPL

Cheung, 1969 MPL Hayami and Otsuka, 1993 (1-)MPL Johnson and Others studies

P1

PL

QL1

QL*

Quantity of lab.

Source: Hayami, et al. 1993

Hypotheses for question 3.

Hyp. 3.1. More difficult in monitoring and supervision of buyers farming irrigation, the more inefficiency in production under crop share payment. Hyp. 3.2. Productivity of land (yield) is lower if there is less commitment of seller to buyer under crop share payment. Hypothesis for VDSA data: Hyp. 3.3. Land productivity (yield) of tubewell owners are higher than buyers over the years in Bangladesh.

Survey Design
Sample selection and size: Village level data: 120 villages will be selected randomly from 12 VDSA districts covering cash and crop sharing. Household level data: 10 farmers from each village will be selected randomly considering the ratio of seller and buyer of that village. Targeted HHs: 1200

Data collection
Season: Last Boro rice 2012 (Dec.- May) Collecting period: Sept. to Dec., 2012 Tools: Checklist and questionnaire Method used: FGD and personal interviews

Analytical methods:
Descriptive statistics Two-stage instrumental variable (IV) reg. approach Probit/Logit or Multinomial-Probit/Multinomial-Logit SFA for production inefficiency

I. Deter. of irrigation water price:

The composite form of the model: Yi = 0 + Xi + i Yi : Water Price (BDT/ha)
2nd Stage Regression

Yi = 0 + 1 ( BP)i + 2 ( PC)i + 3 ( LST)i + 4 ( RS)i + 5 ( SCA)i +

6 ( PSL)i + X i + ei
1st Stage Regression

( BP)i = a0 + Z i + X i + a1 (VillageD um y) + i m ( PC)i = b0 + Z i + X i + b1 (VillageD um y) + i m

Xi are the explanatory variables: Category of variables Bargaining power Pumping cost Land and soil type Relationship with seller STW command area Parcel size and location Source type VILQ & HHQ HHQ VILQ HHQ HHQ HHQ

II. Deter. of contract choice:

Mode of water use contract:
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 1 if crop sharing; Yi,1 > Yi *,2 & Yi *,1 > Yi *,3

i ~

type-1 extreme value distribution

Yi* =

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

Xi are the explanatory variables: Category of variables Risk factors Level of interest rate Credit inaccessibility Commitment level Asset position Source type VILQ & WSD VILQ VILQ & HHQ HHQ HHQ

III. Determinants of production inefficiency:

Functional form of the model:

ln Y j = + j ln X ij + V j U j
where: J= observation of the jth 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
i =1

The technical inefficiency model is:

U j = j + ij Z ij
where: Zij = determinants of inefficiency (i= 1, 2, ... n)
Category of variables Land productivity (Yield) Monitoring and supervision Commitment level Land productivity of VDSA farmers Source type HHQ HHQ HHQ VDSA
i= 1

Expected policy suggestions:

1. Some suggestions to take care by the government regarding water price for its institutionalization. 2. Some indications for farmers and the agricultural policy makers about the directions of contract choice. 3. Some suggestions will have based on production inefficiency 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 in Bangladesh.

Timeframe of the study

Station

BAU

IRRI

Field & BAU

IRRI

BAU

Acknowledgement:
Supervisors

1.Professor Dr. M. A. Sattar Mandal 2.Dr. Humnath Bhandari 1.Dr. Kei Kajisa
PhD admission & leave permission:

Scholarship: 1.GRiSP, IRRI 2.SSD, IRRI

AU B & RI IR

Department of Agri. Economics Bangladesh Agril. University Funding for data: Dr. Samarendu Mohanty Head, SSD, IRRI

Explanatory variables for price determination

Category of variables Explanatory variables i. Total number of sellers ii. Total number of non-owner iii. Total no. of non-owner irrigable parcels iv. Total number of STW v. Arable land (ha) vi. Rice land (ha) vii. No. of sellers parcel viii. Area of sellers land ix. No. of buyers parcel x. Area of buyers land xi. STW command area (ha) xii. Contract of the nearest village i. Farm size ii. Total no. of potential seller and buyer iii. Total number of potential buyer iv. Social position of seller and buyer v. Relationship between seller and buyer vi. Parcel distance vii. Residual distance viii. Education of seller and buyer ix. Gender of buyer Data source

