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3. Climate variability and change: a case study in drought-prone Andhra Pradesh.

3.1 Introduction and Background

1. Situated in southern India, Andhra Pradesh is the fifth largest state in the country, both in terms of geography and population. With much of the state lying in the arid parts of the Indian peninsula, the specter of drought is a recurring threat to rural livelihoods. Surface water resources are limited, with modest scope for further increase in supplies. High levels of groundwater abstraction, coupled with low and variable rainfall, have led to sharp declines in the water table in most parts of the state. Consequently, water availability has emerged as one of the binding constraints on farming systems and associated livelihoods in the drought-prone areas.

2. The government of Andhra Pradesh has an impressive array of programs that tackle drought exposure and deficient rainfall in the state. These range from short-term relief schemes to strategic initiatives that include watershed area programs, crop diversification incentives, and water conservation schemes. Yet the human impacts of drought continue to be devastating for affected rural communities, suggesting that the low-hanging fruits of drought policy have been harvested, leaving more complex and intractable problems that take time to address (World Bank 2006f). (23) Climate change has raised concerns that the situation could worsen if droughts become more frequent or intense across the state. Thus the need for an assessment of current and future climate risks and vulnerability in the rural sector has become more urgent.

3. This chapter takes a closer look at how affected communities respond and cope with drought in selected areas of the state. It uses household surveys to investigate the impacts of drought, coping mechanisms and to identify the key factors that promote greater drought resilience among households. The chapter then explores the prospective trends in agriculture and incomes under projected future climate change scenarios. It uses the integrated modeling system (IMS, described in chapter 2) to explore how the yields of key crops and incomes might change under future climate patterns and uncertain water supplies. Finally, it synthesizes the findings to recommend some strategic priorities to address drought adaptation that complement and support the state's development objectives.

3.2 Characteristics of Study Area

3.2.1 Climate and Geography

4. The focus of the study is on two districts of Andhra Pradesh--Anantapur and Chittoor. Both districts are arid, especially susceptible to drought, and found to be highly vulnerable to further climate variability because of the limited adaptive capacity of most of its residents, due to low incomes and restricted alternative employment opportunities.
Box 3.1 Groundwater Crisis Looms Large over Anantapur and Chittoor
Districts

Depleting groundwater resources are threatening the livelihoods of
farming communities in Anantapur and Chittoor, calling for greater
discipline in water management and land use practices. In the past
decade, poor rainfall has lead to higher dependency on groundwater
for irrigation. According to statistics from the Andhra Pradesh
Groundwater Department, a clear declining trend in water table
depths is observed in both districts (see figures below). Rates of
potential evaporation and transpiration are almost thrice the
normal rainfall, with average groundwater recharge of 60
millimeters in Anantapur and 80-90 millimeters in Chittoor per
annum. On average, only 5-7% of the rainfall contributes to annual
aquifer replenishment, according to studies carried out by the
National Geophysical Research Institute, Andhra Pradesh.

A two-storied granite-based aquifer system (the shallow aquifer is
in weathered mantle and the deeper aquifer in fracture zone with
closely netted sheet joints at different depth levels) persists in
the area, with a significantly low storage potential. Good monsoons
usually replenish these aquifers though much below optimum levels,
and they sustain for a year or a season. As a result, even today in
some areas, the shallow dug wells in these areas are performing
well with the support of basin development activities. However, the
performance of the deeper aquifer system is more complex as it
entirely depends on its interconnectivity with the shallow aquifer.
During a drought year or successive drought years, a rapid decline
of groundwater levels and well yields occurs. The usual reaction of
farmers to wells drying up is to make deeper wells in unweathered
zones (bedrock), which are unproductive or, if productive, empty
the little static resource within that season or even much earlier.
Thus, indiscriminate construction of a series of deeper wells has
become a key factor leading to declining groundwater levels.

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Source: Groundwater Department, Andhra Pradesh.


5. The districts are located in the Rayalseema region of the state, in the Pennar basin, which extends over a vast flat area of 55,123 square kilometers. Cropped areas occupy about 950,000 hectares of land in Anantapur district, most of which has been classified as highly drought vulnerable over the last decade. About 366,000 hectares in Chittoor district are cropped and nearly half of the total area is highly vulnerable to drought. Though both districts are drought prone, Chittoor is less arid, with an average rainfall of 700-1,000 millimeters per year, compared to an average of 500-750 millimeters per year for Anantapur, which is the driest district in the state. The geohydrology of these arid zones is characterized by granites that have relatively low groundwater recharge rates, estimated at 5-7% of rainfall. Box 3.1 summarizes the status of groundwater resources in these districts.

3.2.2 Anatomy of the Sample Villages

6. Three villages from each district were chosen for the analysis (figures 3.1 and 3.2). On average, villages in Chittoor are more prosperous, with an average monthly income of Rs 2,686, while in Anantapur the average monthly income is Rs 1,731.24 Table 3.1 provides a snapshot of the socioeconomic status of households. Predictably the large landholders earn higher incomes and also own more productive and consumptive assets. Educational status and access to health facilities also exhibit some variation with landholding size.

