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Win–Win Solutions for Reforestation and Maize Farming
CHAPTER
WINWIN SOLUTIONS FOR REFORESTATION AND MAIZE FARMING: A CASE STUDY OF NAN, THAILAND
7
Sittidaj Pongkijvorasin and Khemarat Talerngsri Teerasuwannajak Faculty of Economics, Chulalongkorn University, Bangkok, Thailand
CHAPTER OUTLINE 7.1 7.2 7.3 7.4
Introduction ................................................................................................................................. 105 Maize Farming in Nan Province .................................................................................................... 108 Value of Community Forest Products ............................................................................................. 111 Farmers’ Incentive to Convert Forest to Maize Farm........................................................................ 112 7.4.1 Perfect Foresight View .............................................................................................. 112 7.4.2 Shortsighted View..................................................................................................... 113 7.4.2.1 Myopia.................................................................................................................113 7.4.2.2 Financial constraints.............................................................................................114 7.5 Limitations of Current Government Policies.................................................................................... 116 7.6 Alternative WinWin Policies ...................................................................................................... 117 7.6.1 Green Subsidy.......................................................................................................... 117 7.6.2 Irrigation ................................................................................................................. 118 7.7 Conclusion .................................................................................................................................. 120 References ......................................................................................................................................... 121
JEL: Q150; Q230; Q280; Q560
7.1 INTRODUCTION In 1973, Thailand had 22.17 million hectares (ha) of forestland, which accounted for approximately 43.21% of the country’s total land area of 51.31 million ha. Over the past 40 years, forestlands have been disappearing: in 2013, only 16.3 million ha (31.57% of total land area) remains, of which 55% can be found in Northern Thailand (Department of Forestry, 2014). In recent years, forestlands have been shrinking drastically due to massive conversion to maize farming in northern Thailand. Sustainable Economic Development. © 2015 Elsevier Inc. All rights reserved.
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A notorious example of deforestation is found in Nan, a province in northern Thailand. Of its land area of 1,147,200 ha, 74% (849,600 ha) was categorized as forestland in 2004. By 2009, this figure had decreased to 70.4% (806,400 ha). One of the main reasons for deforestation in Nan is the rapid expansion of agricultural areas, especially maize farming (e.g., see UNDP, 2012; Meechoui and Surapornpiboon, 2008). In 2005, maize farms in the province covered 46,934 ha only. The number had almost tripled to 136,355 ha by 2009. Nan has become the second largest maize producing province in the country (Nan Provincial Agricultural Extension Office, 2011). Such rapid increase in maize farm area meant massive forest clearing, creating a significant environmental impact. For instance, farmers usually burn their fields after harvest to prepare them for the next planting. This causes severe air pollution. In FebruaryMarch 2012, the highest 24-h average particulate matter (PM10) level in Nan reached 216.4 µg/m3, far above the 120 µg/m3 standard level. The high PM10 level increases the rate of respiratory diseases (Nan Provincial Office of Natural Resources and Environment, 2012). Moreover, maize farming tends to overuse pesticides, which, in turn, degrade the soil and contaminate water. For instance, water from the river is no longer fit for human consumption. A large degree of forest conversion to maize farming in the highland has also aggravated soil erosion. These adverse effects on the environment will inevitably decrease people’s income and worsen their quality of life. Perhaps the most important factor of the rapid maize farming expansion has been the triple increase in the domestic maize price in 20052011, from just around USD 0.13/kg to almost USD 0.37/kg. This supports the argument that there is a positive relationship between agriculture payoff and deforestation (Deacon, 1995; Ehui et al., 1990). Evidence of such trade-off between economic development and environment degradation can be found in many developing countries where monitoring and law enforcement are not effective. Looking at this issue from a longer horizon perspective, some believe that even with no intervention, forest deforestation will stabilize over time (Berck, 1979; Vincent, 1992; Hyde et al., 1996). The cost of deforestation in a more distant or marginal land, which includes transportation cost and risk of being pressed for criminal charges, tends to increase significantly. Continuous increase in the crop supply would also result in a fall in average price over time. The higher costs and lower returns of farm expansion would stabilize deforestation over time. This trend has been well observed in North America, Europe, and East Asia. However, what is left of the forest area in the case of a no-state intervention cannot be considered an optimal level from a social viewpoint, because important nonmarket value of forests, such as biodiversity and effects of forest destruction on climate change and society as a whole, are not taken into account (Vincent and Gillis, 1998). The Environmental Kuznets Curve (EKC) relationship suggests that once society has evolved and reached a certain state of economic development, people would place high importance on environmental issues and forests. This would exert pressure for reforestation and more effective protection of natural forests. In this view, a winwin situation, where society prospers economic-wise and environment is well protected, can be attained when people have gained decent income levels (Shafik and Bandhyopadhyay, 1992; Cropper and Griffiths, 1994; Bhattarai and Hammig, 2001) or realized the environment’s true value, which results in supportive political institutions and good governance (Bhattarai and Hammig, 2001). In a similar vein, Gunatileke and Chakravorty (2003) show that, given effective control of a protected forestland, a higher return from farming or agricultural activities can lead to a better
7.1 INTRODUCTION
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forest condition. The forest regains its richness as farmers rely less on gathering or selling forest products (nontimber products) and focus more on making the highest possible return from their farms. Gunatileke and Chakravorty (2003) emphasize the important roles of monitoring and affirm that a winwin solution between economic development and environmental protection is possible given an adequate level of law enforcement. This finding contrasts with Deacon (1995) who argues that a higher return in farming will increase deforestation. This chapter analyzes farmers’ incentives and possible winwin solutions to maize farming and deforestation in Nan, Thailand. Interesting features and drastic consequences of maize farming in the highlands of Nan deserve urgent attention. Nan is one of Thailand’s most important watershed areas, thus holding a high ecological value. As such, to wait for a natural adjustment to a long-term equilibrium where forests become well preserved again may come at an unbearable environmental cost. Moreover, to expect farmers to become aware of the overall benefits of forests anytime soon seems impractical: the majority of highland maize farmers still receive low incomes and live in poverty in spite of maize prices continuously increasing over the past 10 years (Talerngsri and Pongkijvorasin, 2012). Yet, amid the critical deforestation problem, the Thai government has continuously given signals that encourage maize farm expansion, such as the maize pledging scheme.1 More importantly, notwithstanding evidence of a continuous and massive degree of forest encroachment, the government is still in denial of its ineffective enforcement of forest laws and regulations and is reluctant to find more effective policies that would create mutual benefits for farmers and the environment. Its inaccurate presumption of the effectiveness of government control over forestlands has led to ill-designed policy that has worsened the problem, both economically and environmentally. Although the critical state of deforestation in Nan warrants studies from academics in various fields, no study has yet analytically examined how highland maize farmers trade benefits from the forest against income from maize farming. Using survey data from Nan, this study provides a simple analytical tool to examine such a trade-off. It shows that, as income from maize farming exceeds benefits from the forest and soil quality is not too low, the farmer perceives an incentive to convert a forestland into a maize farm. Current crop subsidy policies (e.g., pledging schemes), help raise farmers’ incomes, but also further encourage the farmer to expand his/her farming area (as had happened in Mexico, according to Deininger and Minten, 1999). The scheme has resulted in continuing deforestation activities. Using the proposed tool, this chapter shows that a winwin solution to the problem is possible, whereby farmers’ incomes increase along with the forest area. The farmers win in the sense of having a higher income, and environment improves due to less incentive for deforestation. A green subsidy, irrigation, and awareness raising are examples of such winwin measures. The following section presents a summary of current practices and maize farming in Nan and estimates of income streams derived from maize farming. Section 7.3 reviews previous studies on the value of community forests and estimates the changes in the value of forest products over time. Section 7.4 examines the farmers’ incentive to convert forest to maize farm using a simple analytical tool and analyzes the current situation. Section 7.5 discusses the impacts of the crop subsidy policy. Section 7.6 puts forward possible winwin solutions. Section 7.7 concludes and provides policy recommendations. 1 The price support scheme was in the form of a price guarantee under the previous government led by Mr. Abhisit Vejjajiva. It had a similar impact on expansion of maize farming areas.
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7.2 MAIZE FARMING IN NAN PROVINCE Nan, a province to the east of northern Thailand, bordering with Laos, is considered one of the most important watershed areas in the country. It is surrounded by a mountain range. Nan River, one of the principal tributaries of Chao Praya River (the major river in Thailand), originates here. Given these geographical characteristics, the forests in Nan carry a very important ecological role (Figure 7.1). Although both maize price and farm area have increased in recent years, most farmers in Nan still live in poverty. While farmers could sell their maize at relatively high prices, farm yields have declined, mainly due to soil degradation as a result of intensive cultivation and increased cost of production factors (e.g., fertilizer, seed, and wage). In 2004, only 12.59% of Nan’s population lived
FIGURE 7.1 Map of Nan, Thailand. Retrieved from Wikipedia, n.d. (left) and Land Development Department, 2011 (right).
