Ecotourism, Pygmy Elephant Reserves and Oil Palm Plantations in Borneo

Joint Paper with Lisa Marie King and Kenneth R. Szulczyk

Contents

• Introduction• Use values• Non-use Value• Borneo Pygmy Elephant– Travel Cost Method– Contingent Valuation– Value of Oil Palm Plantations

• Conclusion

Introduction

• Elephants are in decline around the world• Many countries are converting forests and

prairies into agricultural land and community development– Elephants are losing their habitat– Herds become fragmented• Elephants’ birth rate declines• Many elephants are becoming endangered

Introduction

• Researchers use many methods to estimate an elephant’s value. – Methods are not mutually exclusive• Each method involves a different use or function of

elephants• Thus, the economic value of the elephants cannot be

compared.

Introduction

• Two broad classes to estimate value– Use values – humans directly gain a net benefit

from the elephants• Researchers gather information about revenues and

costs, and calculate the net benefits of the elephants– Non-use values – humans gain a net benefit

knowing the elephants exist• People pay and donate to conservation societies that

protect the elephants

Use Values

1. Trophy hunting, elephant culling, and poaching• Attains the highest economic values of African

elephants• Value comes directly from consuming the elephants• Types– Hunters pay fees to hunt the elephants– Government or communities use elephant culling to

control the growing elephant herds in national parks– Sell ivory, salted hides, and dried meat to the

communities

Use Values• Botswana, Namibia, and Zimbabwe use community-based natural

resource management (CBNRM) – Communities assume the property rights over communal land that includes

the wildlife – 80% of incomes come from trophy hunting

• 34% of households were willing to pay” a median $5.45 to preserve the elephants • 2% were willing to pay $1.78 to remove the elephants from the land • Some households do not benefit from the elephants

• Illegal poaching – many elephant species are located in poor countries– Poachers may hunt elephants and sell the ivory on the black markets– Buyers of ivory are from affluent countries– Governments must use resources to monitor and track the elephants and

identify and arrest the poachers

Use Values

2. Ecotourism – travelers and tourists are attracted to the elephants– Value of elephant comes from the tourists

spending money to see them• Airline tickets• Hotels• Pay travel guides• Opportunity cost – if tourist stayed home and worked,

they could earn wages

Use Values

3. Crop damage – elephants can damage crops and property– Farmer’s earn lower profits as elephants reduce

crop yields– Value of the elephant• Compensate the farmers for the elephant’s damage • Pay to relocate the elephants to a natural reserve or

sanctuary– Then the organization pays to monitor and manage the

elephants

Use Values

4. Labor value – the elephants’ economic value relates to the elephants contributing to production. – Government and companies in Myanmar around

up troublesome elephants that raid farmers’ fields and crops

– Government and industry uses elephants for logging while other elephants are detained in eco-tourism camps

Non-use values

1. Existence value- the economic value of elephants is existing and interacting in their environments. – Elephants are key players in the environment– Other species may depend on the elephant’s survival– Existence value does not depend on humans being around

• Economic value comes from the humans

• The Precautionary Principal applies to the Borneo pygmy elephants – Since humans do not know the future consequences of the

pygmy elephants going extinct, we should intervene to ensure their continued survival.

Non-use values

2. Bequest value – people are willing to pay non-use values to protect and preserve the elephants for the current and future generations– People are willing to pay an organization or

government entity to manage and protect the elephants

Borneo Pygmy Elephant• Pygmy elephants are localized to one spot – the Kinabatangan

Wildlife Sanctuary– Sanctuary comprises about 26,103 hectares, or 261 sq. km. – Researchers estimated about 2,040 Pygmy elephants live

in Borneo• Around the sanctuary, producers are converting forests and

undeveloped land into palm oil plantations• Plantations restrict the elephants to the sanctuary and along

the banks of the Kinabatangan River– Full-grown elephants eat about 150 kg of foliage per day– They love durian – rolling it in mud and swallowing it

whole

Borneo Pygmy Elephant

• Travel Cost– Eco-tourists visit the parks to see the proboscis

monkeys, Sumatran rhinoceros, 600 species of birds, and the flora, such as the world’s largest flower – rafflesia

– Orangutans and elephants are at the top of the list– The pygmy elephant have a use cost because

tourist gain utility or pleasure by visiting the animals in its wild habitat.

– We estimate the value of elephant by analyzing the tourists’ cost to visit the site

Borneo Pygmy Elephant

• We estimate a demand function to visit the site– Dependent variable is the number of visits to the

site per unit of time– Visits is a discrete variable, where y = 0, 1, 2, 3, …– The probability of visiting the park gets smaller

with more visits– Y would be a Poisson distribution

Borneo Pygmy Elephant

• Poisson Distribution

• Lambda, li, is the number of expected trips to the park

• Natural log (ln) makes the lambda positive• Betas, b, are the parameter estimates• Tourist i pays travel costs (TCi) to visit elephants

𝑃𝑟𝑜𝑏 (𝑦 )=𝑒− 𝜆∙ 𝜆𝑦

𝑦 !