7. High dependence on agriculture. Agriculture is the primary source of income in the sampled villages in both districts, with little evidence of income diversification (table 3.2). Large and medium landholders are most heavily dependent on agriculture and obtain approximately 86% of their incomes from farming. It is only the small farmers and landless, with few assets, who are forced into wage employment in both the agricultural and nonagricultural sectors. Diversification into other forms of business or agricultural activities, such as dairying, is minimal, and remittances are low even among the poorest and most drought-vulnerable groups.

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8. Limited and unequal access to irrigation. Despite low and variable rainfall, over 80% of sampled households indicate that they have no access to irrigation facilities. Unlike many other parts of the country, conjunctive uses of ground and surface water are rare in these villages and most groundwater is on farms not covered by surface water. (25) There are considerable inequities in irrigation supplies: larger landholders have greater access to tubewells, whereas canal irrigation is concentrated among the medium landholders, and the bulk of marginal farmers engage in rain-fed agriculture (figure 3.3).

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3.3 Impact of Drought

3.3.1 Effect of Drought on Households

9. The survey compares outcomes in a normal year with a drought year. (27) When drought descends, all households are heavily impacted and face a dramatic decline in their incomes (figure 3.4). Large landholders, being more dependent on agriculture, experience the sharpest (70%) declines in their incomes.

10. Vulnerability to climate shocks is multifaceted and goes beyond income volatility. The ability to stabilize incomes is one, albeit important, dimension of vulnerability that is emphasized in economic assessments. But it fails to capture many of the broader impacts of climate shocks on welfare, including poverty, social disruption, decline in health, dislocation of local markets, and the disruption of public services. Households clustered along the poverty line are most susceptible to hardship and destitution from climate change. Figure 3.4 shows that the incomes of smaller farmers plunge closer to the poverty line during drought. In contrast the large farmers, despite suffering a greater relative drop in their incomes, are still better off due to their higher income levels. This calls for more targeted efforts to build adaptive resilience among smaller farmers. Apart from declining incomes, villages reported that droughts increased health expenditures (12% of the sampled population), led to disruption of education (10%), forced migration to towns in search of alternative sources of employment (17%), and led to distressed sales of land, cattle, and jewelry (34%).

3.3.2 Coping with Drought

11. Household responses to drought have been largely reactive and do little to build long-term drought resilience. Credit remains the most common coping response to drought (68% of sampled households). Large landholders borrow from formal sources (such as banks), while the landless and small farmers borrow from moneylenders at inflated interest rates. Occupational shifts are another typical response to drought (28% of sampled households). Poorer households (small and landless) move into unskilled, casual employment (construction, mining, and quarrying), while the large and medium landholders shift to temporary salaried employment (clerical jobs and small business). Few households appear to have altered cropping patterns in response to drought and there is a dominance of groundnut across the districts, reflecting a high degree of adjustment to arid agroclimatic conditions.

Vulnerability to Drought and Its Determinants

In sum, when drought hits, households in these villages suffer a precipitous decline in income. But a closer look at the impacts shows that some are better able to smooth income fluctuations than others, irrespective of landholdings or wealth. What explains the greater resilience of some households to drought over others? To unravel the determinants of vulnerability and identify connections between factors, a detailed statistical assessment was performed using regression techniques. Appendix G reports the technical results. Here the focus is on discussing the results and presenting the implications.

Definitions of vulnerability abound and encompass a variety of dimensions such as social norms, customs, and intrinsic abilities--factors that are difficult to measure. (28) This study adopts a more pragmatic approach and defines vulnerability in economic terms, as a measure of income volatility that is captured through a statistic termed the coefficient of variation. Figure 3.5 summarizes the linkages and pathways through which vulnerability is either amplified or diminished. The analysis identifies links with economic factors (debt and occupational mobility), the resource base and its management (crop mix and water availability), and certain initial conditions (landholdings and location). A brief overview of factors with important policy implications follows.

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Water Resources and Use

* The assessment finds that a greater dependence on water-intensive crops increases vulnerability. This reflects a familiar trade-off confronting farmers in areas with unreliable rainfall: gambling on a good monsoon, with water-intensive crops, will pay dividends if there is adequate rainfall. But when drought hits, this also exposes the farmer to greater risks and a deeper fall in income. Consequently income volatility is higher among those farmers who rely on water-intensive crops.

* Irrigation access has a large impact on income levels in these arid villages. Consistent with other evidence, the sources of irrigation are also important. Households with access to groundwater typically have higher incomes. (29) But with anemic recharge rates and high levels of abstraction, droughts deplete groundwater reserves, leaving households exposed to the vagaries of rainfall (box 3.1 and table 3.3). Consequently, existing irrigation facilities provide little buffer against drought. In policy terms there needs to be strengthened water management that brings abstraction in line with recharge. This would have to include consideration of changes in cropping patterns, irrigation techniques and job diversification.