7.2 MAIZE FARMING IN NAN PROVINCE
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in poverty, making Nan the 26th poorest province in the nation. By 2010, the poverty level had increased to 14.97%, moving Nan to the 11th rank among the poorest provinces (Office of the National Economic and Social Development Board, 2011). Maize farming in Nan are of two types: lowland and highland. Lowland farmers grow maize on land drained by the Nan River and irrigation systems. They start soil preparation early in the year and begin to seed around the start of the rainy season (May). Seeding to harvesting normally takes three months. By August, farmers start to harvest and sell their produce. The short production cycle is suitable for lowland cultivation, as harvest must be completed before the area becomes flooded around the end of the rainy season. Lowland farmers sell their “fresh seed” crop to middlemen or merchants immediately after harvest. Fresh seed receives a lower price in the market because of its moisture content, which, on the other hand, makes it weigh more than dry seed. Thus, land grown to fresh seed type of maize appears to have a higher yield (total weight/area) than the dry seed maize. After harvesting maize, the same piece of land can still be used to cultivate other crops (e.g., rice, chili) or another round of maize. The environmental impacts of lowland maize farming are not obvious and are, to a lesser degree, comparable with those of highland maize farming since lowland farming does not particularly involve deforestation. Most farmers cultivate land that they legally own. On the other hand, faced with limited access to water resources, highland farmers can cultivate only once a year. They produce “dry seed” maize, which takes longer to harvest, usually 45 months from seeding. The harvesting and selling period is from from November to February. Dry seed has a lower moisture content, thus, can be sold at a higher price than fresh seed. The highland fields are left idle after harvest due to lack of water, unlike the lowland fields where other crops are cultivated after maize. Thus, highland maize farmers rely heavily on income from oncea-year maize cultivation. Talerngsri and Pongkijvorasin (2012) show that highland maize farmers are trapped in a vicious cycle of poverty and environmental degradation. Faced with many constraints, such as water scarcity, financial constraint, and high transportation cost, highland farmers have a limited choice on the crop to grow, resorting to maize cultivation, which can be done once a year only. This has pressured farmers to expand their farmlands and increase maize output as much as possible. Moreover, major government agricultural policies (i.e., the price insurance scheme and pledging scheme) incentivize farmers to increase their maize output and expand their cultivation areas to benefit more from the policies. Altogether, these physical and institutional limitations and misplaced government policies have drastically increased farmed areas and encouraged more intensive farming practices, which require farmers to invest more in fertilizers, seeds, and pesticides. This has resulted in environmental degradation due to severe deforestation and contamination. The increasing cost of farming inputs adds to trapping these farmers deeper in the cycle of debt and poverty. Table 7.1 summarizes the data on highland maize cultivation gathered from in-depth interviews with stakeholders and a survey of 64 maize farm households (20102012). Highland maize cultivation yield averaged 4.7 tons/ha in 2011, with a total production cost (comprising material cost, labor cost, and transportation cost) of USD 705/ha.2 Dry seed maize had an average moisture level of 18%, which farmers sold at USD 0.27/kg. This means that 1 ha of maize could generate USD 1,244 in revenue. Given the production cost, the net revenue was USD 539/ha. With an average 2 The production cost shown here omits noncash cost items, such as health cost and environmental cost from heavy use of pesticides.
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Table 7.1 Summary of Survey Data on Highland Maize Cultivation Details of highland maize cultivation (1 crop/year) Crop length (month) Output per area (ton/ha) Cost per area (USD/ha) Material cost Fertilizers Pesticides Seed Fuel and others Labor cost Milling and transportation cost Average moisture (%) Average price (USD/kg) Total revenue per area (USD/ha) Net revenue per area (USD/ha/year) Average cultivation area per household (ha/household/year) Average net annual revenue per household (USD/household/year)
5 4.7 705 191 27 75 7 318 86 18 0.27 1,244 539.20 5.76 3,106
cultivation area of 5.76 ha/household, the net revenue per year for a highland farm household amounted to USD 3,106. However, when yield changes across time were considered, the adverse effect of maize farming on soil quality became evident. Yields have gradually decreased, which also means declining farmers’ incomes, giving farmers justification to heavily use fertilizers to sustain yields. To capture this nature of yield reduction, data were obtained from Ban Had-rai of the Sanna-Nongmai subdistrict, which still has areas that can be cleared for more maize farming. The yield value from such fertile land is as high as 7.5 tons/ha. On the contrary, data from Ban Fang-min, Ainalai subdistrict can be used to guage maize yield from bad soil due to repetitive and heavy use of land over a long period of time. Here, the yield value is as low as 2.8 tons/ha.3 Given that maize farming in most areas of Nan started around 1987, it is reasonable to assume that it takes about 2025 years for the yield value to fall from 7.5 to 2.8 tons/ha. Using an inverted S curve to approximate gradual reduction in yield over time, the changes in yield value and corresponding farmer income per hectare across time4 can then be represented by Figure 7.2. Figure 7.2 illustrates that growing maize on fertile land would give farmers a maximum income of USD 1,250/ha. However, after a certain period of time (25 years in most cases in Nan), soil quality would drastically decline, resulting in low yields (as low as 2.8 tons/ha) and reductions in farmers’ incomes to as low as USD 41.7/ha. 3 Survey data suggest that the production process and amount of fertilizers and pesticides used by highland farmers from various areas in Nan are not significantly different. Hence, these farmers are assumed to share the same production functions; any difference in yield is presumed to be attributable to the difference in soil quality or severity of soil erosion. 4 Price of maize and cost of production are held constant across time at USD 0.27/kg and USD 705/ha, respectively.
7.3 VALUE OF COMMUNITY FOREST PRODUCTS
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FIGURE 7.2 Changes in yield and associated farmers’ incomes across time.
Table 7.2 Estimated Value of Forest Products from Community Forests Author
Site
Year of study
Area (ha)
Chaitup (2003) Roongtawanreongsri (2006) Bookaew (2009)
Lampoon Pattalung
1998 2004
400 320
Mahasarakham
2007
683
Value (USD)
Value at 2011 price (USD)
Value/area at 2011 price (USD/ha)
33,283 80,678
45,500 101,163
114 316
104,125
116,724
171
7.3 VALUE OF COMMUNITY FOREST PRODUCTS A number of valuation studies on the benefits of community forests in Thailand have been done. The most relevant ones are Chaitup (2003), Roongtawanreongsri (2006), and Bookaew (2009). Focusing on different regions of Thailand, these studies assessed how villagers benefit from community forests by collecting forest products and estimating the value of these products.5 Table 7.2 summarizes the results from these studies, with the last column showing estimations of forest product values per area (hectare) at the 2011 price. For example, Chaitup (2003) showed that the value of forest products collected from a 400-ha community forest in Lampoon, Thailand, by 300 households living around this forestland is USD 33,283/year, or USD 45,500/year (at the 2011 price) or USD 114/ha (at the 2011 price). Note that the value of the community forest generated purely from forest product collection ranges from about USD 114/ha to 316/ha. As such, the average value of USD 208/ha will be used henceforth to facilitate calculations and estimations.
5
The focus was on the cash value of collecting forest products as these values are tangible from the farmers’ point of view and exert direct impact on farmers’ decision making. The forest’s noncash value, such as biodiversity protection and reduction of flood/drought frequency, which would help reduce welfare loss of farmers, is not included here.
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FIGURE 7.3 Income per year derived from selling forest products (USD/ha).
After degraded land is reclaimed for reforestation, forests need time to be fully restored. Hence, farmers may receive very small or almost no income from forest products during the initial phase of reforestation. According to in-depth interviews with former maize growers and villagers at Praputhabat subdistrict in Chiang-Grang district, northern Nan, who were able to reclaim degraded maize farmlands for reforestation, the rehabilitation period will take almost 20 years before villagers can obtain benefits again from forest products. Again, it is reasonable to assume that changes in income derived from selling forest products over the years can be approximated by an S curve, as shown in Figure 7.3. The maximum income level is attained 20 years after reforestation is begun. Figures 7.2 and 7.3 indicate that although the annual income per hectare from maize farming far exceeds that from forest products during the first 15 years, it will eventually fall to around USD 41.7/ha only, which is relatively low compared with possible gains from forest products. It would take about 19 years for income from maize farming to fall to about USD 208/ha, equal to the maximum annual value of forest products.
7.4 FARMERS’ INCENTIVE TO CONVERT FOREST TO MAIZE FARM 7.4.1 PERFECT FORESIGHT VIEW The net present value (NPV) of incomes from both options (i.e., to grow maize or reforest) was computed at an 8% discount rate6 using data illustrated by Figures 7.2 and 7.3. Figure 7.4 shows the results obtained. 6
Results obtained under 5% and 10% discount rates were not different substantially.
7.4 FARMERS’ INCENTIVE TO CONVERT FOREST TO MAIZE FARM
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FIGURE 7.4 NPV of income per hectare from reforestation and maize cultivation.
In deciding which option to take, farmers with perfect foresight compare possible future gain from maize farming with that of reforestation. Under constant maize price and production cost assumptions, a relatively high NPV of income from maize compared with that of forest products during the first 17 years gives farmers an incentive to convert forests to maize farms.7 It is only when the NPV of forest income outperforms that of maize income that farmers will find the other option more appealing. This implies that if farmers have perfect foresight, they will naturally switch to reforestation after some period of time (i.e., at the start of year 18 in this case) without any government intervention (Table 7.3).
7.4.2 SHORTSIGHTED VIEW However, in reality, maize is continuously grown year after year. Even when soils are already badly degraded and farmers feel the need to find better options, they are very reluctant to change. There are two main explanations behind this unwillingness to change.
