PAYMENT FOR ENVIRONMENTAL SERVICES IN AGRICULTURAL LANDSCAPES: ECONOMIC POLICIES AND POVERTY REDUCTION IN DEVELOPING COUNTRIES NATURALRESOURCEMANAGEMENTANDPOLICY Editor: DavidZilberman Dept.ofAgriculturalandResourceEconomics UniversityofCalifornia,Berkeley Berkeley,CA94720 EDITORIALSTATEMENT Thereisagrowingawarenesstotherolethatnaturalresourcessuchaswater,land,forests, andenvironmentalamenitiesplayinourlives.Therearemanycompetingusesfornatural resources, and society is challenged to manage them for improving social well‐being. Furthermore,theremaybedireconsequencestonaturalresourcesmismanagement.Renew- ableresourcessuchaswater,land,andtheenvironmentarelinked,anddecisionsmadewith regardtoonemayaffecttheothers.Policyandmanagementofnaturalresourcesnowrequire interdisciplinary approach including natural and social sciences to correctly address our societypreferences. This series provides a collection of works containing most recent findings on economics, management,andpolicyofrenewablebiologicalresourcessuchaswater,land,cropprotec- tion,sustainableagriculture,technology,andenvironmentalhealth.Itincorporatesmodern thinkingandtechniquesofeconomicsandmanagement.Booksinthisserieswillincorporate knowledge and models of natural phenomena with economics and managerial decision frameworkstoassessalternativeoptionsformanagingnaturalresourcesandenvironment. TheSeriesEditor RecentlyPublishedBooksintheSeries Haddadin,MuntherJ. DiplomacyontheJordan:InternationalConflictandNegotiatedResolution Renzetti,Steven TheEconomicsofWaterDemands Just,RichardE.andPope,RulonD. AComprehensiveAssessmentoftheRoleofRiskinU.S.Agriculture Dinar,ArielandZilberman,David EconomicsofWaterResources:TheContributionsofDanYaron U¨nver,I.H.Olcay,Gupta,RajivK.andKibarog˘lu,Ays¸egu¨l WaterDevelopmentandPovertyReduction d’Estre´e,TamraPearsonandColby,BonnieG. BravingtheCurrents:EvaluatingEnvironmentalConflictResolutionintheRiverBasinsof theAmericanWest Cooper,Joseph,Lipper,LeslieandZilberman,David AgriculturalBiodiversityandBiotechnologyinEconomicDevelopment Babu,SureshChandraandDjalalov,Sandjar PolicyReformsandAgricultureDevelopmentinCentralAsia Goetz,Renan-UlrichandBerga,Dolors FrontiersinWaterResourceEconomics Just,RichardE.,Alston,JulianM.and Zilberman,David RegulatingAgriculturalBiotechnology:EconomicsandPolicy PAYMENT FOR ENVIRONMENTAL SERVICES IN AGRICULTURAL LANDSCAPES: ECONOMIC POLICIES AND POVERTY REDUCTION IN DEVELOPING COUNTRIES Editedby LESLIE LIPPER FAO,Rome TAKUMI SAKUYAMA FAO,Rome RANDY STRINGER UniversityofAdelaide,GlenOsmond DAVID ZILBERMAN UniversityofCalifornia,Berkeley Publishedbythe FoodandAgricultureOrganizationoftheUnitedNations and SpringerScienceþBusinessMedia,LLC Disclaimer:Thedesignationsemployedandthepresentationofmaterialinthispublication do not imply the expression of any opinion whatsoever on the part of the Food and AgricultureOrganizationoftheUnitedNationsconcerningthelegalstatusofanycountry, territory, city or area of its authorities, or concerning the delimitation of its frontiers or boundaries.Thementionofspecificcompaniesorproductsofmanufacturers,whetherornot thesehavebeenpatented,doesnotimplythatthesehavebeenendorsedorrecommendedby the Food and Agriculture Organization of the United Nations in preference to others of a similarnaturethatarenotmentioned.Theviewsexpressedhereinarethoseoftheauthorsand donotnecessarilyrepresentthoseoftheFoodandAgricultureOrganizationoftheUnited Nations. ISBN978-0-387-77354-4 e-ISBN978-0-387-72971-8 FAOISBN978-92-5-105830-5 LibraryofCongressControlNumber:2008939917 #FAO,2009 Allrightsreserved.Reproductionanddisseminationofmaterialinthisinformationproduct