Economic Factors

* Households that are heavily indebted also experience a greater drop in drought year incomes. Evidently, high levels of debt lock households into agriculture and this lack of flexibility inhibits the poor from seeking remedies that lower their exposure to drought risk. This needs to be tackled through a range of economic instruments that address the root causes of indebtedness, including climate-related risks.

* The ability to diversify income out of agriculture is an effective strategy for insulating incomes against drought. The analysis finds that there are two key factors that promote income diversification: infrastructure and education.

** Infrastructure stimulates broader regional development, thus permitting greater income diversification, which reduces income volatility.

** Education builds human capital and hence provides additional earning capacity to households, as well as the ability to cope with drought.

The implication is that these interventions bring additional cobenefits by building climate resilience. But these investments have a long lead time, so there is a need to develop tools to identify risks and create systems to assure proactive interventions in vulnerable areas. (30)

3.4 Future Prospects under Climate Change

14. The assessment so far has focused on the past and has identified the determinants of vulnerability and the common coping responses to drought. Looking forward, many of the predicted effects of climate change are expected to differ in kind and magnitude from current climate patterns. So history may offer only limited guidance on how to mitigate or prepare for these future risks. Accordingly this section uses the IMS to explore future climate scenarios and its impact on agricultural outputs and incomes. It begins with a brief description of climate projections and the resulting crop responses in the study area. It then uses the economic model to ask how these changes might influence farming behavior, cropping patterns, and farm incomes. The following section explores possible strategic interventions that could help ameliorate some of the adverse consequences.

3.4.1 Projections of Climate Change

15. Results are presented for two climate scenarios: A2 and B2 and these are compared to a baseline that describes 30 weather events from 1961 to 1990. (31) The system generates predictions for the Pennar basin in Andhra Pradesh, which includes the districts of Anantapur and Chittoor. Looking to the future the climate model projects:

* An average increase in annual precipitation of about 8% (to approximately 709 millimeters) in the A2 scenario and 4% (to about 683 millimeters) in the B2 scenario.

* This is accompanied by increases in both the annual and kharif minimum and maximum temperatures. The average increase in the former could range from 2.5[degrees]C (B2) to 3.4[degrees]C (A2), while the latter could range from 2.3[degrees]C (B2) to 3.1[degrees]C (A2).

* There is also greater variability of rainfall, both within and between years, and this is reflected in more erratic runoff with significantly reduced flows in dry years. Importantly, this greater variability implies a greater frequency of low rainfall years that would be categorized as drought events under current criteria.

* The pattern of rainfall is also expected to change: the traditionally wetter months of June and July are expected to receive less rainfall, while precipitation would increase by a smaller amount in the drier months of May, September, and October.

* A change in the spatial distribution of rainfall is also projected. Figure 3.6 depicts projected changes in average annual precipitation in the basin. It shows that at the basin level the A2 scenario projects rainfall increases in segments of the basin across 50% of the land area. (32) In B2 the changes are more concentrated in the southwest, the north and northwest, and the southeast. The areas that experience a decline in rainfall are in the north, northwest, and a small portion of the southeast. The district-level maps in appendix H show that spatial variation also occurs within districts.

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3.4.2 Crop Responses to Climate Change

16. With projections of this magnitude, there will inevitably be variations in crop yields. The focus is on the impact on three major crops: rice, groundnut, and jowar, which collectively account for approximately 70% of total arable output in these districts. Jowar and groundnut are dryland crops that are well suited to arid conditions and prolonged heat. Though rice is a water-intensive crop, field surveys indicate that farmers devote a small portion of their land (about 0.5 hectares) to rice in order to meet basic household consumption needs and fodder requirements. (33)

17. Deteriorating agroclimatic conditions under climate change are reflected in lower yields. The model finds that despite slightly higher rainfall the average yields of all three crops decline. The reduction is more pronounced under the severe conditions of A2. Figure 3.7 presents results for one block, Talupula in the district of Anantapur, with similar trends elsewhere. Groundnut yields fall dramatically in A2 by 28% and more modestly in B2 by 6%. Jowar exhibits greater resilience with a decline of 4% in A2 and 2% in B2, while average rice yields decline by 10% and 4% in A2 and B2 respectively. (34) The crop responses reflect the complex interplay of three key climate parameters: (a) changes in the level and distribution of rainfall; (b) higher temperatures; and (c) the elevated levels of carbon dioxide. Box 3.2 uses groundnut yields in Anantapur district, Pennar basin, to illustrate these interactions.

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3.4.3 Economic Assessment

18. How might these changes influence farm incomes, crop choices, and farm management regimes? To answer these questions the economic model compares the baseline results (under prevailing conditions), with the A2 and B2 scenarios. In the baseline, groundnut dominates in terms of average profitability per hectare, followed by jowar and rice (figure 3.8a).35 The economic model estimates the resulting cropping mix, taking account of a host of factors including farm size, the volatility of returns, expectations of climate events, and water availability. Prices are based on those that currently prevail and, where relevant, include the Minimum Support Proce (MSP). These prices are varied in the simulations. Figure 3.8b shows the predicted cropping pattern in Talupula (a similar pattern holds elsewhere and is not reported).

