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Mean WTP of Smallholder Farmers

Info: 1418 words (6 pages) Essay
Published: 4th Oct 2017 in Economics

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The use of irrigation water for smallholder farmers where the challenges of climate variability and climate change has an adverse effect are many: it helps to realize the household food and domestic demand, reducing poverty and improving the employment opportunities. Understanding the importance of irrigation farming in the area, the government of Ethiopia has developed the Koga irrigation project for contributing the sustainable livelihood of the households in Mecha district. However, there are problems with the irrigation project that concerns the government. The problems include accumulation of silt in the irrigation canal and drainage systems, water distribution problems, lack of regular maintenance and rehabilitation, which leads to incapable of sustainable water use and that in turn discouraging the smallholders in the area.

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However, knowing of all concerns and problems, the government is planning to improve the irrigation system with a mechanism that farmers are willing to assist in recovering the cost of the management, maintenance and operation of the irrigation system that will result from the improvement. Hence, in this thesis, farmer’s WTP for the improved irrigation water has to be investigated.

The main objective of this thesis was to estimate the mean WTP of smallholder farmers’ and to find the major factors influence households’ WTP for improved irrigation water in the case of Koga Irrigation Project (KIP) in Mecha District, North Western Ethiopia. Methodologically, this study used the contingent valuation method with double bounded dichotomous choice format to estimate the mean and total WTP for the improved irrigation water. The contingent valuation study used survey data collected from 140 randomly selected sample households from two PA’s of the irrigation command area and administered through face to face interview by enumerators. PA’s was selected using a simple random sampling technique and numbers of sample households was determined from each PA’s using probability proportional to size sampling technique and simple random sampling techniques. Secondary data from published and unpublished sources were also used. Moreover, focus group discussions and pilot survey were conducted to identify the initial bid values in an open ended question format, and 12, 26 and 36 Birr/0.25 hectare/year was identified for initial bid value.

The analysis used descriptive analysis and econometric methods using STATA data analysis computer software. The descriptive analysis was used to describe farmer characteristics with WTP for the improved irrigation water. To calculate the mean WTP and to find the major factors that determine household’s WTP the bivariate Probit and Probit model were used, respectively. The result of the survey shows that, 59.29% of the sample farmers described the existing irrigation water is unsatisfactory for agricultural crop productions, which are caused by erosion and deforestation. Moreover, the descriptive output confirmed that 60.71 % of the sample farm households are willing to pay for the improved irrigation water services and 39.29% are not willing to pay the initial offered bid. This shows that most of the sample farm households understand the existing irrigation water problems in the area and willing to pay and assist the government for the improvement scenario. Moreover, this result tells us that, if farmers are once realizing the benefits obtained from irrigation in terms of better productivity and increased income, they are willing to pay more than the above reported WTP value.

The mean WTP for the improved irrigation water (the hypothetical market scenario) from the double bounded dichotomous elicitation response using the empirical result obtained from the bivariate Probit econometric model was estimated to be 128.88 Birr/hectare/year (= US$6.78 /hectare/year) and 162.72 Birr/ha/year (= US$8.56/hectare/year). The total WTP of households for the improved irrigation water from the double bounded dichotomous elicitation format in “Kudmi” and “Inguti” sample PA’s per year was calculated at 272,931.75 Birr (=US$ 14,364) and 344, 595.39 Birr (=US$18, 136). The total aggregate value of the improved irrigation water in the Koga irrigation project from the double bounded formats per year are 1,703,278.08 Birr (=US$ 89,646.21) and 2, 150, 507. 52 Birr (=US$113, 184.60).

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Out of the total independent variables included in the model that influences households’ WTP of the initial bid for the improved irrigation water, the empirical findings have identified education level (EDUL), family size (FASIZE), gender (GENDER), total household income (HINCOME), initial bid (BID 1) and the interaction effect between gender and Bid1 (GENDER X BID1) have a significant effect on the households’ willingness to pay of the first bid. Moreover, WTP of the follow up bid are also influenced by Family size, follow up bid value, household income and the interaction effect between bid 2 and access to credit. Hence, government and policy makers should consider the significant variables which have an impact in determining WTP in designing and implementing similar irrigation projects at household level.


A possible policy recommendations that originate from the results of the research study are presented as follows:

  • The result of the study confirms that the majority of farmers are willing to pay for the improvement program. The main policy implication is that farmers are willing to assist the government, and in reward they want to get the improved services to increase the benefits received from irrigation agriculture. Thus, government should implement irrigation water management practices to supply reliable irrigation water for the farmers, and government should set up a proper irrigation water pricing an amount close to the mean WTP that households were willing to pay. Moreover, government should establish and strengthen administrative and institutional set up of the project.
  • The result of the analysis shows that soil erosion and deforestation are the main reasons for the scarcity of the irrigation water in the area. Therefore, government should innovate and adapt soil and water conservation technologies that fit into a particular situation to protect the Koga catchment from degradation, and to minimize the over accumulation of sediment in the dam. Furthermore, sustainable land management practices should consider the biophysical and socioeconomic contexts of the community at village level.
  • The result of this thesis paper shows that factors related to demographic, socioeconomic and institutional services were found to have a significant effect and contribution on households’ WTP for the improved services. Thus, the policy implication of this relationship between the variables and WTP is that, government and policy makers should consider the significant variables which have an impact in determining households’ willingness to pay. To this end, the primary step should be identifying and promoting income generating programs, upgrade the education level of the farmers. Moreover, create awareness and teach people about the benefits that farmers get with improved irrigation water.

Finally, research is a resource intensive pursuit of wisdom. It requires appropriate technical, financial and geographical qualifications. For the partial fulfillment of the academic rank, this research report is submitted with the belief that it is enough for its purpose. However, there are a lot of undeniable facts that limit free dependance on and extrapolation of the outputs of this scientific effort. First, the limitation of the study area of a single district and 140 sample households determines the scope of the study. Second, the period within which the study is conducted is too short to study and estimate WTP farmers based on the different crop growing seasons (dry or wet) and the location where farmers located in (upper catchment or lower catchment). In fact, the entire reliance on farmers’ knowledge and anticipation can fill this gap, but partially. Thus, if enough research funds are available future research agenda will focus on estimating smallholder farmers’ WTP based on seasonal difference and locations.


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