𝑙𝑛 (𝜆𝑖 )=𝛽1𝑇𝐶𝑖+𝛽2𝑇𝐶𝑠+𝛽3𝐷1+𝛽4𝐷2+𝛽5 𝐼 𝑖+𝛽6𝐸 𝑖

Borneo Pygmy Elephant

• Tourist i would pay travel costs (TCs) to a substitute site

• Tourist earns income (Ii) and has obtained an education level of Ei

– Tourists with greater incomes and higher education are more likely to visit the park

• We have a problem– This measures a tourist’s demand to visit the site and

not the elephants– Perhaps we can use dummy variables

Borneo Pygmy Elephant

• Dummy variables– D1 = 1, if tourist primarily visits the park for the

elephants– D2 = 1, if the tourist primarily visits the park to see

the orangutans.– D1 = D2 = 0 represents the base to visit the park

for the fauna and flora

Borneo Pygmy Elephant

• After we estimate the demand function• We estimate each tourist’s consumer surplus

to visit the elephants• Then we sum the total surplus over all tourists– I am not clear on all the steps– This method may have serious statistical problems• Truncation Bias• Not a Random Sample• Endogenous stratification

Borneo Pygmy Elephant

• Contingent Valuation– We design a survey to ask Malaysians the non-use

value they would place on the elephants– People do not view the elephants directly but gain

utility that the elephants exist and roam freely.– Malaysians place a value on the elephant’s

existence but they never plan to visit the elephants in their natural habitat

Borneo Pygmy Elephant

• We can ask Malaysians whether they would support the following:–Contribute to a wildlife fund–Pay fees to expand the national parks and

protected areas–Promote eco-tourism by establish animal

orphanages and recreation centers

Borneo Pygmy Elephant

• Advantages of Contingent valuation – Gain information for a natural resource when it has no

market values or market prices– Survey may boost public awareness of the animals

• Disadvantages of contingent valuation (CV)– People report their preferences

• Economists do not collect data from observing people• People say one thing and do another• They are not reaching into their pockets to pay a contribution

– CV studies are sensitive to outliers

Borneo Pygmy Elephant

• Disadvantages of contingent valuation– People taking the survey may have a warm glow

by answering to help the pygmy elephants • Contingent Valuation study may overstate people’s true

willingness-to-pay (WTP)– People are sensitive to how the resource is paid

for• Taxes, fees, or contributions to a wildlife fund

– Sensitive to the information level the surveys provided

Borneo Pygmy Elephant

• Production Value Method– We can measure the economic value of pigmy

elephant by comparing the cost of developing palm oil plantations

– Plantation owners convert pristine rainforests into palm oil plantations.

– The pygmy elephants, orangutans, and exotic birds lose their natural habitat.

Borneo Pygmy Elephant• Value of the palm oil plantations• Palm oil plantations create four primary products

1. Palm oil – extraction mill removes the oil from the pulp that surrounds the palm kernel

2. Palm kernel oil – extraction mill crushes and extract the palm kernel oil from the kernel

3. Palm kernel cake – left over residues from the palm kernel• Contains high levels of protein• Extraction mills compress the cake into expeller pellets• Feed producers mix the pellets into cattle, swine, and fish feeds

4. Palm Fatty Acid Distillate – leftover oils and chemicals from processing the palm oil• Extraction mills can sell this to chemical industries

Borneo Pygmy Elephant

• Food and chemical industries use the primary products to manufacturing many secondary and consumer products–Cooking oil, soaps, margarines, non-dairy

creamers for coffee, tea, hot chocolate.–Palm kernel oil is more valuable than palm oil• Substitute palm kernel oil for cocoa butter in

chocolates• Create trans-fat free margarines.

Borneo Pygmy Elephant

• Land creates a financial return• Researchers use four steps to estimate the land’s

productive value– 1. Estimate gross income using long-term average

yields and the long-term market prices of the palm oil products.• Primary palm oil products are priced in U.S. dollars• Assume the palm oil plantations export all primary products

– 2. Estimate production costs for cultivating the palm oil plantation• Costs data from Sime-Darby

Borneo Pygmy Elephant

– 3. Return to land is the income minus the production costs• Similar to producers’ surplus in economics• Producers’ surplus comprises of economic profit plus

total fixed costs– 4. Capitalization• Calculate the present value of future profits using a

discount rate• Economic life of a plantation ranges between 20 and 25

years– Land has salvage value– For land near the cities, companies can develop the land into

urban blight

Borneo Pygmy Elephant

• Below are monthly export prices for primary palm oil products

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

RBD Palm Oil

Palm Fatty Acid Distillate

RBD Palm Kernel Oil

Palm Kernel Expeller

Borneo Pygmy Elephant

• I calculated a rough value of the land– Excludes land salvage value– Excludes immature plantations

• Oil palms need about 3.5years to grow before producing fruit

• Value of land ranges between $2,438 and $2,665 per hectare per year– Hectare is 10,000 square meters

• We have the same problem– We have the value of land with the elephants, orangutans,

and fauna living on it.– Cannot isolate the value of the elephants

Conclusion

• Recurring problem – orangutans and elephants are confounded– Difficult to separate the elephant’s and

orangutan's economic value from each other• Tourists are aware of the orangutans but not

the pygmy elephants– Presents another problem for estimating the

pygmy elephants