Making upland resource managers more receptive to “downstream friendly” practices through

compensation

Chapika SANGKAPITUX1, Andreas NEEF 2, Ke NANTHASEN1 and Nongkran PRAMOON1

1Department of Agricultural Economics, Chiang Mai University2 The Uplands Program (SFB 564), University of Hohenheim

Jointly funded by National Research Council of Thailand (NRCT)

and German Research Foundation (DFG)

International Symposium “Interdependencies between upland and lowlandagriculture and resource management”, Stuttgart-Hohenheim, 1-4 April 2008

1. Problem statement

2. Methodology/Study area

3. Downstream: Willingness to pay for upstream

water resource improvement

4. Upstream: Willingness to accept compensation

for downstream-friendly practices

5. Conclusion and policy implications

Outline

Problem statement

• External effects on downstream area

Water quality contamination due to erosionand agrochemical leaching

Water shortage in dry season

• Development of upstream agriculturetowards cash crop economy

Excessive use of agro-chemicals

Dry-season irrigation

Erosion-prone practices

Problem statement

• Proposed solution by policy-makers/scientistsConversion to agricultural conservation practices• to plant vetiver grass for erosion control• to adopt water saving technologies • to apply bio-insecticides and organic fertilizers

instead of agro-chemicals

What is their willingness to pay?

Effect on downstream people: obtain better water resources

Effect on upstream people: increases costs and risk of production What compensation would they accept?

Downstream communities as

Beneficiaries

Upstream Communities as

Service Providers

Choice Experiments Method:Willingness to accept

compensation for agricultural conservation adoption

Choice Experiments Method:Willingness to pay for water

resource improvement

Flow of services and

Flow of fund

Flow of FundFlow of services

Methodology

Methodology

• Choice Experiments (CE) to estimate downstreamfarmers’ WTP and upstream farmers’ WTA usingConditional Logit Model

• Tobit model to investigate factors determiningfarmers’ willingness to adopt “downstreamfriendly” practices through compensation

• Household samples: 166 for upstream area and151 for downstream area

Study Area

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Mae Sa Watershed, Chiang Mai Province

Upstream

Downstream

Northern Thailand

Socio-Economic Characteristics Average

Age (years) 57.43

Education (years) 5.05

Farm size (rai/household) 6.2

Agricultural income from rice and soybean (baht/hh/year) 38,754

Non-agricultural income (baht/hh/year) 133,452

Background Data: Downstream Farmers

1 rai = 0.16 ha1 EUR = 48 Baht

Water source Household consumption

Drinking and cooking

Agriculture

Community water piping system 118 (78%) 38 (14%) -

Pond 24 (16%) 21 (25%) -

Ground water 9 (6%) 5 (3%) -

Bottled water - 87 (58%) -

Mae Sa - - 71 (37%)

Mae Sa and Mae Tang irrigation - - 12 (63%)

Water Sources

Attributes and Levels for Choice Experiments

Attribute Level

Water for agriculture Level 1: No water shortageLevel 2: 1 month shortageLevel 3: 2 months shortage (status quo)

Water for household consumption

Level 1: No water shortageLevel 2: 1 month shortageLevel 3: 2 months shortage (status quo)

Water quality Level 1: Drinking and cookingLevel 2: Household useLevel 3: Cultivation (status quo)

Water fee (baht/HH/year) 375, 290, 150

Downstream farmers’ willingness to payfor water resource improvements

Model output

Attribute Coefficient t-statistics

Marginal willingness to pay (baht/household/year)

Sufficient water quantity for cultivation (no water shortage) 0.7462 9.46*** 324

Sufficient water quantity for household consumption (no water shortage)

0.4940 5.29*** 215

Good water quality for consumption 0.7763 6.10*** 338

Good water quality for household use 0.1710 3.36*** 74

Water fee -0.0023 -2.31**

Factors determining downstream farmers’willingness to pay for water resource improvement

Positive effect: past drought experience, farm size, participation in environmental activities, buying bottled water for consumption

Negative effect: non-agricultural income, access to other water sources for agriculture

Attitude toward Conservation Practices

Conservation practicesPractice ranked as

most effectiveNo. of hh (%)

Water quality:

• application of bio-insecticides• reforestation and forest conservation at community level• planting Vetiver grass for erosion control

58 (38.4)54 (35.8)39 (25.8)

Water quantity:

• reforestation and forest conservation at community level• installation of drip irrigation system• installation of micro sprinkler

67 (44.4)49 (32.5)35 (23.2)

Village No. of sample hh

Major crops Average per capita income(baht/year)

No. of family members

Farm size(rai)

Ethnicity

Pha Nok Kok 37 Fruit 5%Flower 8%Vegetable 84%

24,944 5 7.24 Hmong

Buak Chan 29 Vegetable 72% 11,141 10 12.43 Hmong

Mae Sa Mai 50 Fruit 16% Vegetable 74%

13,166 7 9.46 Hmong

Muang Kum 50 Flower 22%Vegetable 74%

42,194 4 2.44 Northern Thai

Upstream: Basic data

Attribute Level

Application of bio-insecticides (% increase of area)30, 50, 70, 100

Planting vetiver grass (% increase of area)10, 20, 30, 40

Installation of water saving irrigation system

50% Micro sprinkler, 100% Micro sprinkler, 50% Drip irrigation ,100% Drip irrigation

Compensation (baht/rai/year)300, 546, 1010, 1717

Attributes and Levels for Choice Experiments

Upstream farmers’ willingness to acceptcompensation for “downstream friendly” practices

Model output

AttributeCoefficient t-statistics

Marginal willingnessto accept

(baht/household/year)

Application of bio-insecticides -0.0024 -1.713* 10

Planting Vetiver grass -0.0064 -1.764* 27

Installation of water saving irrigation system (50% of area under microsprinkler)

0.2530 3.631** -

Compensation 0.00024 2.653**

Upstream Farmers: Willingness-to-Accept Compensation

Upstream farmers would be willing to accept compensation

• at the rate of around 10 baht/rai/year per 1% areaincrease under application of bio-insecticides

• at the rate of around 27 baht/rai/year per 1% areaincrease under erosion control with vetiver grass

No compensation is needed to adopt micro-sprinklers on 50% of the area

Factors determining farmers’ willingness to adopt “downstream friendly” practices

• Resource tenure security: higher probability to adopt “downstream friendly” practices is found among farmers with low tenure security

• Soil erosion and water scarcity: higher probability to adopt “downstream friendly” practices is found among farmers who have faced problems of soil erosion and water scarcity in the past

• Ratio of agr.-income/total income: higher probability to adopt “downstream friendly” practices is found among farmers with high ratio of agr.-income/total income

Conclusion and Policy Implications• There is a clear potential for establishing compensation

schemes for provision of environmental services in northernThai watersheds

policy-makers need to move from ineffective command-and-control towards incentive-based approaches

• The important policy implication is to get both upstreamand downstream resource managers involved

policy-makers need to revise their exclusive focuson ‘fixing uplanders’ resource management practices’downstream beneficiaries should/are willing to contributeto sustaining the services provided by upstream peoplea regulatory and institutional framework needs to be put inplace to bring service providers and beneficiaries together

Thank you for your attention

The research team would like to thank;• Assoc. Prof. Dr. Mitsuyasu Yabe (Kyushu University, Japan)and Assoc. Prof. Dr. Varaporn Panyawadee (Mae Jo University,Thailand) for their support and valuable comments

• NRCT and DFG for continuous financial support