Analysis of the environmental services provided by selected farming systems in

Ghana

Module 2: Environmental externalities II

(site specific study)

A. Wayo SeiniGeorge Botchie

andLawrence Damnyag

outline

Introduction Characterization of the farming systems

and their environmental implications Variables and functional model Sample characteristics and attitude on

payment Determinants of willingness to pay for agro

forestry attributes Replacement cost evaluation of

environmental externalities Conclusion

1.1 Purpose of the study

The report focuses on the analysis on the environmental services provided by selected farming systems in Ghana

The main purpose is to obtain the micro-economic analysis of major environmental externalities

Semi-deciduous forest & Sudan savannah farming systems are selected

1.2 Evaluation of physical/Biological impact

Major attributes of the semi-deciduous forest zone farming systems comprise;

• permanent tree crops and rational bush fallow of food crop farming systems

The permanent tree crops such as cocoa are usually intercropped with timber trees, fruit trees and medicinal plants

In the interior savannah zone, mixed farming & livestock farming are important attributes of farming systems

• Another important attribute of this zone is the compound farming system

1.2 Evaluation of Physical/Biological impact(cont’d)

Externalities produced by the characteristics of the selected farming system vary

In the semi-deciduous forest zone, the agro forest farms generate positive environmental externalities in terms of

• Soil erosion prevention• Groundwater retention & recharge• Restoration of water quality due to eutrophication• Biodiversity preservation• Watershed and catchment area protection• Carbon sequestration and • Beautification of rural landscapes

In the interior zone, the farming system operates under harsh environmental conditions characterized by

• Flooding of rivers, soil erosion, deforestation etc

1.3 Rationale for farming systems selection

The two alternative systems selected present contrasting system characteristics in terms of;

• Agro-ecological setting• Farming practices• Crops cultivated and• Externalities generated

Semi-deciduous forest agro-ecological zone is characterized by agro-forestry farming systems

• This generates positive environmental externalities

The interior savannah agro-ecological zone experiences rotational bush fallow systems that generates negative externalities

1.4 Methodology for measurement & evaluation

1.4.1 Contingent valuation method Contingent valuation method was used to

analyze the survey CVM is a survey technique It is used to place monetary values on

products & services for which market prices do not exist or

CVM can measure a larger proportion of the total economic value associated with agro-forestry attributes the study investigates

1.4.2 Replacement cost method

Replacement cost method (RCM) uses the cost of replacing an ecosystem or

• Its services as an estimate of the value of the ecosystem or its services

The cost of restoring a river or wetland can be used as estimates of the cost of environmental damage of these natural assets

In RCM, goods & services traded in the market are used instead of the functions to be evaluated

In this study the aim is to estimate the annual replacement cost per hectare of the most relevant environmental functions in study area

1.5 Questionnaire design

Questionnaire was structured to capture the maximum amount of money the respondent is willing to pay for the overall benefits from agro-forestry farm

1.6 Method of data collection

Convenient sampling method was used All qualified farmers who turned up

were willing to be interviewed and In some cases those who exceeded our

target were number disappointed Convenient sampling allows the

researcher to meet the target sample size without compromising too much on the randomness of the sample

1.7 Value elicitation

This study employed the double bounded, followed up with open ended format

This format involves a straight forward estimation and the maximum willingness to pay obtained

It does not preclude the problem of starting point bias

It is not suited for mail survey, face to face interview was conducted

1.7 Value elicitation(cont’d) The main valuation question was on the overall benefit arising

from an acre of agro forestry farm It was framed as follows:

“Agro forestry plays multifunctional roles. It enhances soil erosion prevention ; water retention and ground water recharge; provision of habitat for wild life, carbon sequestration and rural amenities preservation. Flooding is prevented by agro forestry. In view of all these benefits that agro forestry provides, are you willing to pay $ X to protect all these environmental benefits, arising from one hectare of agro forestry farm”