VILQ

Bargaining power

HHQ

Explanatory variables for price determination

i. Initial cost of engine ii. Horse power of engine iii. Life duration of STW iv. Electricity connection cost v. STW diesel/electric cost vi. Engine oil cost vii.STW operating cost viii.STW maintenance cost ix. Parcel distance from tubewell x. Education of seller xi. Education of buyer i. High land area ii. Medium land area iii. Low land area iv. Clay soil area v. Loam soil area vi. Sand soil area vii.Clay loam soil area viii.Sandy loam soil area

Pumping cost

HHQ

Land and soil type

VILQ

Explanatory variables for price determination

Relationship with seller i. Caste/social group of seller ii. Caste/social group of buyers iii. Home distance of buyer and seller iv. Relation among buyers i. Engine capacity ii. Depth of groundwater table iii. Owners land area iv. No. of STW owners of that area v. No. of buyers vi. Land type vii.Soil type viii.Rainfall i. ii. iii. i. ii. iii. Parcel size Parcel soil type Distance from the tubewell Arsenic percent Iron percent Colour of water HHQ

STW command area

HHQ

Parcel size and location Water quality

HHQ VILQ

Explanatory variables for contract mode determination

Category of variable Explanatory variables i. No. of flood ii. Duration of flood iii. No. of drought iv. No. of cyclone/storm v. Frequency of sevier diseases/insects vi. Rainfall during the season vii.Price in the normal year viii.Price in the stressed year i. Rainfall ii. Temperature i. Sources of loan ii. No. of loan receivers iii. Duration of loan iv. Amount of loan v. Payment with interest vi. Interest rate of loan from bank vii.Interest rate of loan from NGO viii.Interest rate of loan from moneylender Category

Risk factors (Yield)

VILQ

WSD

Level of interest rate

VILQ

Explanatory variables for contract mode determination

i. ii. iii. iv. v. i. ii. iii. iv. Average farm size Average hh size No. of credit receivers Amount of credit needed Amount of credit received No. of farm households No. of banks in the village No. of money lenders No. of NGOs HHQ

Credit inaccessibility

VILQ

i. ii. iii. iv. v. Commitment level vi. vii. viii. ix.

Age Relationship Caste/social group Social position of seller No. of irrigation demanded No. of irrigation supplied sufficiently No. of irrigation supplied insufficiently No. of times refused No. of social meeting called to solve the problem between seller and buyer regarding irrigation x. No. of sellers parcel xi. Area of sellers land xii. No. of buyers parcel, xiii. Area of buyers land xiv. Diesel/elect. Price, xv. Severe crop diseases

HHQ

Asset position

i. ii. iii. iv. v.

Initial asset of household Fixed asset Durable asset House condition Cash in hand

HHQ

Explanatory variables for prod. inefficiency determination

Category of variables Explanatory variables i. Human labour/ha ii. Animal lababour/ha iii. Power tiller cost/ha iv. Seed cost/ha v. Fertilizer cost/ha vi. Manure cost/ha vii. Insecticide or pesticide cost/ha viii. Irrigation cost/ha ix. Harvested crop/ha x. Farm size xi. Family size xii. Distance from the source of diesel xiii. Transportation cost i. Social relationship at family level ii. Average distance of parcel from the buyers house iii. Average distance of parcel from the tubewell iv. Average distance from well owners parcel v. No. of share holders of STW vi. No. of meets with the seller during the pick irrigation season Data source

Land productivity (Yield)

HHQ

Monitoring and supervision

HHQ

Explanatory variables for land productivity determination

i. Age ii. Relationship iii. Caste/social group iv. Social position of seller v. No. of irrigation demanded vi. No. of irrigation supplied sufficiently vii. No. of irrigation supplied insufficiently viii. No. of times refused ix. No. of social meeting called to solve the problem between them regarding irrigation x. Commitment situation for the last year xi. No. of sellers parcel xii. Area of sellers land xiii. No. of buyers parcel xiv. Area of buyers land i. No. of STW owner ii. No. of non-owner/irrigated farmer iii. Harvest/ha of STW owner iv. Harvest/ha of non-owner/irrigated farmer v. STW owner/non-owners age vi. STW owner/non-owners education vii. STW owner/non-owners family size viii. STW owner/non-owners farm size ix. STW owner/non-owners cost of production

3.

Commitment level

HHQ

4.

Land productivity of VDSA farmers

VDSA

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

Thank you very much for patience hearing