Nature pays, but who pays for nature?

Food Security29 May 2007Erwin Bulte

Many western politicians are fond of giving public money to farmers to grow more food. A relatively recent phenomenon is to pay farmers to not produce food – or, more accurately, to pay them to produce nature. In Europe we spend billions of euros to promote nature conservation in agricultural landscapes. There are now proposals to extend such ‘payments for ecosystem services’ (PES) schemes to include farmers in developing countries.

The next flagship report of the Food and Agriculture Organization – The State of Food and Agriculture 2007 – is devoted to PES. It appears that PES is gaining momentum and could constitute a new green revolution. Its economic rationale is impeccable, firmly rooted in theories of market failure and positive externalities. Since many ecosystem services are not traded on markets, the benefits are ‘external’ to decision makers, and therefore ignored. Why should a forester care about the carbon ‘fixed’ in the trees on his land, and the contribution he provides to mitigating climate change? He is probably more interested in the timber he can sell.

If other regulatory instruments fail, PES could be a pragmatic means to achieve efficiency and increase welfare. That is, promote nature conservation whenever the associated benefits outweigh those of switching to alternative land use options. There are many cases where investing in nature ‘pays’. Since some developing countries have a huge comparative advantage in the provision of ecosystem services, ranging from carbon fixation to biodiversity conservation, what makes more sense than substantial flows of money from the North to ‘bribe’ landowners in the South to continue supplying these services to the world community?

The story could actually be better. Since most of the poor in developing countries live in rural areas, is it not possible to kill two birds with one stone – promote conservation and alleviate poverty? It is this question that the FAO report tries to address. Unfortunately, reality is not that simple. For example, involving the poor may be more expensive – per unit of nature purchased – than schemes targeting large landowners.

I am involved in a PES project in Kenya. The idea is to pay Maasai to remove fences and return to a ‘pastoral’ lifestyle as this would be compatible with the migratory movements of wildlife valued by Europeans (elephants!). But removing fences creates winners and losers. Elephant lovers and the tourist industry win. The Maasai gain something, but not much, because the payments they receive are based on the opportunity cost of their land – the forgone returns from renting out their fields to another tribe, the Kikuyu, who use it for growing onions and tomatoes. The losers are the Kikuyu, who can no longer plough these fields, and consumers who may find that the price of onions has gone up.

There are also institutional concerns. For example, who will provide the money? Matters are simple in case of local watershed conservation efforts – the beneficiaries are local parties and they should pick up the bill. The World Bank has been successful in pioneering such constructions. But what about payments for international public goods? A special arrangement has been created for such initiatives – the Global Environment Facility (GEF) – but this is limited in scale and scope, and offers money for a five-year period only. This makes no sense in the case of compensation for a potentially endless flow of non-use values.

Despite these concerns I have gradually become a believer in PES as a natural next step in the evolution of environmental regulation. In some cases there will be trade-offs between conservation and poverty alleviation, but the developing world also provides many opportunities for win–win outcomes – areas where PES projects can be beneficial on both fronts. One of the advantages of PES is that it promotes creativity. By creating ‘markets’ for environmental services it encourages individuals to search for profitable opportunities. Letting markets work for you is always a better bet than trying to fight them.

The biggest challenge is possibly of a political nature. Will politicians also wish to give money to poor farmers abroad, rather than their own constituents, even if this yields demonstrable economic benefits?