19. The model finds that in the baseline, irrespective of farm size, the bulk of the cropped area is devoted to groundnut. This confirms empirical data that also shows that monocropping of groundnut is common practice in many mandals in Anantapur. Not surprisingly farm management methods have evolved to cope with these harsh arid conditions. However, studies on cropping systems also identify risks with monocropping associated with pest attacks and fertility loss.
Box 3.2 Illustration of Trends in Crop Responses in the Pennar
Basin, Andhra Pradesh

Crop yields are sensitive to a host of weather- and climate-related
factors including temperature, the level and distribution of
rainfall, and C[O.sub.2] concentration. Higher global levels of
C[O.sub.2] concentrations are associated with more aggressive
temperature increases. As an illustration, the figure below tracks
the combined impacts of temperature and carbon fertilization on
groundnut yields--holding rainfall constant at baseline levels--in
the Pennar basin. The simulations are based on higher levels of
C[O.sub.2] accompanying the higher temperatures. The combination of
temperature and C[O.sub.2] values are drawn from the HadRM model
projections. Groundnut yield increases with temperature from the
baseline level up to +1[degrees]C, after which the yield starts
declining. Underlying this pattern is the assumed relationship
between the level of C[O.sub.2] concentration and the temperature
and also their interaction impact: C[O.sub.2] fertilization has a
positive impact, while a rise in temperature has a negative impact
on yields.

Groundnut yield also depends on the level and pattern
(distribution) of rainfall. If the pattern of rainfall is unchanged
then higher precipitation will shift the yield curve upward, while
less rainfall will shift it downward. Moreover, the change of
distribution of rainfall will create a horizontal shift in yield
projection. All in all, this illustrates that yield projections are
highly sensitive to the set of assumptions underpinning different
climate scenarios. These results help explain the differences in
yield projections between a previous study (World Bank 2006f) and
this study. The earlier study examined the consequences of less
aggressive climate scenarios in an earlier period, which placed
projections along the rising portion of the yield curve. The
projections in this study are based on warming of 2-3[degrees]C,
which is associated with declining yields.

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3.4.4 Projected Consequences of Climate Change

20. With all else equal, under climate change, groundnut still remains by far the most lucrative (profitable) crop (Figure 3.9a). Consequently there is no change in the planting mix (when choosing between the three dominant crops) that would generate more lucrative returns under the climate change scenarios.

21. With declining average yields the overall profitability of agriculture declines. The greatest reduction is projected for A2 (approximately 20%) and reflects the impact on yields. There is a more modest and tolerable decline of about 5% in B2. With returns from farming falling (figure 3.9b), the income from agriculture may not be sufficient to sustain the marginal farmers who comprise a large segment of the rural population clustered along the poverty threshold. This finding confirms the conclusion of an earlier World Bank report, which highlights the distributional impacts of drought on the poor and marginal farmers (World Bank 2006f).

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3.4.5 Extensions, Validation, and Sensitivity of Results

22. It is important to emphasize that these results are based on a host of assumptions about prices, market structure, and crop availability. In the future, more profitable possibilities for agriculture may emerge, including the creation of drought-resistant crops, alternative crop mixes, and new farm management techniques. The objective of this assessment is not to predict the future, but to identify and isolate the potential effects of climate impacts under particular scenarios. The framework presented here is flexible and can be used to explore a range of policy issues and scenarios.

23. Validation of results. An important test of any analytical tool lies in the ability to capture reality. Figure 3.10 compares the predicted outcome in the baseline scenario against the observed crop mix. It demonstrates a remarkable consistency between the model projections and the actual cropping mix and provides some confidence in the model structure and calibration.

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24. Sensitivity of results. The conclusions presented here simply illustrate the possible magnitudes of climate impacts under prevailing conditions and assumed scenarios. Predicting future prices and technologies several decades ahead is an impossible exercise. Nevertheless it is still necessary to determine the robustness and sensitivity of results to key assumptions. Appendix G summarizes a host of simulations that test the limits beyond which the key predicted results change. These show that the predicted cropping patterns are robust to significant changes in several parameters, including a variation in the risk aversion parameter in the range of plausible values (from 0-3) and a 20% to 25 % change in the price of rice. Results are also presented for the effects of increasing levels of water stress on farms. These show that with less irrigation water available at the farm level there is a predictable decline in cropped area and lower incomes, but this is accompanied by a gradual shift in cropping patterns (towards jowar, which is more heat resilient). Simulations were also conducted for hypothetical changes in water charges. Unsurprisingly since farmers have pre-adapted to arid conditions, higher water charges simply lowers profits but lead to no change in the cropping mix.

3.5 Pulling Together the Pieces: Policy Implications

25. Is there a need for additional policy to promote adaptation? The ability to cope with adverse climate events depends on the level of wealth and the economic and social infrastructure of communities. So as Andhra Pradesh grows more prosperous, it will generate more job opportunities and inevitably build greater immunity to climate fluctuations. The myriad government programs that deal with education, infrastructure, and job creation also serve a complementary objective of building climate risk resilience. In this context, adaptation policy can be viewed as an adjunct to good development policies that promote equitable growth. All of this might suggest that adaptation to climate change requires no additional policy priority or interventions.

