Community-Managed Irrigated Agriculture Sector Project–Additional Financing (RRP NEP 33209)

SECTOR ASSESSMENT (SUMMARY): IRRIGATION

1. Sector Performance, Problems, and Opportunities

1. Agriculture is Nepal’s primary economic sector; about 80% of the population is

dependent on it. Since most of the poor reside in rural areas, Nepal's poverty reduction strategy
recognizes that agricultural growth is essential for attaining broad-based growth and improving
livelihoods. While declining as a proportion of gross domestic product (GDP), the sector has
been growing at 3% since 2000 and contributes about 34% of GDP, 80% of exports, and 60% of
employment.1 Cereal production (primarily rice and wheat, but also pulses, minor grains, and
maize) contributes about 50% of sector GDP, and livestock accounts for an additional 25%.
Agriculture is largely based on low-value crops and subsistence production, with only about
17% of output traded in markets. Because agriculture growth has been erratic, determined to a
large extent by climatic factors, food production remains unstable. Until about 1990, Nepal was
a net exporter of food, but during most of the 1990s, particularly up to 1999, it had a food deficit.
A positive balance was attained for a short period between 1999–2000 and 2004–2005, but this
has since been reversed, with a negative food balance in 2005–2006 and 2006–2007. Even in
times of a positive national food balance, most mountain districts (12 of 16) and more than one-
third of hill districts report ongoing food deficits.

2. Agricultural production relies on a 4-month monsoon, when 75% of annual rains fall.
Climate variability and change in Nepal is projected to exacerbate existing threats to food,
water, and livelihood security through alterations in the quantity and timing of precipitation and
runoff, more atmospheric water vapor and evaporation, and progressive loss of glacier and
snowpack storage in basin headwaters.

3. Surface water irrigation systems in Nepal consist of those operated by users—farmer-

managed irrigation systems (FMIS)—and those operated either fully by government or jointly by
government and users—agency-managed irrigation systems (AMIS). FMIS are usually simple
traditional systems created by farmers to divert water from both seasonal and permanent
streams and rivers. Most use gravity distribution systems through open canals. The government
began a program of assisting selected FMIS to upgrade their primary infrastructure because
farmers cannot efficiently maintain temporary headworks, which are easily damaged by floods.
Government intervention has focused on constructing permanent diversions and upgrading
primary canals. FMIS renovation was also identified as an opportunity to strengthen water users
associations (WUAs) with a proven track record of self-sustained operation and maintenance
(O&M). Mostly small and medium in size, FMIS have good scope for enhancing productivity and
expanding command areas at relatively low cost.2

4. Following a program of irrigation management transfer since the 1980s, WUAs are
responsible for managing lower-level canals in all AMIS. Experience in Nepal shows that some
systems may be more efficiently managed by WUAs than by government; the process of turning
over O&M responsibility to capable WUAs is called irrigation management transfer. A key
lesson learned from the Asian Development Bank (ADB)-financed Irrigation Management
Transfer Project (1995–2004) was that full management transfer is more likely in small and

1
ADB. 2013. Preparation of the Agricultural Development Strategy, Final Report. Consultant’s report. Kathmandu
(TA 7762-NEP).
2
In Nepal, small schemes have a command area of less than 25 hectares (ha) in the hills and 200 ha in the Terai
(the southern plains region), while medium schemes have less than 500 ha in the hills and 200 ha in the Terai.
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medium-sized systems; some government management may still be needed for headworks and
main canals in larger systems.

5. Of the 2.64 million hectares (ha) of cultivable land in Nepal, 1.77 million ha are irrigable
and about 1.33 million ha have access to irrigation. Investments are required to rehabilitate and
improve existing irrigation schemes and, for AMIS, to enhance operating efficiency by
transferring scheme management from the government to WUAs, which have a vested interest
in efficient water use. More efficient agricultural technologies, availability of inputs, along with
the provision of supplementary irrigation during the monsoon season and full irrigation in the dry
season can increase rice yields from around 3 tons per ha per year currently to as high as 10–
12 tons per ha per year.3 The provision of guaranteed and dependable irrigation can also
provide farmers with an incentive to diversify from low-value cereal crops to high-value crops
such as fruits and vegetables, and increase their incomes and nutrition at the same time. A
study in 2005 on irrigation and poverty showed that the incidence of poverty in irrigated areas is
half that in rainfed areas and that access to irrigation water mitigates poverty.4

6. Sector experience demonstrates that significant productivity gains are possible with
(i) better water distribution, (ii) more efficient water application, (iii) effective O&M systems, and
(iv) greater cost recovery. This requires both quality fit-for-purpose infrastructure and effective
WUAs. With the removal of constraints imposed by dysfunctional irrigation systems, farmers’
willingness to invest in modern production practices increases. This increases food security and
incomes for the farms and is particularly important for low-income households.