The bid selection proceeded the main question on the maximum amount the respondent was willing to pay for these agro forestry attributes

Variables and functional model

3.2 Dependent variable: willingness to pay (WTP)• WTP is defined as the maximum willingness to pay after

two bids(lower & higher)• With this method, straight forward estimation is done ,

using the maximum willingness to pay obtained 3.3 Independent variables

• Income(TMINCH)• The effect of income of the household is expected to be

positive• Age of respondent(AGER)• Young people tend to be more aggressive in seeking

information and• And are likely to adopt agro forestry practices and new

technologies due to their longer planning horizon

Variables and functional model (cont’d)

3.3.3 Gender of respondent(GENDER)• A dummy variable coded as 1 if respondent

is a male, or 0, otherwise• Males are more likely to own lands in the

study area than females• Male farmers will be more willing to pay for

total benefits from agro forestry3.3.4 Education of respondent(EDYR)• Education enhances people’s perception of

the advantages that a new technology or practice has

• The effect of education on WTP is therefore generally expected to be positive

Variables and functional model(cont’d)

3.3.5 Main occupation of household head (MECOR)

•Farmers are more likely to be more willing to pay for total of benefit from agro forestry

3.3.6 Initial bid (INITIALBID)•The value of the initial bid is tested for

starting point bias and•If this is significant it either negatively

or positively influences the final maximum WTP, & the estimations suffer from starting point bias

Variables and functional model(cont’d)

3.3.7 Protest bid (PROTEST)• A dummy variable, PROTEST is generated • It is expected to negatively impact the

maximum WTP3.3.8 Importance of agro forestry(LIAFAR)• LIAFAR measures the level of importance

of agro forestry to the respondent• The attributes are improve scenery,

prevent soil erosion, improve wildlife, etc• Each is taken as a variable &• its impact on the maximum WTP

examined

3.4 The functional form

The functional form assumes a utility function that is positive, but increasing at a decreasing rate

That is, WTP function is similarly shaped. That is;

Y )1(0 ii X Y = W i l l i n g n e s s t o p a y ( W T P ) , a n d X i = V e c t o r o f t h e i n d e p e n d e n t v a r i a b l e s .

)2(876

54321

i

sa va n n a h

LIAFARPROTESTDINITIALEBI

MECOREDYRGENDERAGERTMINCHWTP

)3(876

54321

i

d ecid u o u s

LIAFARPROTESTDINITIALEBI

MECOREDYRGENDERAGERTMINCHWTP

)4(876

54321

i

p o o led

LIAFARPROTESTDINITIALEBI

MECOREDYRGENDERAGERTMINCHWTP

4.0 Sample characteristics and attitudes on payment

4.2.1Gender of respondent 4.2.2 Age of respondents 4.2.3 Household size 4.2.4 Education of respondent 4.2.5Major occupation 4.2.6 Household income 4.3 Attitudes on payment

Table 4.7: Responses to some attitudinal questions

Percentage of respondents in each sample indicating that: Savannah Forest Combined 1. To pay for the overall benefits arising from a hectare of agro-forestry farm;

Government should be responsible 3.5 22.0 12.8 District Assembly should be responsible 5.0 5.0 5.0 Willing to pay but cannot afford 9.0 15.0 12.0 Others 0.5 0.3

2.Rate agro-forestry attributes in terms of importance a.improve scenery;

Indifferent 5.5 3.0 4.3 not important 10.0 9.5 9.8 important 47.5 59.0 53.3 very important 29.5 18.5 24.0 extremely important 6.5 10.0 8.3

b. Prevent soil erosion indifferent 4.3 not important 0.5 1.0 9.8 important 18.5 27.5 53.3 very important 60.0 62.5 24.0 extremely important 20.5 9.0 8.3

c. Improve wildlife indifferent 11.5 10.5 11.0 not important 32.0 11.0 21.5 important 37.0 41.5 39.3 very important 15.5 28.5 22.0 extremely important 3.5 7.5 5.5

