Scotland's Rural College (SRUC)1, LTS International2
Sustainable Land management (SLM) practices can significantly improve social welfare in Malawi by improving the watershed services provision to estate farms, urban users, hydropower and industry
However, smallholder farmers lack the financial capital to make the necessary investments in SLM
African watershed service markets have been slow to develop, with African PWS schemes constituting only 2 to 5% of the active, in-development and proposed PWS schemes currently identified for developing countries
Malawi has thus far been the subject of 8 identified PWS schemes, 7 of which are only proposals
This data was utilised in this study to develop a catchment level model to assess the potential for PWS scheme in the Dwangwa catchment, in the Central Region of Malawi, involving a private buyer of the services. The aim was to assess how much the buyer would have to pay for farmers to 'switch' to SLM and how much the payment would return in avoided siltation-costs under two climate change scenarios: wetter and drier climate.
An exploratory ex-ante assessment tool was constructed for the Dwangwa catchment using Linear Programming (LP). The Dwangwa LP model enables the assessment of the level of payment needed to trigger the adoption of SLM (by upstream farmers) and how much that adoption would translate in terms of avoided siltation-costs to the buyer (a downstream irrigation estate farm). This allows the estimation of the net gains to the service buyer over a 20 year period of paying incentives to smallholder farmers for adoption of SLM practices. The LP model also takes into consideration climate change by assessing how these net gains are affected by a wetter or drier future climate.
Three payment types were included in the model: a fixed subsidy, a percentage of the cost payments, and a tiered percentage of the costs; over four contract time-horizons: 1 year, 3 years, 5 years and 20 years to assess temporal effects of the payments. The model therefore functions as an interactive tool to inform potential scheme design, by allowing different payment scenarios to be tested and their efficiency analysed.
Results and Discussion
All short-term contracts (1 to 5 years) simulations made show that the buyer would have to face a considerable increase in short-term costs (min.: 83%; max.: 498%). Only for the 5 year contracts (i.e. 5 years of payments followed by 15 years of farmers being able to self-sustain SLM practices) is the buyer making a net saving of 35% for the 20-year period; but this is only for the wet climate variant: the equivalent net value for the dry climate variant is a 33% increase in costs.
As for the longer-term contract (20 years) simulations, no net savings for the buyer were produced. However, the 20-year contracts mean that the buyer is paying at the same level during the whole period -- this despite smallholder farmers being able to self-sustain SLM maintenance from the 3rd to 7th year onwards. Reducing the level of payment after that point can increase efficiency for the buyer.
Payment efficiency for the PWS scheme was also always higher under the wet climate variant than the dry, because the key aspect of cost to the private buyer is silt: with a wetter climate, increased run-off will result in increased silt loads, so the investment is more worthwhile. The large differences in costs between climate variants means that there is considerable uncertainty related to climate on the level of returns on any PWS investment made by the buyer.
Additionally, the model does not consider the transaction costs involved with negotiating a scheme with the large and diverse numbers of households throughout Dwangwa, or of securing ways of getting the subsidised input costs to those that need them.
Therefore, our results suggest that it would be more cost-effective for the buyer to deal with the business-as-usual silt-related costs instead of engaging in a PWS scheme with upstream farmers.
This study highlights the need for PWS proposals to assess price-efficiency issues on the buyer side as, although a prospective buyer may stand to benefit from a PWS scheme, these benefits may not be significant enough for a profit maximising company to make the investment in PWS (particularly when the predicted costs of dealing with service deterioration can be considerably smaller).
Furthermore, in this case there are spillover effects from the private buyer to the smallholder farmers adopting SLM practices: as sizeable social and economic benefits to be accrued from the shift to SLM, through improved livelihoods and increased food security that may well justify government involvement.
Encouraging the private sector to participate in such schemes may well depend on it not shouldering the full cost of PWS implementation; in which case, foreign donors and NGO's will most likely be necessary allies in supplementing the government's funds, in order to make a PWS scheme in Dwangwa feasible. 1. Bennett, G., Carroll, N., Hamilton, K., 2013. Charting New Waters: State of Watershed Payments 2012, Ecosystem Marketplace. Forest Trends, Washington, D.C.
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