2. Government’s Sector Strategy

7. A new Agriculture Development Strategy (ADS) was formulated in 2013. The ADS seeks
to create “a self-reliant, sustainable, competitive, and inclusive agricultural sector that drives
economic growth and contributes to improved livelihoods and food and nutrition security”
(footnote 1). The ADS has four expected outcomes: (i) good governance, (ii) higher productivity,
(iii) profitable commercialization, and (iv) increased competitiveness. Expanding irrigated areas
equitably and viably, and improving irrigation efficiency and management are core outputs for a
higher productivity outcome. The ADS emphasizes the expansion of irrigable areas by the most
economic and equitable means while increasing irrigation efficiency and intensity, and improving
the irrigation management of existing systems. The ADS proposes to complete ongoing surface
projects, repair damaged surface schemes, repair damaged tube wells and develop new ones in
the Terai, develop nonconventional irrigation in the hills, increase the effective area of existing
schemes by improving system and on-farm management and by building headworks and
improving the main canals of FMIS, and constructing tube wells in the tail of command areas as
conjunctive use. The ADS also recommends inter-basin transfer schemes and implementation
of irrigation management transfer. It calls for an integrated approach in which agricultural
support and market development is combined with infrastructure investments. Key ADS
strategies, approaches, programs, and targets are reflected in the government’s Three-Year
Plan Approach Paper (fiscal year FY] 2014–FY2016).

8. The Water Resources Strategy (2002) and its National Water Plan (2005) emphasize the
need for year-round irrigation services to increase the productivity of irrigated agriculture and

3
ADB. 2012. Preparation of the Agriculture Development Strategy. Assessment Report. Kathmandu (TA 7762-NEP).
4
International Water Management Institute. 2007. Pro-poor Intervention Strategies in Irrigated Agriculture: Lessons
from the Asian Experience. Colombo, Sri Lanka (IWMI Water Policy Briefing 28).
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extend the cropping seasons; the importance of a service-oriented management approach to

provide more efficient, reliable, and flexible water services to farmers; and the progressive
shifting of O&M costs to WUAs to enhance efficiency, equity, and sustainability.

9. The government's new irrigation policy, approved in June 2013, promotes

(i) improvement of AMIS and FMIS to increase water efficiency and achieve year-round
irrigation; (ii) development of large and modern irrigation systems, including inter-basin water
transfer and reservoir-type systems; and (iii) conjunctive use of surface and groundwater. It calls
for institutional strengthening of both the government and farmers through organizational
reforms, human resource development, and capacity building. The policy commits to gender
equity and social inclusion in irrigation, and encourages beneficiary consultation and
participation at every stage of project implementation. It stipulates the degree of beneficiary
contribution depending on the type, size, and nature of the infrastructure investment, and calls
for the collection of irrigation service fees to fund routine O&M. Management transfer to farmers
could be full or partial depending on the capacity of their WUAs. Irrigation systems should be
environmentally sustainable, and resilient to climate change and natural disasters. Irrigation,
agriculture, and local development agencies should collaborate more closely.

10. The major constraints to successful implementation of these strategies are funding and
capacity. Investments in water resource management (with the exception of tube wells) tend to
be capital-intensive and thus costly to implement on a wide scale. Despite the benefits and
potential of such investments, without funding support they are unlikely to be implemented.
Capacity constraints are both institutional and individual. Suitable institutions for irrigation and
agriculture exist in Nepal but are in separate ministries, and collaboration for irrigated agriculture
projects needs to be coordinated. Individual capacity constraints relate to the capacity of
individual government officers involved with water resource management as well as the capacity
of farmers and end users to understand and adopt improved agriculture and water management
practices. Nonetheless, careful project design can overcome these constraints, and successful
water resource projects have indeed been implemented.

3. ADB Sector Experience and Assistance Program

11. ADB has been a principal development partner in Nepal's agriculture sector and began
its engagement in the irrigation subsector in 1971. Total investments in agriculture so far exceed
$250 million. Under the country partnership strategy (CPS) for 2010–2012, ADB provided
support for (i) enhancement of agricultural productivity through irrigation; (ii) crop diversification
and commercialization; (iii) widening of access to agricultural inputs and markets through
investments in expansion of rural transport infrastructure; and (iv) policy formulation, including
development of the ADS. During the new CPS period, 2013–2017, ADB will support
investments in water management improvement to expand irrigation and mitigate risks of
flooding, and explore innovative investment modalities for expanding the rural road networks.
The approach is consistent with the findings of a review of ADB’s performance in Nepal’s
agriculture and natural resources sector by ADB’s Independent Evaluation Department in 2011,
which recommended that ADB (i) reduce subsector spread and focus on priority areas, and
(ii) increase investment in rural infrastructure such as irrigation.5

12. In the irrigation subsector, ADB has focused on expanding irrigated areas by using
surface and groundwater, and building capacity of local governments and institutions. The

5
ADB. 2011. Sector Assessment Performance Evaluation: Agriculture and Natural Resources Sector. Manila.
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ongoing $13.8 million Water Resources Project Preparatory Facility finances the detailed design
of irrigation projects, allowing civil works contract packages to be ready at loan signing and
expediting project implementation.6 Irrigation projects will (i) empower line agencies to play a
facilitative role, (ii) incorporate participatory subproject planning to empower WUAs and
communities, (iii) provide complementary support for agricultural extension, and (iv) plan for
effective and sustainable on-farm water management and O&M. The CPS notes the threat of
climate change and natural disaster risks for Nepal, and calls for adaptation and risk mitigation
to be included in ADB's new investments.