foreducationalorothernon-commercialpurposesareauthorizedwithoutanypriorwritten permission from the copyright holders provided the source is fully acknowledged. Reproduction of material in this information product for resale or other commercial purposesisprohibitedwithoutwrittenpermissionofthecopyrightholder.Applicationsfor suchpermissionshouldbeaddressedtotheChief,ElectronicPublishingPolicyandSupport Branch,InformationDivision,FAO,VialedelleTermediCaracalla,00100Rome,Italy,or [email protected]. ThisbookisdedicatedtothememoryofKarmaKesang,whodiedinatragicriver accident,aged35,whilecompletingthesurveyfortheBhutanchapter.Mayhislast workbededicatedtothebenefitofallsentientbeings. v Preface Agriculturaldevelopmentiswidelyrecognizedascrucialforpovertyreduction.At thesametime,agriculturalexpansionandevermoreintensivepracticesarewidely recognizedfortheircontributiontoecosystemdegradation.Lesswellrecognizedis that, in many cases, agriculture offers the potential to generate both poverty reductionandbetterenvironmentaloutcomes.Thestudiespresentedinthisvolume look at one policy tool that may address this gap: payments for environmental services(PES).PESprogramsofferthepotentialtoreducepovertybyfocusingon low-incomeproducerswhoinhabit,manage,consume,andproduceimportantagro- ecosystemservices. The relatively long-term contracts in many PES programs can stabilize house- holdincomeflows,providinggreateropportunitiesforinvestment.Suchprograms canalsoenableproducerstodiversifytheirincomesources,thusreducingtherisks to economic shocks. In many cases, incomes could grow further over time as improvements in soil, water, and nutrient quality slow land degradation and en- hanceagriculturalproductivity. Otherpotentialbenefitsrangefrombetteraccesstofinance(basedonbetterland quality and secure cash flows) to lower demand for children’s labor, resulting in higherschoolattendanceandeventuallyincreasesinhumancapital.Local,national, and global welfare could improve, too, as those producers sequester carbon and reducesoilerosion,protectwildlifebufferzones,andproviderefugeforendangered species, control watershed runoff, and safeguard the quality of streams, rivers, and wetlands. Much of the work presented in this volume results from findings of a research programontheSocio-EconomicAnalysisandPolicyImplicationsoftheRolesof AgricultureinDevelopingCountries(ROA Project).Theresearchproject,funded bytheMinistryofAgriculture,ForestryandFisheriesoftheGovernmentofJapan, andmanagedbytheUnitedNationsFoodandAgricultureOrganizationfrom2000 to 2007, aims at extending current thinking about the environmental, social, and economicrolesofagriculture. ThisvolumecomplementsexistingoutputsfromtheROAproject(availableon the project website at http://www.fao.org/es/esa/roa/) and other deliverables from ROA andthe ongoingresearch workon paymentsfor environmental servicesand vii viii Preface poverty reduction at the Agricultural Development Economics Division (ESA) of the FAO. These include (1) a Special Edition in Environment and Development Economics(Vol.13,Issue3,June2008);(2)afull-dayLearningWorkshopaspart of the 2006 International Association of Agricultural Economists Conference in Australia’sGoldCoast,August2006;(3)FAO’sflagshippublication,TheStateof FoodandAgriculture2007:PayingFarmersforEnvironmentalServices;and(4)a website on PES in agricultural landscapes at http://www.fao.org/es/esa/PESAL/ index.html.AnimportantaimoftheROAprojectandtheESAresearchprogramis tohelpmakecontributionstosustainabledevelopmentgoals,concepts,andresults, actingasacatalystforchangeandpromotingconditionsinwhichtheruralpoorare