26. In spite of this, there are high risks associated with complacency that could magnify the costs of climate change. Though the projections in this report are broad, they suggest a considerable and mounting human toll from climate change and highlight the need and urgency for mitigating the avoidable costs, particularly among the vulnerable sections of society.
Box 3.3 Andhra Pradesh Drought Adaptation Initiative: Putting
Adaptation into Practice

A Drought Adaptation Initiative pilot is being implemented in
selected villages of Mahabubnagar and Anantapur districts by the
Society for the Elimination of Rural Poverty and the Watershed
Support Services and Activities Network, in collaboration with
district collectors in the pilot districts and under the oversight
of the state Department of Rural Development. A state government
interdepartmental steering committee and a convergence committee
comprising the commissioner for rural development and National
Rural Employment Guarantee Scheme representatives have been set up
to oversee project implementation. The initiative will be
implemented over a period of three years with technical assistance
from the World Bank and seeks to (a) identify gaps and missing
links in the ongoing drought-related programs and activities in
Andhra Pradesh; (b) facilitate institutional integration at state,
district, and community levels for delivering drought-related
assistance; (c) design and test the innovative methods and
instruments for helping selected communities to adapt to drought,
targeting different groups within these communities; and (d)
improve awareness of drought adaptation options and approaches and
disseminate the results of the pilot efforts to build support and
demand for wider replication.

The Drought Adaptation Initiative pilot focuses its resources on
four areas of interventions: (a) management of common natural
resources, dealing with pro-poor water resource (particular
groundwater) and common land management; (b) production systems,
focusing on diversification and intensification in agriculture,
livestock, and horticulture, with technology innovation; (c)
economic instruments and marketing, with a focus on improved access
to markets, credit, and insurance for new and innovative activities
specifically designed for drought adaptation; and (d) institutional
support and capacity building, with a focus on institutional
strengthening of farmers and other villager organizations,
including such community-based organizations as self-help groups,
watershed committees, and credit committees. Pending successful
outcomes, the pilot is expected to build support and demand for
wider replication in Andhra Pradesh and provide lessons to other
semiarid states.


27. The Government of Andhra Pradesh assigns a high priority and commitment to strengthening development outcomes, as indicated by its support to robust relief machinery and recent strategies to build long-term resilience to climate risks among rural communities. Under the oversight of the Department of Rural Development the state is implementing an innovative drought adaptation pilot initiative in dryland areas (box 3.3). In addition, there are a number of sectoral programs in irrigation, agriculture, water conservation, rural development, and forestry that provide a comprehensive and varied platform for strengthening adaptation outcomes on the basis of more effective synergy and coordination (box 3.4). This foundation can be considerably strengthened through additional and complementary initiatives and approaches that would strengthen and harmonize many of the existing initiatives.

28. The focus would be on four priority areas: (a) diagnostic risk assessment tools to generate information for integrating climate risks in policy; (b) management of natural resources water and agriculture; (c) management of climate risks through economic instruments; and (d) institutional changes to manage climate risks.
Box 3.4 Andhra Pradesh Sectoral Programs: Comprehensive Base to
Build Adaptation Approaches

Andhra Pradesh has several long-standing governmental programs are
currently in operation that address parts of a comprehensive
drought adaptation strategy. These government programs are briefly
reviewed below.

* Water resources programs. Apart from a number of medium
irrigation projects that are planned or under way, numerous
community tanks (small surface water reservoirs) are being revived
and expanded to improve tank system-based livelihoods through the
Department of Irrigation. In addition, the state launched a
micro-irrigation scheme to promote the use of drips, sprinklers,
and rain guns on farmer fields.

* Watershed programs. Centrally sponsored watershed programs in
drought-prone areas are supplemented by state-sponsored programs,
which are sometimes donor assisted. State government watershed
programs include the Andhra Pradesh Rural Livelihoods Program,
assisted by the Department for International Development,
Government of U.K.; the Integrated Watershed Development Program;
and the Employment Guarantee Scheme, which uses relief-time labor
to construct soil and water conservation structures.

* Agriculture and forestry. Special programs on crop
diversification and sustainable dryland farming combined with
incentives (for example seed subsidies) are underway. The state is
considering incentive mechanisms for farmers that adopt the system
of rice intensification practices to encourage wider adoption of
this water-saving technology, especially in the rabi season. The
vana samrakshana samitis in Andhra Pradesh, as part of the
Government of India's forestry programs, promote community
participation in protecting existing forests and new plantations,
supported by bans on open grazing and promotion of stall feeding.

