In the latter half of the 20th century, significant public and private investment in agriculture has resulted in much needed productivity gains, and has narrowed food security gaps, particularly in areas otherwise vulnerable to climatic variability. Without this massive investment in agriculture, the world would have experienced devastating starvation. Making these productivity gains will continue to be important. If gains in water productivity can be maintained, the pressure on resources can be decreased and the scope for transfers to other users increased.
The increase in agricultural water productivity has been the result of strategic investment in water development but also in research and development and in agricultural extension. The current investment trends in these components now show a sharp decline. The future of agricultural water management will depend on maintaining levels of investment in key areas of the production chain - not just water control infrastructure. In this respect it is the quality of the investment, rather than the quantity that will be critical.
Therefore investment needs to be a strategic package mixing geomoplasm research, improved agricultural practice, trade initiatives and new resource development where required.
Contrary to a widely held view, returns on investments in irrigation are generally comparable to alternative investments. We should also note that many analyses fail to take account of the positive social and environmental benefits of irrigation. Future investments in irrigation will be channelled toward rehabilitation and upgrading. Such incremental investment will benefit from the large amount of sunk costs in existing schemes thereby enabling higher rates of return. A clear indication that irrigation yields adequate returns is the amount of private investment it attracts worldwide. Private investment is estimated to account for 20 percent of the total area currently irrigated (about 264 million ha in 1995/7). The share of private investment in the remaining 80 percent is approximately half of the total investment. Furthermore, there is an estimated additional 70 million ha of land under informal private irrigation that falls outside direct government control.
Having noted the importance of water in food production, we need to appreciate that the real value of net aid disbursed to agriculture in the late 1990s was only 35 percent of its level in the late 1980s. There has been a significant fall in the share of agricultural lending in the loan portfolio of the World Bank. This decline has been echoed in the national budgets of many developing countries.
The downward trend in agricultural commodity prices (particularly staple commodities) has compounded the effect of the drop in donor support to agriculture. World Bank data indicate that world prices for agricultural export commodities fell by 47 percent in real terms between 1965 and 1998. Low-income elasticity of demand for many such goods and depressed prices are likely to continue. At a time when the major wheat producing belts western United States of America, Ukraine, the Punjab and Australia have all been hit by drought (and wheat prices peaked in early September 2002), we are now seeing a fall in wheat prices as non-traditional exporters continued to shift more of their domestic surpluses onto the world market. Therefore global production and trade flows appears to be remarkably resilient to climatic shock. Water limited countries will continue to be able to substitute domestic production with imported grain - the 'virtual water' trade - with little risk if trading systems remain open. These systems of international trade in bulk commodities are becoming more sophisticated and transport costs more competitive.
But despite long term downward trends in commodity prices, developing countries still have to cope with the high volatility of food commodity prices against which the existing capacities for risk management and access to hedging instruments are inadequate. Such price fluctuations negatively affect the overall economy and the prospects for the successful design and implementation of sound fiscal, monetary, trade and development policies.
However, aggregate investment in irrigation may have not declined that drastically. During the past two decades, there has been a change in the pattern of investment with increased resources devoted to user participation and a revival in indigenous techniques and traditional knowledge. This has led to cheaper and more effective land development schemes with a shift from large-scale irrigation development to smaller scale initiatives adapted to local conditions and targeted at poor communities. Arguably, it is the quality of the investment, rather than the quantity that will be instrumental in making productivity gains, raising incomes and spreading the benefits of irrigated agriculture amongst those in need.