7.4.2.1 Myopia Farmers lack foresight. The shortsighted farmers tend to put the highest importance on income received from selling their maize, virtually giving no weight to a stream of maize income that can be derived in the future. Switching to reforestation could mean having empty stomachs for some 7
This NPV value considers only the cash value from collecting forest products. It is constant at USD 1,327/ha because regardless of starting point, the forest is assumed to take about 20 years to be fully rehabilitated, at which point annual income from collecting forest products reaches its maximum of about USD 208/ha/year and continues at that level.
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Table 7.3 Comparison Between NPVs of Maize and Forest Product, Various Years Year
Yield (tons per ha)
NPV Maize (USD per ha)
NPV Forest (USD per ha)
Difference (USD per ha)
0 5 10 15 16 17 18 19 20 25 30
7.5 7.3 6.5 4.7 4.4 4.0 3.7 3.4 3.3 2.9 2.8
11,374 8,659 5,280 2,237 1,817 1,477 1,212 1,015 872 603 567
1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327
10,046 7,331 3,953 910 489 149 2115 2313 2455 2725 2760
period of time. Even when the land is terribly degraded and the annual income is only USD 41.7/ha, farmers still prefer maize farming to reforestation.
7.4.2.2 Financial constraints Due to the relatively low income derived from forest products during the initial phase of reforestation, farmers would have financial difficulty supporting daily household expenses and debt repayment. Highland maize farmers mostly rely on informal credits from middlemen (or maize collectors), who lend both money and raw materials for growing maize. Switching to reforestation would certainly deprive these farmers of an informal but very important channel to obtain loans. Furthermore, as previously mentioned, highland maize farmers are trapped in a vicious cycle of debt and poverty from which they have difficulty breaking free. Given that farmers are shortsighted and that the monetary benefits of maize growing exceed those of reforestation in most years, farmers perceive an incentive to increase their farm areas. If government fails to control forest conversion to maize farms, forestlands will soon disappear. The PFF line in Figure 7.5 illustrates this trade-off relationship between income from maize and private benefits from the forest for a representative farmer (economic value vis-a-vis environmental value).8 The vertical axis represents the farmer’s income from maize farming, while the horizontal axis represents monetary benefits from a community forest. Thus, the PFF line illustrates the maximum possible level of income the representative farmer can derive from all accessible and available land, including the community forest in the area where he or she lives. The horizontal intercept, B1, represents the case where the farmer wants to rely purely on income from forest product and thus would be willing to dedicate all of his or her land to reforestation. On the other hand, the 8
Benefits from the forest are assumed to be monotonically related to the forest area.
7.4 FARMERS’ INCENTIVE TO CONVERT FOREST TO MAIZE FARM
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FIGURE 7.5 Investigation of trade-off between maize farming and benefits from forests.
vertical intercept, I1, presents the scenario where the farmer wants to obtain his or her total income from maize farming and thus would convert most accessible land to maize farm. From a farmer’s perspective, however, the larger the scale of forest conversion, the higher the risk of getting caught for causing deforestation, in addition to the problem of rising transportation cost. The rising marginal costs of forest conversion and maize cultivation are captured by the concavity of benefit possibility frontier curve (PFF). The curvature of this line reflects a ratio of revenue gained from maize farming and that of collecting forest products. Moreover, as the farmer derives utility from income received from maize and forest products, in monetary terms, incomes from these two sources perfectly substitute each other, suggesting a straight line indifference curve with the slope of 21. The optimal point for a utility-maximizing farmer is represented by the tangency point, OF, whereby the marginal return from maize farming is equal to that of collecting forest products. However, with current government control, the present ratio of revenue per area of maize farm to forest is approximately 2.5 (according to data in Table 7.1). The present trade-off point faced by the farmer (denoted by A in Figure 7.5) can be located where the slope of the PFF line is equal to 22.5. This means that a utility-maximizing farmer would have the incentive to further convert forestland to maize farm, as shown by the movement from point A to OF. The horizontal difference between point A and OF implies government efforts in preventing forest degradation in the current situation.
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In a broader perspective, however, forests provide social benefits (ecological functions, such as carbon sequestration, soil protection, and water sources, and also income from forest products) that far outweigh the farmers’ private benefits (i.e., income generated purely from gathering forest products). The social benefit frontier is represented by the PFS curve. The horizontal intercept is now at B2, showing the social benefit if all land is dedicated to reforestation. The social optimal point is represented by point OS. Since the social benefits of forest exceed private benefits to the farmer, the level of socially optimal forest area is higher than that determined by the farmer, implying a situation of excessive forest conversion from society’s point of view.
7.5 LIMITATIONS OF CURRENT GOVERNMENT POLICIES Crop subsidy is a popular government policy aimed at stabilizing farmers’ incomes and alleviating rural poverty; it can come in the form of price insurance or pledging. Either way, crop subsidy causes a shift in possibility frontier from PFF to PFF0 , extending the frontier of income derived from maize farming (Figure 7.6). The optimal point under crop subsidy is depicted by OF0 . Theoretically, it is possible that when maize price increases, farmers can cultivate in a smaller plot of land while receiving higher maize income. More specifically, income from maize can increase together with reforestation (i.e., winwin outcome). However, the crop subsidy tampers with the ratio of return from maize farming and collecting forest products such that the utility-maximizing
FIGURE 7.6 Effects of crop subsidy policy.
7.6 ALTERNATIVE WINWIN POLICIES
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farmer would increase his or her utility by moving from point A to OF0 , where OF0 is to the left of OF. Hence, the crop subsidy incentivizes farmers to expand their farm areas, resulting in more forest conversion and deforestation. Theoretically, the government can use crop subsidy as a tool to negotiate with farmers so that they would refrain from expanding their farm areas (A0 ), or even to the extent that farmers may agree to give back part of their land for reforestation (anywhere between A0 to C) and still get a higher than or equal level of utility. For example, the government can specifically subsidize only maize grown in existing farmlands. However, implementing such restriction, as well as its monitoring and control, is very costly in practice. The government would have difficulty distinguishing maize cultivated in existing farmlands and maize cultivated in newly converted areas. The high administrative and transaction costs prevent the possibility of a winwin outcome to be reached.
7.6 ALTERNATIVE WINWIN POLICIES 7.6.1 GREEN SUBSIDY A policy option to deal with poverty and conservation problems is green subsidy, whereby government subsidizes reforestation. Green subsidy extends the frontier of income derived from the forest. It can be used to both internalize external benefits of forests and provide incentive for farmers to conserve the forest.9 Although costly, a well-designed green subsidy can be used to restore the social optimum and is considered as a winwin policy because it can increase both forest area and the farmer’s income. Analytically, subsidy will shift the PF line in Figure 7.5 to the right by increasing returns from the forest. If subsidy is set equal to the marginal external benefit of forest, PF line will be at PFS. This shift will increase the incentive of farmers to switch from maize cultivation to reforestation. Here, subsidy is viewed as a tool to incentivize farmers to be more willing to leave maize farming for reforestation; this section does not aim to estimate the size of subsidy that would restore the social optimal level of forestland. For example, at the current year, a farmer gets USD 539/ha from maize cultivation. If government decides to intervene to facilitate the shift to reforestation, the farmer has to be subsidized for not growing maize by at least USD 539/ha in the first year (assuming that no forest products can be collected in the first year of reforestation). The size of subsidy decreases over time as the value of forest products increases and the yield of maize farming decreases. From Table 7.3, if the government wants to reclaim 400 ha from highland farmers who have grown maize for 15 years, it would need to spend at least the NPV of USD 363,833 per village to bring about the expected change. The estimated value of subsidy reflects only the minimum sum of money that can help farmers see the stream of private benefits derived from collecting forest products. It does not, by any means, shed light on the much larger sum of money needed to bring about the social optimal level of forest benefits.
9
See Bull et al. (2006) for a review of various forms of green subsidy for industrial plantation.
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7.6.2 IRRIGATION Developing irrigation systems is another winwin policy. Lack of water is one major constraint in highland maize farming in Nan. Without adequate water in the dry season, farmers can cultivate only one crop a year. This limitation incentivizes farmers to expand their farm areas as much as possible (Talerngsri and Pongkijvorasin, 2012). Irrigation can help solve farmers’ poverty problems. Irrigation in the highlands can be small scale only (e.g., check dam or water storage basin) to pose no excessive adverse effect on the environment. However, some people (including the government) fear that there is a trade-off between development (poverty alleviation) and environment—that is, development comes at the cost of environmental degradation. Consequently, irrigation, once viewed as a tool for development, has become a factor of environmental degradation. In particular, the perspective is that providing farmers with more water will lead to more extensive agriculture and consequently more environmental degradation. This belief has hindered the development of irrigation systems in highland areas. With adequate water supply, on the other hand, highland farmers can have at least two crops a year. Farmers can grow other crops that are suitable for highland cultivation in order to bring in higher and more stable income. However, there is a possibility that farmers have become so used to maize cultivation, they would find it difficult to adopt alternative crops. A survey of highland farmers in Nan showed that a farming household cultivates maize on 5.76 ha on the average and obtains a net revenue of USD 3,106/year for one crop only. With irrigation, farmers can grow two crops on the same plot of land and double their annual income to USD 6,212. Theoretically, providing irrigation would work in the same manner as crop subsidy does on farmers’ decisions to grow maize because it increases farmers’ incomes from cultivating maize on a piece of land.10 Figure 7.7 shows the effects of irrigation on the farmer’s decision making. Irrigation will shift the PFF line up to PFFv. Assuming that all farmers have access to this irrigation system, it is expected that, like crop subsidy, they will expand their farm areas, resulting in a fall in forest area (i.e., a shift from OF0 to OFv). With irrigation, a farmer’s utility can improve from U1 and reach the maximum of U4. All points along the portion I3F of the PFv curve are welfare improving from the farmer’s point of view. For example, point D represents the case where a farmer does not expand his or her cultivation area but just restricts to 5.76 ha of maize farm. The farmer gets a total income of USD 6,212/year, twice the amount received before irrigation is provided, while the forest area is unchanged. Point E represents the scenario where a farmer reduces by half (i.e., 2.88 ha) his or her maize farming area. With irrigation, he or she can cultivate twice a year, thus maintaining the same level of income derived from maize farming (USD 3,106/year). In this particular case, the forest area will increase by 432 ha (2.88 ha/household 3 150 households). Once the forest is fully restored (i.e., after 20 years), a farming household can get an additional income of about USD
10
Irrigation also has nonmonetary benefits. For example, a risk averse farmer will have higher utility, as he or she can have a more continuous flow of income (i.e., at least two crops a year), mitigating the risk incurred from relying on one crop a year. However, these nonmonetary benefits are not captured in this chapter.
