The basic LP model was adopted to develop a bio-economic model for the Mahakanumulla VTCS. The general form of the LP model is as follows.

Objective function:

Subject to,

The above model presents: Z as profit; C_j as the co-efficient of the j^th decision variable; a_ij as the j^th coefficient of the i^th constraint; X_j as the j^th decision variable; and, b_i as the i^th resource limit. The additional profits that may be reaped by increasing one unit of a limiting resource are indicated by the shadow price. A zero shadow price implies that no profits can be reaped by expanding use of the resource, i.e., the relevant resource is not binding. The shadow prices are the additional cost incurred over and above the market price by the decision maker when the resources are constrained as the cost of the resource is included in the coefficients of the objective function.

The basic version of the model is described below. Suppose that there are two types of crops, paddy and maize, and three constraints limit their production—lowland (LL), highland (HL), and water (W). For simplicity's sake, let us assume that the type of land is crop-specific. Maize uses HL and W to produce its output, while paddy uses LL and W for its output. Figure 2 shows the baseline equilibrium and counterfactual equilibria for this model. The feasible region is given by OABCD, and B or C will become the optimal solution in the initial equilibrium, depending upon the slope of the iso-profit line. If the relative price of maize is higher, as shown in Z, B becomes the optimal solution. If the relative price of paddy is higher, as shown in Z', C becomes the optimal solution. If the availability of LL is restricted, the feasible region shrinks to OABEF, and B or E will be the optimal solution status quo, with a lower profit compared to the initial equilibrium. If the availability of HL is expanded, the feasible region expands to OGHCD, and H or C will be the optimal solution in the status quo, with a higher profit compared to the initial equilibrium.

Decisions concerning administration of the cascade, water resource management, and cultivation are taken at the GN level. Accordingly, six different linear programming models were developed, treating the six GN sub-divisions as different agricultural systems. Of the six sub-divisions, three divisions show hydrological interconnections (WS 1, WS 2, and WS 3) and the connectivity was modeled through the water constraint. Each sub-division consists of available lands for cultivation, including lowlands and highlands. The total cultivation extents of each sub-division are presented in Table 1.

Climate impacts on the VTCS were tested as an external shock. Rainfall data from the Mahailluppallama weather station for the 1976–2019 period, obtained through the Anuradhapura District Survey Office, were taken into account to generate the drought scenarios. Figures 3, 4 present monthly rainfall distribution during the Maha and Yala seasons from 2009 to 2019.

Of the Maha seasons, 1986–87 and 2012–13 recorded the lowest and highest rainfall, respectively. Therefore, the 1986–87 Maha rainfall was considered the Maha drought period. From the Yala seasons, the 1979 and 2018 seasons received the lowest and highest rainfall, respectively; thus, the 1979 Yala rainfall was taken as the Yala drought period.

The baseline scenario was developed considering the rainfall received during the 2018–19 Maha and 2019 Yala seasons which depict rainfall in an average rainy year. In determining the past decade's rainfall data, six rainfall scenarios were developed to test the effect of climate shocks on the Mahakanumulla VTCS. Table 5 presents the above rainfall scenarios and the monthly average rainfall for the above scenarios.

In order to calculate direct rainfall to the crop cultivation area, the extent of land cultivated in each sub-division was used. Then, the baseline models simulated the total available water under each scenario. Profitability, land use, environmental sustainability, and shadow prices were calculated for each subdivision and the entire cascade.

Government policy, as articulated in the National Policy Framework Vistas of Prosperity and Splendor, Overarching Agricultural Policy, and National Agricultural Policy, emphasize the need to introduce market interventions to uplift rural lives without compromising environmental sustainability. Accordingly, one initiative by the private sector in many dry zone areas has been a buy-back system for maize and chili. Even though tobacco was also introduced as a commercial crop, in compliance with World Health Organization (WHO) guidance on tobacco control, the government has decided to disincentivise tobacco cultivation. In this study, we tried to assess the profitability changes, considering the buy-back systems for maize, dried chili, and tobacco.

The baseline bio-economic models were extended by including the above crop categories to evaluate the effects of market interventions. Tables 6–8 represent the data used for the market intervention scenario.

The extent of environmental degradation associated with different crop plans was evaluated using estimations of soil loss and nitrate leaching for each crop mix. According to Mapa et al. (2007), the lowlands of the dry zone consist of Low Humic Glay (LHG) and Reddish Brown Earth (RBE) soils. According to the data, 70.5% of the available lands for cultivation in the Mahakanumulla VTCS are lowlands. Soil loss was estimated using published soil loss estimations by various scientific studies (Table 9). The nitrate leaching amount was calculated using estimates from Kanthilanka (2022). Nitrate leaching at the field level for rice and maize during the Yala and Maha seasons for the varied rate of N application in LHG poorly-drained soil is as follows.

Nitrate leaching and soil loss were calculated for each sub-division and summed up to obtain the entire system's environmental degradation (Table 9).

The Mahakanumulla cascade system is subject to constant climatic influences. Based on the variation in rainfall over the last century, it showed extreme changes in rainfall. The equilibrium in the baseline was simulated with lower or higher water availability in the cultivation seasons to obtain the equilibrium under each climate scenario. Table 12 presents the profitability of farming in the Mahakanumulla VTCS under a good rainfall year, good Maha rainfall, good Yala rainfall, Yala drought, Maha drought, and year-round drought scenarios, respectively. The total profitability of the VTCS was taken using the summation of the profitability under each sub-division scenario.