* Rural livelihoods. Swarnajayanti Gram Swarozgar Yojana, the
centrally sponsored selfemployment program for nonfarm-based
livelihoods, is complemented by state government programs that
support rural livelihoods, including the Andhra Pradesh Rural
Livelihoods Program and the Indira Kranti Patham. Both are
statewide poverty reduction projects aimed at building strong
institutions for the poor and enhancing their livelihood
opportunities through community investment funds. Through these
programs, the feasibility of strengthening the employment
components in the National Rural Employment Guarantee Scheme
through the inclusion of innovative activities (for example fodder
production, farm composting, and tank desiltation) in rain-fed
farming systems is being explored.


3.5.1 Information on Vulnerabilities and Risks

29. The impacts of climate change are expected to be heterogeneous and spatially variable, suggesting the need for tools to identify local vulnerabilities, potential impacts, and risks. A recent Bank assessment has also emphasized the need for such assessments (World Bank 2006f). While there are many uncertainties in projecting future changes, the diagnostic information can provide an indication of their direction and magnitude. The development of such information systems is a first step and common challenge for generating public policy in new and uncertain fields. This study suggests two immediate and urgent areas where diagnostic information is required:

* Tools are needed to identify areas facing increased risks and so build synergies with existing programs and target more effective assistance to vulnerable communities, most notably with regard to investment in local public goods that build climate resilience.

* The economic life of many long-term infrastructure investments will be affected by climate risks that need to be assessed using diagnostic tools. This has important ramifications for assets whose economic lives could be affected by climate change. The location, construction, and refurbishment of these will need to incorporate potential climate-related risks. This is particularly important for Andhra Pradesh, where investments in irrigation can contribute to protecting agriculture against drought.

30. To utilize this information effectively it must be integrated into routine policy decisions, when appropriate. This is a particular challenge that calls for substantial institutional and capacity strengthening, issues that are addressed later in this report.

3.5.2 Financial and Economic Instruments to Promote Drought Resilience

Debt Relief to Facilitate Income Diversification

31. In areas where natural productivity is low and agriculture is at the edge of climate limits, income diversification remains the most obvious and effective way of reducing the level of exposure to climate risks. This study has identified indebtedness as an impediment to occupational mobility. Small and poorer farmers who are least able to cope with adverse climate shocks respond to the lack of formal credit by turning to moneylenders. High levels of debt tend to lock households into agriculture and inhibit occupational flexibility. With limited assets and access to start-up capital these groups confront the most systemic climate risks. So an important priority and challenge for policy is to find innovative and cost-effective ways of reaching these poorer farmers to help reduce their risk exposure.

32. Coupling debt relief with new risk mitigation instruments is an obvious way to prevent a debt-induced poverty trap. To prevent debt-induced poverty and occupational lock-in, policy must tackle the root cause of the problem--an overreliance on rainfall-dependent sources of income. To reduce exposure to climate risks, debt relief or subsidized credit could be linked to other incentives that promote occupational mobility and lower dependence on agriculture. Two innovations merit further policy consideration and scrutiny:

* The relief of old debt could be coupled with the provision of capital for a new business. This would simultaneously reduce indebtedness and lower the transaction costs of occupational shifts by providing new opportunities.

* A variant of this approach would have debt relief coupled with insurance to cover the initial risks of shifting from farming to other businesses and provide protection against new and unfamiliar sources of risk. (36)
Box 3.5 Weather-Indexed Insurance for Agriculture in India

The insurance company ICICI Lombard, in collaboration with the
Hyderabad-based microfinance institution BASK, piloted a
rainfall-indexed insurance to protect farmers from drought during
the groundnut and castor growing season. This was the first weather
insurance initiative in the developing world. It was sold to 230
farmers, mostly small, in Mahabubnagar district, Andhra Pradesh, in
2003. In 2004, the program was significantly modified in terms of
geography, product design, and scope, and was further improved in
2005 by adding new features recommended by farmers. Within three
years, the small pilot has graduated into a large-scale operation
in which 7,685 policies were sold in 36 locations in six states.
Similar products are also being offered by the Agricultural
Insurance Company of India, and the scheme has achieved wide
acceptance among the farmers.

Weather-indexed insurance is less susceptible to the problems
intrinsic to traditional multiperil crop insurance. The publicly
available weather indicators are easily measured and transparent
and the automatic trigger and low-cost weather-monitoring stations
reduce insurer's administrative costs, which in turn makes products
more affordable to farmers. Moreover, the exogenous nature of the
weather indicators helps prevent both adverse selection and moral
hazards.

A major challenge in designing weather-indexed insurance is
minimizing basis risk: the potential mismatch between payouts and
actual losses. Since indemnities are triggered by weather
variables, policyholders may experience yield loss in specific
locations and not receive payments.

Some farmers may be paid without losses. The effectiveness depends
on how well farm yield losses are captured by the index used.
Weather insurance contracts essentially trade off basis risks for
transaction costs, and the insurance will not be attractive if the
basis risk becomes too high. A low correlation between yield and
rainfall projected by the EPIC agronomic model for the study
districts suggests that the implementation of rainfall index
insurance may encounter future difficulties.

Sources: World Bank 2005b; Skees, Hazell, and Miranda 1999; Hess
2003.