7.6 ALTERNATIVE WINWIN POLICIES
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FIGURE 7.7 Effects of irrigation.
600/year (2.88 ha/household 3 USD 208/ha/year) from forest products. Hence, point E can be considered as one of the winwin outcomes in which the farmer gets higher income and the forest area increases. Point F represents the case where the government reclaims the largest land possible from the farmers. In this case, the additional income from the forest will just compensate for the lower income from maize farming. Therefore, the farmer’s income level at point F is the same as that in the case of no irrigation. In other words, the farmer’s utility level is unchanged. To achieve a winwin outcome whereby both reforested area and farmers’ incomes increase, the government can negotiate or offer irrigation to farmers on certain conditions so as to increase both farmers’ incomes and forest area. All points along the portion DF of the PFv curve are considered winwin outcomes. The crucial advantage of using an irrigation system as a bargaining chip is that providing the system and subsequently monitoring it are not too difficult to undertake. Under crop subsidy, it is difficult (almost impossible) for the government to distinguish maize grown by farmers who agree to give back part of their land for reforestation from maize cultivated by farmers who continue to convert forest areas to maize farms. On the other hand, government can use irrigation as an incentive for farmers to refrain from expanding their farmlands through scoping of irrigation areas. For example, point D in Figure 7.7 can be used to capture the situation where the government offers an irrigation system that can irrigate only 2.88 ha per household on the average. Instead of causing
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environmental degradation, irrigation, when used wisely, can be viewed as a winwin environmental and economic development instrument.11 Raising farmers’ awareness of the stream of benefits from reforestation and the future trend and drawbacks of continued maize cultivation is important in the implementation of the two policies discussed above. As discussed in Section 7.4, a farmer with perfect foresight is expected to automatically switch from maize cultivation to reforestation after a certain period (i.e., year 18), even with no government intervention, due to reduction in yield and returns from maize farming over time as a result of soil degradation. However, if farmers lack foresight and are concerned only with immediate monetary returns, the switch cannot occur without government intervention. Raising awareness via multiple means of communication also helps transform a farmer with a myopic view into a more foresighted one, as well as promotes more involvement from other stakeholders (e.g., public and private sectors, local and national players). Awareness raising enhances better understanding and realization of the problem at hand, hence it is a key driver in the effective implementation of green subsidy and irrigation development policies.
7.7 CONCLUSION Thailand’s upland forests are in a critical stage. The forest area in Nan, one of the most ecologically important areas in the country, has decreased continuously and rapidly over the past decade. This has been mainly due to the expansion of maize farm areas, which, in turn, was triggered by the rapid increase in maize price, the crop subsidy policy, and failure of the government to control illegal forest clearing. This situation is a classic example of a case where government attempts to increase the farmer’s returns but fails to control the expansion of farming areas, consequently resulting in continuous forest clearing (Deacon, 1995). The Thai government has been using the traditional approach of command and control over many decades to protect and preserve natural forest, but there is ample evidence of its ineffectiveness. Government’s failure to lift the majority of highland maize farmers out of poverty has indirectly increased the cost of forest law enforcement. Thus, the government has been unable to deliver sustainable protection of forest and failed to stop forest encroachment (Cropper et al., 2001). Government’s agricultural policies have been heavily based on the concept of crop subsidy. These policies raise returns from maize farming, which further incentivize farmers to expand maize farm areas. Theoretically, government can use this form of subsidy to negotiate with farmers so as to reclaim more land for reforestation by subsidizing only maize grown by farmers who agree to restrict forest conversion. However, it is very difficult and costly in practice to implement such a 11
A synthesis work by Angelson and Kaimowitz (2001) discusses impacts of lowland irrigation on deforestation. On one hand, irrigation may reduce the degree of deforestation as it helps increase crop supply, resulting in falling prices, thus making the idea of farm expansion less attractive. Farmers can also cultivate more than one crop per year. This increases demand for labor and pushes up local wages. Hence, it makes returns from lowland cultivation more attractive than upland farming. On the other hand, irrigation in the lowlands could worsen the deforestation problem as technology improvement may reduce demand for labor input per cropping season. This may induce workers to migrate to frontier areas and continue their forest clearing. It is also possible that lowland farmers’ returns are higher as a result of irrigation, and farmers have enough capital to cultivate more and expand farm area. However, data from the on-site survey and interviews in Nan show no evidence of the aforementioned drawbacks of irrigation provision in Nan.
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scheme because it is an almost impossible task to differentiate maize from the qualified farmers from that grown by farmers who are not eligible for the scheme. These factors have partly contributed to the fast rate of forest clearing for maize farming in Nan. Given that the majority of highland maize farmers remain in poverty, a natural adjustment to equilibrium, where people become more concerned about the environment and forests will be well protected, would seem like an endless wait. The current analysis highlights two possible government interventions that may bring about winwin outcomes for both farmers and forests in the shorter term: green subsidy and irrigation development. A full-fledged green subsidy can internalize external benefits of forest into farmers’ consideration, and society can attain the optimal level of forest coverage. Even a partial green subsidy can help farmers make the important change from maize farming to reforestation and make their lives easier during the transition period. Irrigation development is a plausible solution, since water scarcity is one of the most important factors contributing to the large expansion of maize cultivation in the highlands. Theoretically, irrigation development works in the same way as crop subsidy by increasing the return from maize production. However, irrigation provides an easier channel for government to control and negotiate forest conversion. With irrigation, government can easily incentivize farmers to limit their farm area by scoping the irrigation area. Having an irrigation system in highland areas offers more crop options—thus higher income— for farmers and can also be easily used by government as a bargaining chip to control farmland expansion. Thus, providing irrigation can be a means to achieving sustainable forest preservation. Along with findings from many previous works (e.g., Gunatileke and Chakravorty, 2003), this current study has demonstrated that a winwin solution to maize farming and reforestation in Nan, Thailand, can be attained for economic development and environmental viability, given a correct understanding of the situation and a well-designed policy.
REFERENCES Angelson, A., Kaimowitz, D. (Eds.), 2001. Agricultural Technologies and Tropical Deforestation. CABI Publishing, Oxon, UK. Berck, P., 1979. The economics of timber: a renewable resource in the long run. Bell J. Econ. 10 (2), 447462. Bhattarai, M., Hammig, M., 2001. Institution and the environmental Kuznets curve for deforestation: a crosscountry analysis for Latin America, Africa and Asia. World Dev. 29 (6), 9951010. Bookaew, S., 2009. Value of non-timber forest products utilization in Khok Yai community forest in Can subdistrict, Wapi Pathum district, Maha Sarakham province (Master’s thesis). Mahasarakham University, Thailand (in Thai). Bull, G.Q., Bazett, T.M., Schwab, O., Nilsson, S., White, A., Maginnis, S., 2006. Industrial forest plantation subsidies: impacts and implications. For. Policy Econ. 9, 1331. Chaitup, D., 2003. Local Knowledge for Resources Manager, North Communal Forest Network, Chiangmai, Thailand (in Thai). Cropper, M., Griffiths, C., 1994. The interaction of population growth and environmental quality. Am. Econ. Rev. 84 (2), 250254. Cropper, M., Puri, J., Griffiths, C., 2001. Predicting the location of deforestation: the role of roads and protected areas in North Thailand. Land Econ. 77 (2), 172186.
