1. Analysis of the environmental services provided by selected farming systems in Ghana Module 2: Environmental externalities II (site specific study) A. Wayo Seini George Botchie and Lawrence Damnyag

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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 forestry 3.3.4 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

15. 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

16. 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 WTP 3.3.8 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

17. 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;

19. 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

20. Table 4.7: Responses to some attitudinal questions

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

22. 5.0 Determinants of willingness to pay for agro forestry attributes

23. 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

24. 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

25. 6.0 Replacement cost valuation of environmental externalities

26. 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

27. 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

30. 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

31. 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

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

33. 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

34. 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