Rainfall Insurance: A Challenge

33. Crop insurance schemes are frequently promoted as a cost-effective way of reducing and pooling climate risks and, when linked to particular cropping systems, can be used to promote adaptation. A variety of crop insurance programs are available across the country, but there is an emerging consensus that these have failed to adequately protect many vulnerable sections of society. This has led to the creation of a new generation of weather-indexed insurance products (box 3.5). A common feature of these instruments is that payment to the farmer is triggered when rainfall falls below some prespecified limit. A clear advantage is that weather indicators are observable, verifiable, and transparent, making false claims less likely.

34. The framework developed in this study can be used to assess the feasibility and potential impacts of various insurance schemes on cropping patterns and incomes. A prior World Bank study identified the high and rising costs of drought insurance as a major impediment to scaling up (World Bank 2006f). This study suggests a further challenge that could limit the effectiveness of such schemes.

35. Weather-indexed insurance will only help mitigate risks and smooth incomes if there is a stable correlation between the selected weather indicator and crop yields. Figure 3.11 plots rainfall against crop yields in the A2 scenario. It shows that there is no simple correlation between these variables. (37) Consequently rainfall-based insurance would trigger payments in years when incomes are high and withhold payment in years when yields and incomes decline. While this conclusion is preliminary, it cautions against the use of insurance to pool climate risks. A greater concern is that even when climate risk insurance helps appease suffering, it may prolong agricultural dependence in situations that call for diversification into less water-reliant forms of economic activity.

[FIGURE 3.11 OMITTED]

3.5.3 Management of Natural Resources and Agriculture

36. Water conservation and management. The government of Andhra Pradesh recognizes that there is an overwhelming case for more aggressively pursuing water conservation across the state, as evidenced by its commitment and support to the Andhra Pradesh Water and Land Trees Act. The projections indicate that even when farmers have largely adapted to arid cropping patterns, increased demand and consequent water stress could severely jeopardize livelihoods and render agriculture less viable in these regions. But there are no easy solutions. Community-based strategies to address groundwater overconsumption face significant challenges as customary rights have at times created strong disincentives for sustainable collective management. But this does not mean that these strategies are without benefits and potential. Greater attention should be given to processes that increase the efficiency of groundwater use; support the adaptation of households, communities, and regions to less water-intensive forms of livelihood; and increase the effectiveness of watershed activities to conserve soil moisture and harvest rainwater. Such adaptive measures are not a substitute for the much needed water policy It is recognized that simple plots and linear regressions are inadequate for capturing these complex relationships. reform that would likely enable the control of groundwater demand at the wider geographic scale necessary for effective management. However, they provide feasible interim measures for reducing vulnerabilities.

37. Agriculture diversification. There is already much evidence that farmers in Anantapur and Chittoor have adjusted to arid conditions by growing groundnut. Though groundnut is well suited to arid conditions, increased monocropping and declining diversity can increase vulnerability to disease and pests, unreliable rainfall, and price fluctuations. This suggests the need for extension of support systems in rain-fed areas that promote alternative and equally profitable dryland cropping systems. Recognizing these risks, the government of Andhra Pradesh has initiated a pilot scheme to encourage diversification into less water intensive crops, such as maize, oilseeds, soybean, Bengal gram, and pulses. Figure 3.12 and 3.13 illustrate the current cultivation patterns and the government's diversification target for Anantapur.

38. Water-intensive rice, currently grown in these areas, serves an essential subsistence need for food and fodder. Research and extension on various forms of dry paddy irrigation are warranted. Emerging methods of rice cultivation, such as the system of rice intensification (SRI) currently being piloted in the state, are innovative and hold promise for scaling up. Indigenous inputs and community-managed support systems for services and inputs appropriate for dryland farming also offer further potential for promoting climate resilience in agriculture. Ongoing nonpesticide management practices supported by the government and the maintenance of community seed buffers for diverse crops are additional strategies that would reduce the cost of cultivation and consequently also the debt burden of farmers. In addition, the importance of livestock to rural livelihoods in marginal cropping systems is increasingly being recognized as a short term response, but it comes with risks (box 3.6).

[FIGURE 3.12 OMITTED]
Box 3.6 Livestock Systems

Ownership of livestock, especially in arid, semiarid and other
noncongenial rain-fed settings, is a critical component of
livelihood security. Being more drought resistant than crops,
livestock can provide a safety net against drought, spreading the
risks and providing a more even stream of income to eliminate
seasonal hunger. But there is mounting evidence that increased
reliance on livestock dryland pastures could be counterproductive
if it leads to further overgrazing and land degradation.