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Deacon, R.T., 1995. Assessing the relationship between government policy and deforestation. J. Environ. Econ. Manage. 28 (1), 18. Deininger, K.W., Minten, B., 1999. Poverty, policies, and deforestation: the case of Mexico. Econ. Dev. Cult. Change 47 (2), 313344. Department of Forestry, 2014. Forestry Statistics Data 2014. Available from: ,http://forestinfo.forest.go.th/55/ Content.aspx?id=80.. (Retrieved 6 August 2014). Ehui, S.K., Hertel, T.W., Preckel, P.V., 1990. Forest resource depletion, soil dynamics, and agricultural productivity in the tropics. J. Environ. Econ. Manage. 18 (2), 136154. Gunatileke, H., Chakravorty, U., 2003. Protecting forests through farming. Environ. Resour. Econ. 24, 126. Hyde, W.E., Amacher, G.S., Magrath, W., 1996. Deforestation and forest land use: theory, evidence, and policy implications. World Bank Res. Obs. 11 (2), 223248. Meechoui, S., Surapornpiboon, P., 2008. Farmer participation in development of suitable alternate agricultural system replacing maize production on sloping land in Nan province. Area Based Cooperative Research Program Upper Northern Region. Thailand Research Fund (in Thai). Nan Provincial Agricultural Extension Office, 2011. Agricultural Statistics in Nan Province (in Thai). Nan Provincial Office of Natural Resources and Environment, 2012. A report on the haze situation in Nan province. Available from: ,http://123.242.178.83/webjo/images/stories/mainmenu_images/air.pdf.. (Retrieved 2 December 2012). Office of the National Economic and Social Development Board, 2011. Poverty statistics 19882010. Available from: ,http://www.nesdb.go.th/Default.aspx?tabid5322.. (Retrieved 2 December 2012). Roongtawanreongsri, S., 2006. Economic valuation of community forest in the south of Thailand: a case of Khaohuachang community forest, Tamod Sub-district, Tamod district, Pattalung. Available from: ,http:// kb.psu.ac.th:8080/psukb/handle/2553/4667.. (Retrieved 2 December 2012). Shafik, N., Bandhyopadhyay, S., 1992. Economic growth and environmental quality: time series and cross section evidence. Working paper for the World Development Report 1992. The World Bank, Washington, DC. Talerngsri, K., Pongkijvorasin, S., 2012. Mechanisms of inequality: a case study of maize farming in Nan Province. Paper presented in a conference at Chulalongkorn University, Thailand, August 15, 2012 (in Thai). UNDP (United Nations Development Programme), 2012. Report of Sub-global Assessment in Nan. UNDP, Bangkok, Thailand (in Thai). Vincent, J.R., 1992. The tropical timber trade and sustainable development. Science 256 (5064), 16511655. Vincent, J.R., Gillis, M., 1998. Deforestation and forest land use: a comment. World Bank Res. Obs. 13 (1), 133140.
WINWIN SOLUTIONS FOR REFORESTATION AND MAIZE FARMING: A CASE STUDY OF NAN, THAILAND
7
Sittidaj Pongkijvorasin and Khemarat Talerngsri Teerasuwannajak Faculty of Economics, Chulalongkorn University, Bangkok, Thailand
CHAPTER OUTLINE 7.1 7.2 7.3 7.4
Introduction ................................................................................................................................. 105 Maize Farming in Nan Province .................................................................................................... 108 Value of Community Forest Products ............................................................................................. 111 Farmers’ Incentive to Convert Forest to Maize Farm........................................................................ 112 7.4.1 Perfect Foresight View .............................................................................................. 112 7.4.2 Shortsighted View..................................................................................................... 113 7.4.2.1 Myopia.................................................................................................................113 7.4.2.2 Financial constraints.............................................................................................114 7.5 Limitations of Current Government Policies.................................................................................... 116 7.6 Alternative WinWin Policies ...................................................................................................... 117 7.6.1 Green Subsidy.......................................................................................................... 117 7.6.2 Irrigation ................................................................................................................. 118 7.7 Conclusion .................................................................................................................................. 120 References ......................................................................................................................................... 121
JEL: Q150; Q230; Q280; Q560
7.1 INTRODUCTION In 1973, Thailand had 22.17 million hectares (ha) of forestland, which accounted for approximately 43.21% of the country’s total land area of 51.31 million ha. Over the past 40 years, forestlands have been disappearing: in 2013, only 16.3 million ha (31.57% of total land area) remains, of which 55% can be found in Northern Thailand (Department of Forestry, 2014). In recent years, forestlands have been shrinking drastically due to massive conversion to maize farming in northern Thailand. Sustainable Economic Development. © 2015 Elsevier Inc. All rights reserved.
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A notorious example of deforestation is found in Nan, a province in northern Thailand. Of its land area of 1,147,200 ha, 74% (849,600 ha) was categorized as forestland in 2004. By 2009, this figure had decreased to 70.4% (806,400 ha). One of the main reasons for deforestation in Nan is the rapid expansion of agricultural areas, especially maize farming (e.g., see UNDP, 2012; Meechoui and Surapornpiboon, 2008). In 2005, maize farms in the province covered 46,934 ha only. The number had almost tripled to 136,355 ha by 2009. Nan has become the second largest maize producing province in the country (Nan Provincial Agricultural Extension Office, 2011). Such rapid increase in maize farm area meant massive forest clearing, creating a significant environmental impact. For instance, farmers usually burn their fields after harvest to prepare them for the next planting. This causes severe air pollution. In FebruaryMarch 2012, the highest 24-h average particulate matter (PM10) level in Nan reached 216.4 µg/m3, far above the 120 µg/m3 standard level. The high PM10 level increases the rate of respiratory diseases (Nan Provincial Office of Natural Resources and Environment, 2012). Moreover, maize farming tends to overuse pesticides, which, in turn, degrade the soil and contaminate water. For instance, water from the river is no longer fit for human consumption. A large degree of forest conversion to maize farming in the highland has also aggravated soil erosion. These adverse effects on the environment will inevitably decrease people’s income and worsen their quality of life. Perhaps the most important factor of the rapid maize farming expansion has been the triple increase in the domestic maize price in 20052011, from just around USD 0.13/kg to almost USD 0.37/kg. This supports the argument that there is a positive relationship between agriculture payoff and deforestation (Deacon, 1995; Ehui et al., 1990). Evidence of such trade-off between economic development and environment degradation can be found in many developing countries where monitoring and law enforcement are not effective. Looking at this issue from a longer horizon perspective, some believe that even with no intervention, forest deforestation will stabilize over time (Berck, 1979; Vincent, 1992; Hyde et al., 1996). The cost of deforestation in a more distant or marginal land, which includes transportation cost and risk of being pressed for criminal charges, tends to increase significantly. Continuous increase in the crop supply would also result in a fall in average price over time. The higher costs and lower returns of farm expansion would stabilize deforestation over time. This trend has been well observed in North America, Europe, and East Asia. However, what is left of the forest area in the case of a no-state intervention cannot be considered an optimal level from a social viewpoint, because important nonmarket value of forests, such as biodiversity and effects of forest destruction on climate change and society as a whole, are not taken into account (Vincent and Gillis, 1998). The Environmental Kuznets Curve (EKC) relationship suggests that once society has evolved and reached a certain state of economic development, people would place high importance on environmental issues and forests. This would exert pressure for reforestation and more effective protection of natural forests. In this view, a winwin situation, where society prospers economic-wise and environment is well protected, can be attained when people have gained decent income levels (Shafik and Bandhyopadhyay, 1992; Cropper and Griffiths, 1994; Bhattarai and Hammig, 2001) or realized the environment’s true value, which results in supportive political institutions and good governance (Bhattarai and Hammig, 2001). In a similar vein, Gunatileke and Chakravorty (2003) show that, given effective control of a protected forestland, a higher return from farming or agricultural activities can lead to a better
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forest condition. The forest regains its richness as farmers rely less on gathering or selling forest products (nontimber products) and focus more on making the highest possible return from their farms. Gunatileke and Chakravorty (2003) emphasize the important roles of monitoring and affirm that a winwin solution between economic development and environmental protection is possible given an adequate level of law enforcement. This finding contrasts with Deacon (1995) who argues that a higher return in farming will increase deforestation. This chapter analyzes farmers’ incentives and possible winwin solutions to maize farming and deforestation in Nan, Thailand. Interesting features and drastic consequences of maize farming in the highlands of Nan deserve urgent attention. Nan is one of Thailand’s most important watershed areas, thus holding a high ecological value. As such, to wait for a natural adjustment to a long-term equilibrium where forests become well preserved again may come at an unbearable environmental cost. Moreover, to expect farmers to become aware of the overall benefits of forests anytime soon seems impractical: the majority of highland maize farmers still receive low incomes and live in poverty in spite of maize prices continuously increasing over the past 10 years (Talerngsri and Pongkijvorasin, 2012). Yet, amid the critical deforestation problem, the Thai government has continuously given signals that encourage maize farm expansion, such as the maize pledging scheme.1 More importantly, notwithstanding evidence of a continuous and massive degree of forest encroachment, the government is still in denial of its ineffective enforcement of forest laws and regulations and is reluctant to find more effective policies that would create mutual benefits for farmers and the environment. Its inaccurate presumption of the effectiveness of government control over forestlands has led to ill-designed policy that has worsened the problem, both economically and environmentally. Although the critical state of deforestation in Nan warrants studies from academics in various fields, no study has yet analytically examined how highland maize farmers trade benefits from the forest against income from maize farming. Using survey data from Nan, this study provides a simple analytical tool to examine such a trade-off. It shows that, as income from maize farming exceeds benefits from the forest and soil quality is not too low, the farmer perceives an incentive to convert a forestland into a maize farm. Current crop subsidy policies (e.g., pledging schemes), help raise farmers’ incomes, but also further encourage the farmer to expand his/her farming area (as had happened in Mexico, according to Deininger and Minten, 1999). The scheme has resulted in continuing deforestation activities. Using the proposed tool, this chapter shows that a winwin solution to the problem is possible, whereby farmers’ incomes increase along with the forest area. The farmers win in the sense of having a higher income, and environment improves due to less incentive for deforestation. A green subsidy, irrigation, and awareness raising are examples of such winwin measures. The following section presents a summary of current practices and maize farming in Nan and estimates of income streams derived from maize farming. Section 7.3 reviews previous studies on the value of community forests and estimates the changes in the value of forest products over time. Section 7.4 examines the farmers’ incentive to convert forest to maize farm using a simple analytical tool and analyzes the current situation. Section 7.5 discusses the impacts of the crop subsidy policy. Section 7.6 puts forward possible winwin solutions. Section 7.7 concludes and provides policy recommendations. 1 The price support scheme was in the form of a price guarantee under the previous government led by Mr. Abhisit Vejjajiva. It had a similar impact on expansion of maize farming areas.
