Environmental changes in biodiversity hotspot ecosystems of
South Ecuador: RESPonse and feedback effECTs (FOR2730)

Abstract:

Diversified agricultural landscapes have been shown to provide a wide range of ecosystem services. It is often stated that the main motivation behind growing multiple crops within a farm is to buffer farm income against market and climate risks. However, household characteristics, particularly the amount of off-farm income may also influence farm diversity. While the drivers of diversifying farm income have been investigated extensively,the ecologically important level of land-use diversity on a farm has seldom been used as a dependent variable. Based on data from 163 households, this paper analyzes the impact of social, economic and demographic household characteristics on crop diversification for farms located around the Laipuna Reserve in the dry forests of southern Ecuador. Using a Heckman two-step regression model, we identified factors that influence a) the probability that a farm will be diversified (PD) and b) the degree of diversification at the farm level (LUD), quantified by the Shannon index. We found that PD is positively related to the percentage of household members who depend on family income but do not work (economic dependence ratio), as well as river access and available family labor force. PD is inversely related to access to financial support (i.e. social payments and credits) and off-farm income. LUD is positively related to the number of household members and the age of the head of the household, and correlates negatively with labor force, financial support and off-farm income. Our results demonstrate that land-use diversification is not only a strategy to reduce risk, but it is also driven by farmers’ efforts to meet household, mainly subsistence, needs. Moreover, we also demonstrate that when households have access to financial support and off-farm income, the pressure to diversify their crops diminishes. Finally, we argue that forest and agricultural policies should impose instruments to support land-use diversification financially, while acknowledging the importance of financial support and off-farm income for household economies. Strategies to reduce poverty should be accompanied by direct support of land-use diversification, infrastructure development and agricultural training.

Abstract:

Organic farming is a more environmentally friendly form of land use than conventional agriculture. However, recent studies point out production tradeoffs that often prevent the adoption of such practices by farmers. Our study shows with the example of organic banana production in Ecuador that economic tradeoffs depend much on the approach of the analysis. We test, if organic banana should be included in economic land-use portfolios, which indicate how much of the land is provided for which type of land-use. We use time series data for productivity and prices over 30 years to compute the economic return (as annualized net present value) and its volatility (with standard deviation as risk measure) for eight crops to derive land-use portfolios for different levels of risk, which maximize economic return. We find that organic banana is included in land-use portfolios for almost every level of accepted risk with proportions from 1% to maximally 32%, even if the same high uncertainty as for conventional banana is simulated for organic banana. A more realistic, lower simulated price risk increased the proportion of organic banana substantially to up to 57% and increased annual economic returns by up to US$ 187 per ha. Under an assumed integration of both markets, for organic and conventional banana, simulated by an increased coefficient of correlation of economic return from organic and conventional banana (? up to +0.7), organic banana holds significant portions in the land-use portfolios tested only, if a low price risk of organic banana is considered. We conclude that uncertainty is a key issue for the adoption of organic banana. As historic data support a low price risk for organic banana compared to conventional banana, Ecuadorian farmers should consider organic banana as an advantageous land-use option in their land-use portfolios.

Abstract:

Analyses were carried out on financial compensation to avoid loss of tropical forests and related carbon (C) emissions when marginal financial yield declined for land-use options with extended areas, and when a riskaverting perspective (modeled according to financial theory around the capital asset pricing model) is assumed. The approach in this study was to consider natural forest, forest plantation, pasture, and cropland simultaneously to investigate how an optimized land-use distribution may reduce the amount of compensation necessary to avoid C emissions from forest loss. The financial compensations derived were as high as US$ 176 per hectare per year when comparing natural forests only with the most profitable alternative (croplands). However, compensation decreased to US$ 124 for risk-neutral decision-makers, who would strive for optimized land-use allocation, and to only US$ 47 per hectare per year for risk-avoiders, who would look to maximize the reward-to-variability ratio. Sensitivity analyses indicated that the compensation under risk-aversion increased much less than under risk-ignoring when increased productivity of agricultural land-use or growing demand for agricultural products was simulated. It was concluded that considering appropriate diversification strategies and the well documented human behavior to avoid risks is an important step in developing cost-effective compensation policies.