International experience points out that on arid lands rainfall
fluctuations occur (a) from year to year; and (b) in cycles of dry
years followed by wetter years. This makes it difficult to devise
strategies and grazing management plans to cope with such
variability. The light stocking required to match average rainfall
can reduce the risk of forage deficit and financial loss due to
death and starvation of animals in low rainfall years. But this
implies lower incomes in good years, although conserving forage may
produce healthier animals that command higher prices. Instead,
livestock policies in arid areas should facilitate rapid destocking
in bad years through opportunistic herding strategies that rapidly
adjust grazing pressures to ecological conditions, instead of
assuming that a single stocking rate will be appropriate for all
years. But the larger message is that sustainability of livestock
management must be enhanced in volatile environments by developing
support systems for water-resilient livestock systems and paying
close attention to ecosystem productivity and sustainability.

In areas such as Anantapur, farmers tend to have a large number of
small ruminants, which, though drought resilient, can be more
damaging to pastures. However, the market for this produce is
growing. Sheep and goats comprise roughly 70% of the livestock
population in these areas, with the remainder as milch animals.
There is much global evidence of the pasture damage that can occur
with an overreliance on goats. The strategy used by the smallholder
mixed (crop-livestock) communities is to purchase animals during
the rainy season, when fodder is available, and sell them during
the summer season when there is a shortage of fodder. But the
greater incidence of drought in recent years has contributed to a
sharp decline in livestock populations. There is a need for biomass
intensification targeting small ruminants in these rain-fed areas
for more secure and productive livestock systems. Other solutions
include promoting the production of fodder-yielding crops, the
development of fodder banks, and the chopping of fodder by farmers
under rain-fed or irrigated conditions to overcome the shortage of
green fodder during rabi, when the rainy season ends.
Agriculture-embedded livestock systems have a strategic advantage
and yield multiple benefits.


3.5.4 Institutional Needs and Priorities

39. There are a large number of central- and state-sponsored programs for addressing drought in Andhra Pradesh that are being implemented under different guidelines and by various implementing and coordinating agencies. These include the watershed and river basin programs under the Drought-Prone Areas Programme, rural livelihood projects, and farmer schools under the Department of Agriculture. Since natural boundaries seldom coincide with administrative borders, synergies are lost and these fragmented and uncoordinated approaches have rendered strategic management of river basins and natural resources difficult. Programmatic approaches to drought adaptation are needed to coordinate priorities and fill gaps in these programs. This remains a challenging task as it requires integration of diverse programs within a common framework, not only with respect to financial allocation but also with institutions that operate at different levels of government. While the foundation of empowering community-based institutions (for example mandal samakhayas) has been promoted by a number of rural livelihood programs in the state, further building their adaptive capacity to manage climate risks would only strengthen them in the right direction. The state's current efforts to explore opportunities to strengthen the labor dimensions in the National Rural Employment Guarantee Scheme and its linkages with other programs holds great potential to catalyze sustainable development in rain-fed areas and set an example for other semiarid states of India.
Table 3.1 Socioeconomic Profile of Sampled Households by
Landholding Size

Landholding size Ownership Ownership of Mean normal
(% of total of utility productive monthly
households) assets (%) assets (%) income (Rs)

Large (14%) 48 59 4,550
Medium (48%) 33 22 2,428
Marginal (8%) 24 7 1,479
Landless (30%) 16 0 1,092

Landholding size Access to
(% of total Years of health
households) schooling facility (%)

Large (14%) 10 23
Medium (48%) 10 27
Marginal (8%) 9 19
Landless (30%) 7 10

Source: World Bank calculations based on TERI survey data (2003-04).

Table 3.2 Average Share of Sources of Income in Total Income
in Sampled Households, 2003-04

 Agricultural income Nonagricultural income

 Agric. Nonagric. Petty
 Cultiv. labor Total labor business

Large 82 4 86 12 1
Medium 63 24 87 10 1
arginal 39 34 73 18 5
ss 0 74 74 20 4

 Nonagricultural income

 Dairy Remits. Total

Large 1 1 14 (a)
Medium 1 1 13
arginal 1 3 27
ss 0 2 26

(a.) Discrepancy in total is due to rounding off of percentages.

Source: World Bank calculations based on TERI survey data (2003-04).

Table 3.3 Percentage of Households with Irrigation Access

 Normal year Drought year

 Tubewell Canal Tubewell Canal

Large 22 11 5 1
Medium 7 16 0 0
Marginal 9 9 0 0
Landless 0 1 0 0

Source: World Bank calculations based on TERI survey data,
drought year (2002-03) and normal year (2003-04).

Figure 3.9a Per Hectare Profits in Climate Change
Scenarios, Anantapur

 Baseline A2 B2

Rice 3715 3843 3633
Groundnut 7077 5080 6594
Jowar 4094 3324 3583

Note: Table made from bar graph.

Figure 3.13 Proposed Crop Diversification
Anantapur: Total area proposed for crop
diversification during kharif and rabi 2005/06
(in hectares)

Groundnut--Kharif 2005/06 5%
Paddy--Rabi 2005/06 95%

Source: Department of Agriculture

Note: Table made from pie chart.
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Title Annotation:Climate Change Impacts in Drought and Flood Affected Areas: Case Studies in India
Publication:Climate Change Impacts In Drought and Flood Affected Areas: Case Studies In India
Article Type:Case study
Date:Jun 1, 2008
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