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7.2 MAIZE FARMING IN NAN PROVINCE Nan, a province to the east of northern Thailand, bordering with Laos, is considered one of the most important watershed areas in the country. It is surrounded by a mountain range. Nan River, one of the principal tributaries of Chao Praya River (the major river in Thailand), originates here. Given these geographical characteristics, the forests in Nan carry a very important ecological role (Figure 7.1). Although both maize price and farm area have increased in recent years, most farmers in Nan still live in poverty. While farmers could sell their maize at relatively high prices, farm yields have declined, mainly due to soil degradation as a result of intensive cultivation and increased cost of production factors (e.g., fertilizer, seed, and wage). In 2004, only 12.59% of Nan’s population lived
FIGURE 7.1 Map of Nan, Thailand. Retrieved from Wikipedia, n.d. (left) and Land Development Department, 2011 (right).
7.2 MAIZE FARMING IN NAN PROVINCE
109
in poverty, making Nan the 26th poorest province in the nation. By 2010, the poverty level had increased to 14.97%, moving Nan to the 11th rank among the poorest provinces (Office of the National Economic and Social Development Board, 2011). Maize farming in Nan are of two types: lowland and highland. Lowland farmers grow maize on land drained by the Nan River and irrigation systems. They start soil preparation early in the year and begin to seed around the start of the rainy season (May). Seeding to harvesting normally takes three months. By August, farmers start to harvest and sell their produce. The short production cycle is suitable for lowland cultivation, as harvest must be completed before the area becomes flooded around the end of the rainy season. Lowland farmers sell their “fresh seed” crop to middlemen or merchants immediately after harvest. Fresh seed receives a lower price in the market because of its moisture content, which, on the other hand, makes it weigh more than dry seed. Thus, land grown to fresh seed type of maize appears to have a higher yield (total weight/area) than the dry seed maize. After harvesting maize, the same piece of land can still be used to cultivate other crops (e.g., rice, chili) or another round of maize. The environmental impacts of lowland maize farming are not obvious and are, to a lesser degree, comparable with those of highland maize farming since lowland farming does not particularly involve deforestation. Most farmers cultivate land that they legally own. On the other hand, faced with limited access to water resources, highland farmers can cultivate only once a year. They produce “dry seed” maize, which takes longer to harvest, usually 45 months from seeding. The harvesting and selling period is from from November to February. Dry seed has a lower moisture content, thus, can be sold at a higher price than fresh seed. The highland fields are left idle after harvest due to lack of water, unlike the lowland fields where other crops are cultivated after maize. Thus, highland maize farmers rely heavily on income from oncea-year maize cultivation. Talerngsri and Pongkijvorasin (2012) show that highland maize farmers are trapped in a vicious cycle of poverty and environmental degradation. Faced with many constraints, such as water scarcity, financial constraint, and high transportation cost, highland farmers have a limited choice on the crop to grow, resorting to maize cultivation, which can be done once a year only. This has pressured farmers to expand their farmlands and increase maize output as much as possible. Moreover, major government agricultural policies (i.e., the price insurance scheme and pledging scheme) incentivize farmers to increase their maize output and expand their cultivation areas to benefit more from the policies. Altogether, these physical and institutional limitations and misplaced government policies have drastically increased farmed areas and encouraged more intensive farming practices, which require farmers to invest more in fertilizers, seeds, and pesticides. This has resulted in environmental degradation due to severe deforestation and contamination. The increasing cost of farming inputs adds to trapping these farmers deeper in the cycle of debt and poverty. Table 7.1 summarizes the data on highland maize cultivation gathered from in-depth interviews with stakeholders and a survey of 64 maize farm households (20102012). Highland maize cultivation yield averaged 4.7 tons/ha in 2011, with a total production cost (comprising material cost, labor cost, and transportation cost) of USD 705/ha.2 Dry seed maize had an average moisture level of 18%, which farmers sold at USD 0.27/kg. This means that 1 ha of maize could generate USD 1,244 in revenue. Given the production cost, the net revenue was USD 539/ha. With an average 2 The production cost shown here omits noncash cost items, such as health cost and environmental cost from heavy use of pesticides.
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Table 7.1 Summary of Survey Data on Highland Maize Cultivation Details of highland maize cultivation (1 crop/year) Crop length (month) Output per area (ton/ha) Cost per area (USD/ha) Material cost Fertilizers Pesticides Seed Fuel and others Labor cost Milling and transportation cost Average moisture (%) Average price (USD/kg) Total revenue per area (USD/ha) Net revenue per area (USD/ha/year) Average cultivation area per household (ha/household/year) Average net annual revenue per household (USD/household/year)
5 4.7 705 191 27 75 7 318 86 18 0.27 1,244 539.20 5.76 3,106
cultivation area of 5.76 ha/household, the net revenue per year for a highland farm household amounted to USD 3,106. However, when yield changes across time were considered, the adverse effect of maize farming on soil quality became evident. Yields have gradually decreased, which also means declining farmers’ incomes, giving farmers justification to heavily use fertilizers to sustain yields. To capture this nature of yield reduction, data were obtained from Ban Had-rai of the Sanna-Nongmai subdistrict, which still has areas that can be cleared for more maize farming. The yield value from such fertile land is as high as 7.5 tons/ha. On the contrary, data from Ban Fang-min, Ainalai subdistrict can be used to guage maize yield from bad soil due to repetitive and heavy use of land over a long period of time. Here, the yield value is as low as 2.8 tons/ha.3 Given that maize farming in most areas of Nan started around 1987, it is reasonable to assume that it takes about 2025 years for the yield value to fall from 7.5 to 2.8 tons/ha. Using an inverted S curve to approximate gradual reduction in yield over time, the changes in yield value and corresponding farmer income per hectare across time4 can then be represented by Figure 7.2. Figure 7.2 illustrates that growing maize on fertile land would give farmers a maximum income of USD 1,250/ha. However, after a certain period of time (25 years in most cases in Nan), soil quality would drastically decline, resulting in low yields (as low as 2.8 tons/ha) and reductions in farmers’ incomes to as low as USD 41.7/ha. 3 Survey data suggest that the production process and amount of fertilizers and pesticides used by highland farmers from various areas in Nan are not significantly different. Hence, these farmers are assumed to share the same production functions; any difference in yield is presumed to be attributable to the difference in soil quality or severity of soil erosion. 4 Price of maize and cost of production are held constant across time at USD 0.27/kg and USD 705/ha, respectively.
7.3 VALUE OF COMMUNITY FOREST PRODUCTS
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FIGURE 7.2 Changes in yield and associated farmers’ incomes across time.
Table 7.2 Estimated Value of Forest Products from Community Forests Author
Site
Year of study
Area (ha)
Chaitup (2003) Roongtawanreongsri (2006) Bookaew (2009)
Lampoon Pattalung
1998 2004
400 320
Mahasarakham
2007
683
Value (USD)
Value at 2011 price (USD)
Value/area at 2011 price (USD/ha)
33,283 80,678
45,500 101,163
114 316
104,125
116,724
171
7.3 VALUE OF COMMUNITY FOREST PRODUCTS A number of valuation studies on the benefits of community forests in Thailand have been done. The most relevant ones are Chaitup (2003), Roongtawanreongsri (2006), and Bookaew (2009). Focusing on different regions of Thailand, these studies assessed how villagers benefit from community forests by collecting forest products and estimating the value of these products.5 Table 7.2 summarizes the results from these studies, with the last column showing estimations of forest product values per area (hectare) at the 2011 price. For example, Chaitup (2003) showed that the value of forest products collected from a 400-ha community forest in Lampoon, Thailand, by 300 households living around this forestland is USD 33,283/year, or USD 45,500/year (at the 2011 price) or USD 114/ha (at the 2011 price). Note that the value of the community forest generated purely from forest product collection ranges from about USD 114/ha to 316/ha. As such, the average value of USD 208/ha will be used henceforth to facilitate calculations and estimations.
5
The focus was on the cash value of collecting forest products as these values are tangible from the farmers’ point of view and exert direct impact on farmers’ decision making. The forest’s noncash value, such as biodiversity protection and reduction of flood/drought frequency, which would help reduce welfare loss of farmers, is not included here.
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FIGURE 7.3 Income per year derived from selling forest products (USD/ha).