Table 4.7: Responses to some attitudinal questions(cont’d)

d. Supply fuel wood indifferent 0.5 0.3 not important 0.5 10.5 5.5 important 8.5 48.0 28.3 very important 39.5 22.0 30.8 extremely important 51.5 19.0 35.3

e. Improve water retention indifferent 0.5 1.0 0.3 not important 1.5 5.0 5.0 important 44.0 23.0 33.5 very important 42.0 63.5 52.8 extremely important 10.0 7.5 8.8

f. Increase soil fertility indifferent 0.5 0.3 not important 0.5 1.0 0.8 important 10.0 13.0 11.5 very important 43.0 56.5 49.8 extremely important 46.0 29.5 37.8

g. Enhance carbon sequestration indifferent 5.0 10.0 7.5 not important 8.5 8.5 8.5 important 42.5 39.0 40.8 very important 30.0 35.5 32.8 extremely important 13.5 6.5 10.0

5.0 Determinants of willingness to pay for agro forestry attributes

Table 5.1: Semi-Deciduous Forest Table 5.2: Sudan Savannah System

*** Significant at 1%; **significant at 5% and * Significant at 10%

Dependent variable =

MWTP

Variable Estimated

Coefficient t-ratio

Constant 15741.88 0.62 Age -22.95*** -3.63

Gender 14.44** 2.25 Protest 23.98*** -6.99

Household income

867.24 1.25

Improve scenery 4769.40 0.98 Prevent soil

erosion -6679.68 -0.41

Supply fuel wood

-346.76 -0.62

Improve wildlife -0.35 -0.22 Improve water

retention -

19434.66**

-2.91

Enhance carbon sequestration

-1.77 -0.08

Increase soil fertility

9286.25 -0.60

R-squared Adjusted = 0.66 Mean of dependent variable = 54,780.75 Sample size = 200

Dependent variable =

MWTP

Variable Estimated

Coefficient t-ratio

Constant 5163.53 1.42 Age -13.18* -1.70

Initial bid 0.68*** 13.45 Protest -13.44*** -3.74

Household income

28.81** 2.23

Gender 7.00 0.84 Prevent soil

erosion 3.55 0.19

Increase soil fertility

1723.60 0.59

Supply fuel wood

-4367.47* 1.58

R-squared Adjusted = 0.57 Mean of dependent variable = 70,831.55 Sample size = 200

5.1 Semi-deciduous forest system

Factors influencing WTP for agro-forestry attributes are Improve scenery, increase soil fertility,

improve water retention, prevent soil erosion, gender & age of farmer

Age has a negative sign that coincides with what is in the literature

Improve water retention is significant at 5% level

5.2 Sudan Savannah System Factors determing WTP are;

• Supply of fuel wood, household income, & age

They all have the expected a priori signs There are differences in the valuation of

the determinants of WTP between 2 systems

Age is significant determinant in both systems

• but the level is lower in the Sudan savannah (10%) than in the forest system (1%)

• Farmers in the forest system are relatively younger than in the savannah system

• Gender is not significant in Sudan savannah, & is significant

6.0 Replacement cost valuation of environmental externalities

Table 6.1 Components of Costs for Cassia/Sorghum Agro-forestry Component Cost/Ha./

Year (¢)

