Does investment in motor pump-based smallholder irrigation lead to financially viable input intensification and production?: an economic assessment

Privately adopted motor pump-based smallholder irrigation is different from conventional irrigation schemes in many ways. Unlike to scheme based irrigation that usually experience financial deficits and complex management bureaucracies, privately owned and managed irrigation technologies avoid problems related with collective action. This study focuses on the impact of motor pump-based smallholder irrigation in input use and production as compared to rainfed production systems and investigates the financial viability of such investments. Data used in this study come from the baseline and motor pump surveys of Livestock and Irrigation Value Chains for Ethiopian Smallholders (LIVES) project conducted in five districts of four LIVES intervention zones conducted in 2014, but in reference to the 2012/2013 production season. The non-parametric propensity score matching (PSM) method was used to assess the effect of motor pump-based smallholder irrigation on input use and production. Following this, we adopt a cost-benefit analysis framework to study whether such investment is financial viable. Results show that as compared to rainfed agriculture, the use of motor pump-based smallholder irrigation leads to significantly higher and financially viable input use and production. Based on different scenarios, the estimated net present values (NPV) computed at 8.5%; 13.9%; 25.9%; 28% and 30% interest rates show investment in motor pump-based smallholder irrigation is financially viable and robust even at high interest rate and volatile market conditions. The data also suggest that an increase in irrigated land leads to a higher profit margin/ha as a result of lower cost/ha and higher gross production values/ha. Despite that over abstraction of water and use of agro-chemicals may result in land degradation and reduced marginal benefits due to loss of micro nutrients and genetic diversity of crop varieties, our analyses fail to capture such external costs.