Water markets are now well established in many parts of the developed world, especially within agriculture. The idea of a water market is that rights to access water are traded between individuals so that those who value it most are then able to use it, presumably ensuring the maximum benefit from the use of the resource. Australia’s Murray-Darling Basin has one of the world’s largest water markets with surface water trade estimated to generate at least AUD 110 million per year.
However, to get to this point was not easy. In the 1980s many farmers firmly believed the only ‘property right’ that mattered was ‘owning’ land, and water should naturally be attached to it. Many of the states’ bureaucracies followed suit and spent most of their time and effort measuring land and monitoring what happened on it.
Governments in Australia changed the focus away from land in agriculture in the 1990s and this made a difference. This shift in focus forced governments to invest in systems to measure other resources, like quantifying how much water was being used on farms. Simultaneously, reforms to the taxation and transfer systems occurred and yielded widespread improvements in tracing payments to individuals in all industries, including agriculture. These types of investments have helped make Australian agriculture amongst the most profitable and export-focused in the world. They also exemplify the benefits on offer when governments do more than simply focus on land in agriculture and put effort into improving systems across the economy.
This message is arguably even more important in south Asia where many poor farmers struggle to eke out an existence while government policy instruments continue to be directly tied to land. There are many examples of not looking beyond the land in agricultural development in this region and some of these have perverse impacts on inclusion. For example, over the last two years, the Government of India has transferred around AUD 3.5 billion directly to the bank accounts of over 111 million farmers under its income support program called PM-Kisan Samman Nidhi. However, only the land-owning farmers qualify for this support, partly because governments do not have systems for tracing others working in agriculture. There is a clear gender implication here too. Women comprise over 42% of the agricultural labour force of India but own less than 2 percent of its farmland.
Similarly, India’s crop insurance scheme is worth over USD 2 billion and offers subsidies equal to at least 95% of the premium, but this completely excludes tenant farmers who bear most of the production risks.
Like other governments in the region, the Indian Government has been progressively moving towards direct cash transfer of fertilizer subsidies, rather than manipulating prices. On the face of it, most economists would see this as a sensible approach because the current price distortions caused by the subsidy leads to imbalanced applications of fertilizers and diversion of subsidized fertilizers into non-agricultural uses. However, a big challenge in switching to non-distortionary cash transfers is: How to measure and track payments to farmers who do not own land?
Tackling this challenge head on and supporting the creation of public infrastructure that can track more than land is the only way to deliver a more efficient and fair outcomes in agriculture. Some governments are trying this approach but it’s far from simple. In Bihar in India, for example, the state government provides cash transfers to farmers in drought-affected areas to encourage them to irrigate their crops with diesel pumps to reduce yield losses. Fortunately, this subsidy is also available to tenant farmers but they are required to provide a range of documents including an affidavit signed by two neighbouring farmers as proof that they are cultivating the land and irrigating it. There are no studies, however, to see what percentage of tenant farmers actually benefit from this provision compared to the landowners.
Similarly, in the state of Odisha in eastern India the government has launched a scheme of income transfer to small and marginal farmers called KALIA. Unlike the national schemes, Odisha’s scheme includes tenants, farm labourers, and landless farmers engaged in animal husbandry and poultry. Local participatory approaches combined with modern data processing techniques have been employed to identify all eligible households and minimize errors of inclusion and exclusion, but again there is no analysis on whether this is working.
Perhaps ironically, international agencies and donors continue to be drawn to projects that favour landowners and this runs the risk of simply entrenching existing inequities and inefficiencies in rural communities in some of the poorest parts of the globe. Australian governments have amassed considerable expertise in monitoring the use of other resources, like water, and these skills are offered to poorer neighbours through programs like the Australian Water Partnership. However, we also possess expertise in how to improve transfer systems and thus have much to offer emerging agricultural economies beyond informing land management techniques and water measurement. Modernising the thinking about agriculture in poor countries is important but the returns from traditional support needs to be considered against other opportunities. Unless the full suite of Australian expertise is employed as part of our agricultural aid, the impacts of Australian assistance will almost certainly be sub-optimal.