After degraded land is reclaimed for reforestation, forests need time to be fully restored. Hence, farmers may receive very small or almost no income from forest products during the initial phase of reforestation. According to in-depth interviews with former maize growers and villagers at Praputhabat subdistrict in Chiang-Grang district, northern Nan, who were able to reclaim degraded maize farmlands for reforestation, the rehabilitation period will take almost 20 years before villagers can obtain benefits again from forest products. Again, it is reasonable to assume that changes in income derived from selling forest products over the years can be approximated by an S curve, as shown in Figure 7.3. The maximum income level is attained 20 years after reforestation is begun. Figures 7.2 and 7.3 indicate that although the annual income per hectare from maize farming far exceeds that from forest products during the first 15 years, it will eventually fall to around USD 41.7/ha only, which is relatively low compared with possible gains from forest products. It would take about 19 years for income from maize farming to fall to about USD 208/ha, equal to the maximum annual value of forest products.
7.4 FARMERS’ INCENTIVE TO CONVERT FOREST TO MAIZE FARM 7.4.1 PERFECT FORESIGHT VIEW The net present value (NPV) of incomes from both options (i.e., to grow maize or reforest) was computed at an 8% discount rate6 using data illustrated by Figures 7.2 and 7.3. Figure 7.4 shows the results obtained. 6
Results obtained under 5% and 10% discount rates were not different substantially.
7.4 FARMERS’ INCENTIVE TO CONVERT FOREST TO MAIZE FARM
113
FIGURE 7.4 NPV of income per hectare from reforestation and maize cultivation.
In deciding which option to take, farmers with perfect foresight compare possible future gain from maize farming with that of reforestation. Under constant maize price and production cost assumptions, a relatively high NPV of income from maize compared with that of forest products during the first 17 years gives farmers an incentive to convert forests to maize farms.7 It is only when the NPV of forest income outperforms that of maize income that farmers will find the other option more appealing. This implies that if farmers have perfect foresight, they will naturally switch to reforestation after some period of time (i.e., at the start of year 18 in this case) without any government intervention (Table 7.3).
7.4.2 SHORTSIGHTED VIEW However, in reality, maize is continuously grown year after year. Even when soils are already badly degraded and farmers feel the need to find better options, they are very reluctant to change. There are two main explanations behind this unwillingness to change.
7.4.2.1 Myopia Farmers lack foresight. The shortsighted farmers tend to put the highest importance on income received from selling their maize, virtually giving no weight to a stream of maize income that can be derived in the future. Switching to reforestation could mean having empty stomachs for some 7
This NPV value considers only the cash value from collecting forest products. It is constant at USD 1,327/ha because regardless of starting point, the forest is assumed to take about 20 years to be fully rehabilitated, at which point annual income from collecting forest products reaches its maximum of about USD 208/ha/year and continues at that level.
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Table 7.3 Comparison Between NPVs of Maize and Forest Product, Various Years Year
Yield (tons per ha)
NPV Maize (USD per ha)
NPV Forest (USD per ha)
Difference (USD per ha)
0 5 10 15 16 17 18 19 20 25 30
7.5 7.3 6.5 4.7 4.4 4.0 3.7 3.4 3.3 2.9 2.8
11,374 8,659 5,280 2,237 1,817 1,477 1,212 1,015 872 603 567
1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327 1,327
10,046 7,331 3,953 910 489 149 2115 2313 2455 2725 2760
period of time. Even when the land is terribly degraded and the annual income is only USD 41.7/ha, farmers still prefer maize farming to reforestation.
7.4.2.2 Financial constraints Due to the relatively low income derived from forest products during the initial phase of reforestation, farmers would have financial difficulty supporting daily household expenses and debt repayment. Highland maize farmers mostly rely on informal credits from middlemen (or maize collectors), who lend both money and raw materials for growing maize. Switching to reforestation would certainly deprive these farmers of an informal but very important channel to obtain loans. Furthermore, as previously mentioned, highland maize farmers are trapped in a vicious cycle of debt and poverty from which they have difficulty breaking free. Given that farmers are shortsighted and that the monetary benefits of maize growing exceed those of reforestation in most years, farmers perceive an incentive to increase their farm areas. If government fails to control forest conversion to maize farms, forestlands will soon disappear. The PFF line in Figure 7.5 illustrates this trade-off relationship between income from maize and private benefits from the forest for a representative farmer (economic value vis-a-vis environmental value).8 The vertical axis represents the farmer’s income from maize farming, while the horizontal axis represents monetary benefits from a community forest. Thus, the PFF line illustrates the maximum possible level of income the representative farmer can derive from all accessible and available land, including the community forest in the area where he or she lives. The horizontal intercept, B1, represents the case where the farmer wants to rely purely on income from forest product and thus would be willing to dedicate all of his or her land to reforestation. On the other hand, the 8
Benefits from the forest are assumed to be monotonically related to the forest area.
7.4 FARMERS’ INCENTIVE TO CONVERT FOREST TO MAIZE FARM
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FIGURE 7.5 Investigation of trade-off between maize farming and benefits from forests.
vertical intercept, I1, presents the scenario where the farmer wants to obtain his or her total income from maize farming and thus would convert most accessible land to maize farm. From a farmer’s perspective, however, the larger the scale of forest conversion, the higher the risk of getting caught for causing deforestation, in addition to the problem of rising transportation cost. The rising marginal costs of forest conversion and maize cultivation are captured by the concavity of benefit possibility frontier curve (PFF). The curvature of this line reflects a ratio of revenue gained from maize farming and that of collecting forest products. Moreover, as the farmer derives utility from income received from maize and forest products, in monetary terms, incomes from these two sources perfectly substitute each other, suggesting a straight line indifference curve with the slope of 21. The optimal point for a utility-maximizing farmer is represented by the tangency point, OF, whereby the marginal return from maize farming is equal to that of collecting forest products. However, with current government control, the present ratio of revenue per area of maize farm to forest is approximately 2.5 (according to data in Table 7.1). The present trade-off point faced by the farmer (denoted by A in Figure 7.5) can be located where the slope of the PFF line is equal to 22.5. This means that a utility-maximizing farmer would have the incentive to further convert forestland to maize farm, as shown by the movement from point A to OF. The horizontal difference between point A and OF implies government efforts in preventing forest degradation in the current situation.
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In a broader perspective, however, forests provide social benefits (ecological functions, such as carbon sequestration, soil protection, and water sources, and also income from forest products) that far outweigh the farmers’ private benefits (i.e., income generated purely from gathering forest products). The social benefit frontier is represented by the PFS curve. The horizontal intercept is now at B2, showing the social benefit if all land is dedicated to reforestation. The social optimal point is represented by point OS. Since the social benefits of forest exceed private benefits to the farmer, the level of socially optimal forest area is higher than that determined by the farmer, implying a situation of excessive forest conversion from society’s point of view.
7.5 LIMITATIONS OF CURRENT GOVERNMENT POLICIES Crop subsidy is a popular government policy aimed at stabilizing farmers’ incomes and alleviating rural poverty; it can come in the form of price insurance or pledging. Either way, crop subsidy causes a shift in possibility frontier from PFF to PFF0 , extending the frontier of income derived from maize farming (Figure 7.6). The optimal point under crop subsidy is depicted by OF0 . Theoretically, it is possible that when maize price increases, farmers can cultivate in a smaller plot of land while receiving higher maize income. More specifically, income from maize can increase together with reforestation (i.e., winwin outcome). However, the crop subsidy tampers with the ratio of return from maize farming and collecting forest products such that the utility-maximizing
FIGURE 7.6 Effects of crop subsidy policy.
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farmer would increase his or her utility by moving from point A to OF0 , where OF0 is to the left of OF. Hence, the crop subsidy incentivizes farmers to expand their farm areas, resulting in more forest conversion and deforestation. Theoretically, the government can use crop subsidy as a tool to negotiate with farmers so that they would refrain from expanding their farm areas (A0 ), or even to the extent that farmers may agree to give back part of their land for reforestation (anywhere between A0 to C) and still get a higher than or equal level of utility. For example, the government can specifically subsidize only maize grown in existing farmlands. However, implementing such restriction, as well as its monitoring and control, is very costly in practice. The government would have difficulty distinguishing maize cultivated in existing farmlands and maize cultivated in newly converted areas. The high administrative and transaction costs prevent the possibility of a winwin outcome to be reached.
7.6 ALTERNATIVE WINWIN POLICIES 7.6.1 GREEN SUBSIDY A policy option to deal with poverty and conservation problems is green subsidy, whereby government subsidizes reforestation. Green subsidy extends the frontier of income derived from the forest. It can be used to both internalize external benefits of forests and provide incentive for farmers to conserve the forest.9 Although costly, a well-designed green subsidy can be used to restore the social optimum and is considered as a winwin policy because it can increase both forest area and the farmer’s income. Analytically, subsidy will shift the PF line in Figure 7.5 to the right by increasing returns from the forest. If subsidy is set equal to the marginal external benefit of forest, PF line will be at PFS. This shift will increase the incentive of farmers to switch from maize cultivation to reforestation. Here, subsidy is viewed as a tool to incentivize farmers to be more willing to leave maize farming for reforestation; this section does not aim to estimate the size of subsidy that would restore the social optimal level of forestland. For example, at the current year, a farmer gets USD 539/ha from maize cultivation. If government decides to intervene to facilitate the shift to reforestation, the farmer has to be subsidized for not growing maize by at least USD 539/ha in the first year (assuming that no forest products can be collected in the first year of reforestation). The size of subsidy decreases over time as the value of forest products increases and the yield of maize farming decreases. From Table 7.3, if the government wants to reclaim 400 ha from highland farmers who have grown maize for 15 years, it would need to spend at least the NPV of USD 363,833 per village to bring about the expected change. The estimated value of subsidy reflects only the minimum sum of money that can help farmers see the stream of private benefits derived from collecting forest products. It does not, by any means, shed light on the much larger sum of money needed to bring about the social optimal level of forest benefits.