able to enhance environmental outcomes, raise their incomes, and live longer, healthier,andmoreproductivelives. A key motivation for the ROA project was to provide policy guidance for improved development strategies, especially for more sustainable rural develop- ment.TheROAresearchfindingscallattentiontoadiversesetofindirectenviron- mental, social, and economic contributions of agriculture. The evidence suggests that these indirect contributions are not well understood, seldom analyzed in the context of development, and rarely reflected in national and rural development policy strategies. This innovative research initiative reflects the FAO priorities of poverty reduction, food security, and sustainable rural development – key goals sharedbytheinternationalcommunity. In addition to the financial and administrative support provided for the ROA projectbytheGovernmentofJapanandFAO,manypeoplecontributedtomaking this volume possible. The editors express their thanks and appreciation to Prabhu Pingali, Kostas Stamoulis, Keith Wiebe, and Monika Zurek from FAO’s Agricul- tural Development Economics Division (ESA). We thank Amor Nolan for her excellenteditingandrelentlessdedicationtothisproject,andJennyAker,Jennifer Alix-Garcia, John Forga´ch, Brian Gross, Thomas Koellner, Robin Marsh, and DavidRoland-Holstforideasandsupportthroughouttheprocess. RandyStringer LeslieLipper TakumiSakuyama DavidZilberman Contents 1 IntroductionandOverview ................................................ 1 RandyStringer,LeslieLipper,TakumiSakuyama,andDavidZilberman 2 PuttingPaymentsforEnvironmentalServicesintheContext ofEconomicDevelopment ................................................. 9 LeslieLipper,NancyMcCarthy,andDavidZilberman 3 DesigningPaymentsforEnvironmentalServiceswithWeak PropertyRightsandExternalInterests ................................. 35 StefanieEngelandCharlesPalmer 4 MarketingEnvironmentalServices ...................................... 59 AmirHeiman,YanhongJin,andDavidZilberman 5 EconomicsofCarbonSequestrationProjectsInvolving Smallholders ............................................................... 77 OscarCacho 6 ConservationPaymentstoReduceWildlifeHabitat FragmentationandDiseaseRisks ...................................... 103 RichardD.Horan,JasonF.Shogren,andBenjaminM.Gramig 7 PaymentsforEcosystemServices,PovertyandSustainability: TheCaseofAgriculturalSoilCarbonSequestration ................ 133 JohnM.AntleandJetseJ.Stoorvogel 8 LessonsLearnedfromMexico’sPaymentforEnvironmental ServicesProgram ....................................................... 163 JenniferAlix-Garcia,AlaindeJanvry,ElisabethSadoulet, andJuanManuelTorreswiththeassistanceofJosefina Bran˜aVarelaandMariaZorillaRamos ix x Contents 9 AgriculturalLandscapeExternalities,Agro-Tourism, andRuralPovertyReductioninMorocco ............................ 189 KhalilAllali 10 ExploringEnvironmentalServicesIncentivePoliciesfor thePhilippinesRiceSector:TheCaseofIntra-Species AgrobiodiversityConservation ......................................... 221 NobuhikoFuwaandAsaJoseU.Sajise 11 AssessingtheFeasibilityofWetlandsConservation:Using PaymentsforEcosystemServicesinPallisa,Uganda ................ 239 ImeldaNalukenge,JohnAntle,andJetseStoorvogel 12 ManagingWildlifeDamagetoAgricultureinBhutan:Conflicts, CostsandCompromise ................................................. 255 KarmaUra,RandyStringer,andErwinBulte 13 Conclusion ............................................................... 275 DavidZilberman Index ........................................................................... 279