6
ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Grant to Nepal for
the Water Resources Project Preparatory Facility. Manila.
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Problem Tree for Surface Irrigation

Increased vulnerability of
EFFECTS

Outmigration Child labor Lowered nutrition Agricultural land left fallow

the poor

Decreased demand for

Low household income Reduced food security
farm labor
DEVELOPMENT

Farmers are unable to increase irrigated agriculture production to its full potential
PROBLEM

Access to irrigation water unreliable and Water user associations (WUAs) are not well Farmers do not use improved
inadequate organized to manage their systems agricultural inputs and techniques

Damaged Irregular or Low Department of Irrigation has limited Unequal and Farmers may have Farmers cannot afford
infrastructure, and unreliable irrigation capacity to strengthen and support inefficient distribution poor knowledge improved inputs
deferred maintenance rainfall efficiency WUAs of water

Department of
CAUSES

Lack of funds Climate Water courses Field staff lack DOI does not have Farmers lack Lack of access
for repair and change and field channels Agriculture field staff to affordable
motivation and adequate human awareness of
maintenance not developed have limited capacity credit
funds to interact resources dedicated to efficient water
to respond to needs of
with WUAs WUA strengthening use methods
farmers
Natural disaster
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Sector Results Framework (Agriculture and Natural Resources, 2013–2017)

Country Sector Outcomes Country Sector Outputs ADB Sector Operations
Sector Indicators with Targets Sector Outputs Indicators with Planned and Ongoing ADB Main Outputs Expected from ADB
Outcomes and Baselines with ADB Incremental Targets Interventions Interventions
with ADB Contribution
Contribution
Increased Agricultural GDP per Agricultural Area with year-round Planned key activity areas Planned key activity areas and
agricultural capita infrastructure irrigation Irrigation, drainage, and flood protection pipeline projects
production, Target (2017): and systems Target (2017): 1.5 m ha (irrigation system management, flood 35,000 households have access to
productivity, NRs12,660 expanded and Baseline (2012): protection) (31% of funding) improved domestic and irrigation water
and food Baseline (2012): improved 1.3 m ha sources
Water-based natural resource
security NRs9,866
management (water system development
Access to All-season rural road Availability of irrigation water during dry
and conservation) (29% of funding);
Improved Cropping intensity agricultural network season of at least 0.3 lps/ha
water security Target (2017): 226% services Target (2017): Agriculture and rural sector development
in the Bagmati Baseline 2012): 198% increased 14,000 km (rural infrastructure) (40% of funding) 15-year integrated river basin
River Basin Baseline (2012): development master plan for Bagmati
High-value crop 10,200 km Pipeline projects with estimated prepared
production amount
Target (2017): 6.5% pa Area used for Bagmati River Improvement ($30 m); 85,000 cubic meter storage capacity
Baseline (2012): 5.6% pa commercial crops Building Climate Resilience in dam built
Target (2017): Watersheds in Mountain Eco-regions
Proportion of population 929,610 ha ($23.5 m); Community-Managed Irrigated Ongoing projects
generally food secure Baseline (2012): Agriculture (Additional Financing) 111 irrigation schemes constructed or
Target (2017): 65% 822,664 ha ($30 m); Bagmati River Improvement II rehabilitated; 840 km rural roads and
Baseline (2010): 58% ($29 m) 366 rural water supply schemes
Percent of rural constructed or rehabilitated; 290 trail
Water availability in the households covered by Ongoing projects with approved bridges constructed; about 13,000 ha
upper Bagmati River agricultural services amount land irrigated; $20 million worth of high-
Basin during dry season and programs Community-Managed Irrigated value crops produced per year;
(at Gaighat) Target (2017): 17% Agriculture Sector ($20 m); Community 7,500 jobs created; about 7,500 ha
Target (2025): 57 lps Baseline (2012): 12% Irrigation ($26.4 m); Raising Income of under high–value crops (64,500 metric
Baseline (2013): 38 lps Small and Medium Farmers ($20.1 m); tons worth $44.5 million with gross
High Mountain Agribusiness and margin of $9.5 million); 200 km new
Livelihood Improvement ($20 m); and 60 km upgraded rural roads
Decentralized Rural Infrastructure and constructed. Representation of women
Livelihood – Additional Financing in executive levels of farmer groups,
($25 m); Water Resources Project cooperatives, and water user
Preparatory Facility ($11 m) associations increased to 33%
ADB = Asian Development Bank, FY = fiscal year, ha = hectare, km = kilometer, m = million, NRs = Nepalese rupees, lps = liters per second, pa = per annum.
Note: Targets have been set according to the government’s targets under its Three-Year Plan Approach Paper (FY2014–FY2016).
Sources: Asian Development Bank and government estimates.