% of Annual

Cost/Year

1. Cassia Seedlings 8,000 0.37

2. Sorghum Seeds 25,000 1.16

3. Capital Costs 60,000 2.77

4. Labour Costs 624,000 28.86

5. Fencing Costs 31,250 1.45

6. Irrigation Costs 4,000 0.18

7. Nutrient Replacement 1,210,000 55.96

8. Pest Control 200,000 9.25

TOTAL 2,162,250 100.00

Sudan savannah (RCM) Components of the RCM cost per hectare of

cassia/sorghum agro-forestry are indicated in table 6.1

Average yearly cost per hectare is ¢2,162,250• It is a sum of the components in the table 6.1• This amount is recurring cost to maintain agricultural

production in a hectare of cassia/sorghum agro-forestry farm &

• repair damages caused by soil erosion• RCM of soil erosion prevention thro’ agro forestry was

discounted over 15-yr period at • discount rate of 23% to obtain present value of

replacement• The PV of the RC for a hectare over 15-yr period is ¢ 8,879,080.35

6.2 Semi-deciduous forest The prevalent agro-forestry practiced is

teak intercropped with cocoa Trees planted in the teak/cocoa agro-

forestry to be replaced after 20yrs This based on the number of years it

takes for the teak & cocoa trees to mature

RC per hectare of teak/cocoa agro forestry included the following in Table 6.2

Table 6.2 Components of Costs for Teak/Cocoa Agro-forestry Component Cost/Hectare/

Year (¢)

% of Annual

Cost/Ha.

1. Seedlings 21,640 0.63

2. Plantation Establishment 174,190 5.06

3. Maintenance of Plantation 2,339,200 67.96

4. Capital Costs 289,000 11.30

5. Miscellaneous Costs (Fire

Belt, Patrolling, etc)

618,000 15.05

TOTAL 3,442,030 100.00

The replacement cost hectare of a teak/cocoa agro-

forestry farm is ¢3,442,030/hectare per year

The most important component of RC per hectare per annum is maintenance of plantation, that accounts for about 68% of costs

Construction of fire belt & patrolling is the 2nd most expensive item, accounting for over 15%

It shows the importance attached to the risk of an outbreak of fire on the teak/cocoa agro forestry farm

The replacement cost of soil erosion prevention thro’ teak/cocoa agro-forestry was discounted over a 20-yr period at a discount rate of 23% to obtain the present value replacement

The PV of the RC for a hectare of a teak/cocoa agro-forestry farm over a 20 year period is ¢14,548,687, in contrast to ¢8.8 million in the Sudan Savannah

6.0 Replacement cost valuation of environmental externalities(cont’d)

It is more expensive to replace damage caused by soil erosion in the forest system than in the savannah system

The value of replacing a hectare of positive environmental externalities thro’ agro-forestry is ¢ 5.7million (64.8%) higher in the semi-deciduous forest farming system than in the Sudan Savannah

6.0 Replacement cost valuation of environmental externalities(cont’d)

Another valuation is annual cost of a hectare of agro forestry in the Sudan Savannah thro’ small-scale irrigation dam

Given 15 years life span, average RC per hectare per year is ¢2,363,333

With trees planted on the land, RC of a hectare of agro-forest farm will have to be added to the RC of water conservation and retention to get ¢ 4,525,583 per hectare per year

The PV of RC of water conservation & retention that includes agro-forestry for a hectare of land in the Sudan savannah is ¢ 18,583,889.50

Table 6.3 Summary of valuation per hectare per year (cedis)

Method Forest Savannah Contingent valuation:

Average willingness to pay

54,780.75 70,831.55

Replacement cost valuation:

Without irrigation 3,442,030.00 2,162,250.00 With irrigation - 3,724,500.00

Conclusion Farmers are willing to pay for a wide range of

positive environmental externalities generated thro’ agro-forestry practices

The WTP differs between the 2 agro-ecological farming systems in Ghana

The WTP is much higher in the Sudan Savannah than in the semi-deciduous forest system

The plausible explanation is the very harsh environmental conditions confronting farmers in the Sudan savannah

Conclusion (cont’d) Supply of fuel wood & increase in soil fertility are

extremely important to farmers in the Sudan savannah

the most important attributes to the farmers in the semi-deciduous forest system are

improvement in water retention & prevention of soil erosion

Measures to generate positive environmental externalities add value to the farming systems

Policy makers are to regard these measures as additions to the quality of the environment in which farmers operate