The rainfall data used for this analysis show that during the worst drought of the last century, the annual rainfall was 82.7% less than the average annual rainfall. Similarly, the highest annual rainfall in the last century shows an increase of 40.1% over the average annual rainfall.

The profitability results of the Mahakanumulla VTCS demonstrate water availability to be the driving factor of the cascade system. Table 12 presents crop cultivation patterns under extreme weather events. Profits resulted in the higher rainfall regimes being higher than average rainfall years. Year-round good rainfall generates the highest return to the cascade. Marques et al. (2005) similarly reported that the reliability of increased water supplies raised the probability of higher crop economic returns.

As might be surmised, there were lower profits associated with drought situations than during good rainfall regimes (Table 12). Furthermore, the profit results reflect that drought during the Maha season had a higher impact on profitability than in the Yala season. The results of each sub-division show that farmers moved on to crops requiring less water than paddy in dry spells. At the same time, smaller extents of land would be cultivated in the Yala season due to lower water availability. There is a higher profit during the Yala drought than in the other two drought scenarios: the reason is that water scarcity leads to the selection of crops requiring less water, like maize and vegetables, over paddy.

Figure 8 presents the extents of land cultivated annually with the three major crops in the Mahakanumulla VTCS. Culturing high-income generation crops, such as maize, under high water availability resulted in higher returns to the system. 71.4% of highlands were utilized under heavy rainfall, a 51.7% increase compared with the baseline scenario. There is only 13.9% of highland cultivated under a year-round drought scenario. The largest extent of lowland cultivated under the baseline scenario is 62% of the total available lowlands in the VTCS. Annual lowland cultivation will reduce to 26.6% under heavy rainfall conditions and to 9.5% under year-round drought.

The following figures show the environmental damage during the climate scenarios.

As per the calculations of soil loss and nitrate leaching under alternative climate scenarios, the highest soil loss resulted under a heavy rainfall year. According to Figures 9, 10, it is evident that environmental degradation is proportionate to profitability. Drought leads to less soil loss than the baseline. Figure 10 shows that nitrate leaching is high in the baseline scenario compared with the heavy rainfall year. Farmers are moving toward maize farming rather than other crop cultivations with heavy rainfall.

Dry zone agricultural systems are directly affected by changing political and trade policies. As mentioned earlier, tobacco could invade the crop lands in the dry zone as a commercial crop, and the government suggested introducing maize and green chili buy-back arrangements as potential alternatives for this issue.

The changes in profitability under these market interventions were estimated under several assumptions: the introduction of buy-back arrangements ensuring the availability of inputs for cultivation, certified farm-gate prices and a well-established market for farm outputs. We examined the extent to which market interventions affect the profitability of the Mahakunumulla VTCS under the above conditions. The profitability changes in the Mahakanumulla VTCS under different market interventions and alternative climate scenarios are presented in Table 13.

As shown in the table above, any market intervention can increase the profits reaped in the baseline scenario. The same pattern can be found in all the sub-systems, and similar results can be shown in all climate scenarios. The comparison of profits under alternative market interventions illustrates that annual profits are higher when maize, tobacco, and green chili crops are cultivated simultaneously. Similar results were reported by Chianu et al. (2009) with reference to soybean farming in Kenya and by Reddy and Suresh (2009) in India with regard to oil seed crops.

Of the three market interventions, chili provides relatively higher returns than the buy-back arrangements for the other two crops, with higher profits in the drought periods when compared with periods of excellent rainfall. According to the results, introducing a cash crop, such as green chillies, into a cascade system would yield the highest returns. However, the other crops of the Maha season would not come into the crop mix, farmers would be tempted to cultivate green chillies using all available resources. Green chili cultivation increases the profitability of this VTCS system by about 185% during a regular rainy season.

Introducing maize buy-back arrangements with a well-established market will lead to high profits for the VTCS. However, at that time all crop choices came to the crop mix in VTCS based on the available resources. Accordingly, the increase in the profitability from introducing maize buy-back cultivation during an average rainfall period is 28%.

Tobacco also shows a similar pattern, suggesting that buy-back arrangements would be profitable in each climate scenario. This would enable farmers to cultivate under less water availability. However, while tobacco yields higher economic returns than maize during the baseline year, maize yields higher economic returns under extreme climatic conditions.

Figure 11 summarizes land use under alternative climate and market interventions. According to the results, paddy cultivation accounts for the most annual use of land in the VTCS, except when green chili is grown. But when maize buy-back arrangements are introduced under heavy rainfall years, then maize dominates up to 22.5% of total available lands. As shown in Figure 11 tobacco becomes more dominant in land use under droughts than in the other two climate scenarios. Even though the introduction of green chili dominates annual land use in all three climate scenarios, the greatest extent resulted under the baseline scenario. However, under the above market interventions, dry zone vegetables no longer enter the annual land use pattern.

According to the results of the soil loss and nitrate leaching calculations, introducing green chili is the most environmentally sustainable intervention under a good Maha rainfall scenario (Figures 12, 13). Also, Figure 12 shows that tobacco cultivation causes very high soil losses. Similar findings were reported by Thomaz and Antoneli (2022) in southern Brazil. However, nitrate leaching and soil losses due to market interventions other than tobacco are lesser or similar to losses under the current crop pattern. These trends have been observed in every climate scenario.

The results of the simulations revealed that green chili and maize buy-back systems are possible alternative crops for tobacco. With green chili crops present, tobacco will not enter the system under the climate scenarios examined in this study.