9
See Bull et al. (2006) for a review of various forms of green subsidy for industrial plantation.
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7.6.2 IRRIGATION Developing irrigation systems is another winwin policy. Lack of water is one major constraint in highland maize farming in Nan. Without adequate water in the dry season, farmers can cultivate only one crop a year. This limitation incentivizes farmers to expand their farm areas as much as possible (Talerngsri and Pongkijvorasin, 2012). Irrigation can help solve farmers’ poverty problems. Irrigation in the highlands can be small scale only (e.g., check dam or water storage basin) to pose no excessive adverse effect on the environment. However, some people (including the government) fear that there is a trade-off between development (poverty alleviation) and environment—that is, development comes at the cost of environmental degradation. Consequently, irrigation, once viewed as a tool for development, has become a factor of environmental degradation. In particular, the perspective is that providing farmers with more water will lead to more extensive agriculture and consequently more environmental degradation. This belief has hindered the development of irrigation systems in highland areas. With adequate water supply, on the other hand, highland farmers can have at least two crops a year. Farmers can grow other crops that are suitable for highland cultivation in order to bring in higher and more stable income. However, there is a possibility that farmers have become so used to maize cultivation, they would find it difficult to adopt alternative crops. A survey of highland farmers in Nan showed that a farming household cultivates maize on 5.76 ha on the average and obtains a net revenue of USD 3,106/year for one crop only. With irrigation, farmers can grow two crops on the same plot of land and double their annual income to USD 6,212. Theoretically, providing irrigation would work in the same manner as crop subsidy does on farmers’ decisions to grow maize because it increases farmers’ incomes from cultivating maize on a piece of land.10 Figure 7.7 shows the effects of irrigation on the farmer’s decision making. Irrigation will shift the PFF line up to PFFv. Assuming that all farmers have access to this irrigation system, it is expected that, like crop subsidy, they will expand their farm areas, resulting in a fall in forest area (i.e., a shift from OF0 to OFv). With irrigation, a farmer’s utility can improve from U1 and reach the maximum of U4. All points along the portion I3F of the PFv curve are welfare improving from the farmer’s point of view. For example, point D represents the case where a farmer does not expand his or her cultivation area but just restricts to 5.76 ha of maize farm. The farmer gets a total income of USD 6,212/year, twice the amount received before irrigation is provided, while the forest area is unchanged. Point E represents the scenario where a farmer reduces by half (i.e., 2.88 ha) his or her maize farming area. With irrigation, he or she can cultivate twice a year, thus maintaining the same level of income derived from maize farming (USD 3,106/year). In this particular case, the forest area will increase by 432 ha (2.88 ha/household 3 150 households). Once the forest is fully restored (i.e., after 20 years), a farming household can get an additional income of about USD
10
Irrigation also has nonmonetary benefits. For example, a risk averse farmer will have higher utility, as he or she can have a more continuous flow of income (i.e., at least two crops a year), mitigating the risk incurred from relying on one crop a year. However, these nonmonetary benefits are not captured in this chapter.
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FIGURE 7.7 Effects of irrigation.
600/year (2.88 ha/household 3 USD 208/ha/year) from forest products. Hence, point E can be considered as one of the winwin outcomes in which the farmer gets higher income and the forest area increases. Point F represents the case where the government reclaims the largest land possible from the farmers. In this case, the additional income from the forest will just compensate for the lower income from maize farming. Therefore, the farmer’s income level at point F is the same as that in the case of no irrigation. In other words, the farmer’s utility level is unchanged. To achieve a winwin outcome whereby both reforested area and farmers’ incomes increase, the government can negotiate or offer irrigation to farmers on certain conditions so as to increase both farmers’ incomes and forest area. All points along the portion DF of the PFv curve are considered winwin outcomes. The crucial advantage of using an irrigation system as a bargaining chip is that providing the system and subsequently monitoring it are not too difficult to undertake. Under crop subsidy, it is difficult (almost impossible) for the government to distinguish maize grown by farmers who agree to give back part of their land for reforestation from maize cultivated by farmers who continue to convert forest areas to maize farms. On the other hand, government can use irrigation as an incentive for farmers to refrain from expanding their farmlands through scoping of irrigation areas. For example, point D in Figure 7.7 can be used to capture the situation where the government offers an irrigation system that can irrigate only 2.88 ha per household on the average. Instead of causing
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environmental degradation, irrigation, when used wisely, can be viewed as a winwin environmental and economic development instrument.11 Raising farmers’ awareness of the stream of benefits from reforestation and the future trend and drawbacks of continued maize cultivation is important in the implementation of the two policies discussed above. As discussed in Section 7.4, a farmer with perfect foresight is expected to automatically switch from maize cultivation to reforestation after a certain period (i.e., year 18), even with no government intervention, due to reduction in yield and returns from maize farming over time as a result of soil degradation. However, if farmers lack foresight and are concerned only with immediate monetary returns, the switch cannot occur without government intervention. Raising awareness via multiple means of communication also helps transform a farmer with a myopic view into a more foresighted one, as well as promotes more involvement from other stakeholders (e.g., public and private sectors, local and national players). Awareness raising enhances better understanding and realization of the problem at hand, hence it is a key driver in the effective implementation of green subsidy and irrigation development policies.
7.7 CONCLUSION Thailand’s upland forests are in a critical stage. The forest area in Nan, one of the most ecologically important areas in the country, has decreased continuously and rapidly over the past decade. This has been mainly due to the expansion of maize farm areas, which, in turn, was triggered by the rapid increase in maize price, the crop subsidy policy, and failure of the government to control illegal forest clearing. This situation is a classic example of a case where government attempts to increase the farmer’s returns but fails to control the expansion of farming areas, consequently resulting in continuous forest clearing (Deacon, 1995). The Thai government has been using the traditional approach of command and control over many decades to protect and preserve natural forest, but there is ample evidence of its ineffectiveness. Government’s failure to lift the majority of highland maize farmers out of poverty has indirectly increased the cost of forest law enforcement. Thus, the government has been unable to deliver sustainable protection of forest and failed to stop forest encroachment (Cropper et al., 2001). Government’s agricultural policies have been heavily based on the concept of crop subsidy. These policies raise returns from maize farming, which further incentivize farmers to expand maize farm areas. Theoretically, government can use this form of subsidy to negotiate with farmers so as to reclaim more land for reforestation by subsidizing only maize grown by farmers who agree to restrict forest conversion. However, it is very difficult and costly in practice to implement such a 11
A synthesis work by Angelson and Kaimowitz (2001) discusses impacts of lowland irrigation on deforestation. On one hand, irrigation may reduce the degree of deforestation as it helps increase crop supply, resulting in falling prices, thus making the idea of farm expansion less attractive. Farmers can also cultivate more than one crop per year. This increases demand for labor and pushes up local wages. Hence, it makes returns from lowland cultivation more attractive than upland farming. On the other hand, irrigation in the lowlands could worsen the deforestation problem as technology improvement may reduce demand for labor input per cropping season. This may induce workers to migrate to frontier areas and continue their forest clearing. It is also possible that lowland farmers’ returns are higher as a result of irrigation, and farmers have enough capital to cultivate more and expand farm area. However, data from the on-site survey and interviews in Nan show no evidence of the aforementioned drawbacks of irrigation provision in Nan.
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scheme because it is an almost impossible task to differentiate maize from the qualified farmers from that grown by farmers who are not eligible for the scheme. These factors have partly contributed to the fast rate of forest clearing for maize farming in Nan. Given that the majority of highland maize farmers remain in poverty, a natural adjustment to equilibrium, where people become more concerned about the environment and forests will be well protected, would seem like an endless wait. The current analysis highlights two possible government interventions that may bring about winwin outcomes for both farmers and forests in the shorter term: green subsidy and irrigation development. A full-fledged green subsidy can internalize external benefits of forest into farmers’ consideration, and society can attain the optimal level of forest coverage. Even a partial green subsidy can help farmers make the important change from maize farming to reforestation and make their lives easier during the transition period. Irrigation development is a plausible solution, since water scarcity is one of the most important factors contributing to the large expansion of maize cultivation in the highlands. Theoretically, irrigation development works in the same way as crop subsidy by increasing the return from maize production. However, irrigation provides an easier channel for government to control and negotiate forest conversion. With irrigation, government can easily incentivize farmers to limit their farm area by scoping the irrigation area. Having an irrigation system in highland areas offers more crop options—thus higher income— for farmers and can also be easily used by government as a bargaining chip to control farmland expansion. Thus, providing irrigation can be a means to achieving sustainable forest preservation. Along with findings from many previous works (e.g., Gunatileke and Chakravorty, 2003), this current study has demonstrated that a winwin solution to maize farming and reforestation in Nan, Thailand, can be attained for economic development and environmental viability, given a correct understanding of the situation and a well-designed policy.
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