Large-scale irrigation projects for smallholder farmers may have difficulty meeting the Economic Rate of Return (ERR) 10% hurdle rate since the costs per hectare are quite high. In this project, the cost per hectare was $55,000 meaning that each hectare would need to have implausibly high returns to meet the 10% hurdle. The evaluation found that this would have required higher levels of switching to more profitable crops such as tomatoes and onions. Furthermore, there are ceilings to the magnitudes of benefits making it difficult to reach a 10% hurdle rate. Despite the evaluation findings that profits for farmers increased significantly, the ERR for the project was negative. MCC is addressing this lesson in new compacts by focusing on smaller scale irrigation and farmer education for higher value agriculture early in the project.
Lesson Learned