Promoting Drip Irrigation Systems among Small Farmers in Developing Countries

Drip irrigation systems can deliver water and fertilizer together and drip them precisely into the root area of the plant, thus improving agriculture yields over the conventional flood irrigation: Not only the water wastage is reduced, but also the overuse of fertilizer is mitigated. Previously, firms adopt a product-based model by selling these systems to farmers and letting farmers operate them. However, farmers do not have the knowledge to efficiently operate drip irrigation systems. Recently, firms have started to provide solutions for farmers by letting the firm's professional technicians operate drip irrigation systems. Accordingly, in this service-based model, the farmers do not operate these systems by themselves, and use the dripping service from the firm. We study the firm's optimal contract menu with and without using the service-based model. Analytical results show that for a general social enterprise, the addition of the service-based option to the firm's contract menu (instead of the pure product-based model) promotes the adoption of drip irrigation systems. However, when a profit-maximizing firm's operating cost is neither low nor high, such an addition can backfire by decreasing the profit of farmers with high skill levels. Moreover, when both the farmers' fertilizer efficiency and the profit-maximizing firm's water efficiency are low, compared with the pure product-based model, this firm's optimal contract can decrease the total agricultural product supply and total water usage, while increase the total fertilizer usage.