UNIVERSITI PUTRA MALAYSIA

ECONOMIC VALUATION OF SOIL EROSION AND SEDIMENTATION IN CAMERON HIGHLANDS

CHEW CHANG GUAN

FEP 1999 3

ECONOMIC VALUATION OF SOIL EROSION AND SEDIMENTATION IN CAMERON IDGHLANDS

By

CHEW CHANG GUAN

Thesis Submitted in FulfIlment of the Requirements for the Degree of Master of Science

in the Faculty of Economics and Management Universiti Putra Malaysia

April 1999

ACKNOWLEDGEMENTS

I would like to extend my gratitude to my project supervisor, Prof. Madya Dr.

Mohd Shahwahid Haji Othman, of the Department of Hospitality and Recreation, Faculty

of Economics and Management, Universiti Putra Malaysia (UPM), for his patience,

guidance, ideas and comments throughout the preparation and completion of this project

paper. Thanks are due also for his research financial support under the IRP A project fund

(No. 05-02-04-0008). I would also like to thank him for allowing me to use the project

data for my research analysis.

I would like to thank my parents, Mr. Chew Fai Min and Madam Song Phek Eng,

for their patience and support to keep me going at times when I felt like giving up.

Furthermore, I am very thankful to many people who have helped me in my work

especially Y.M. Raja Harris B. Raja Hasbullah, Encik Ahmad Nazri Puteh, Encik Usof

Yong, Encik Nazaril and Mr. Chew Wye Kuan from Tenaga Nasional Berhad; Dr. Abdul

Rahim Nik, Encik Baharuddin Kasran and Dr. Zulkifli Yusop from PRIM; Dr. Awang

Noor from the Faculty of Forestry, UPM; Dr. Eddie Chiew and Prof. Madya Dr. Ahmad

Shuib from the Faculty of Economics and Management, UPM and my friends Miss Tee

Tuan Poy, Dr. Phang Yuen Fun, Dr. Wong Kiong Kheng and Mr. Mustain Billah.

Finally, a very special appreciation to all the people in Kampung Raja, Cameron

Highlands, the staff of the Department of Agriculture both in Kuala Lumpur and

Cameron Highlands, and the librarians at UPM for their assistance.

ii

TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS . . .. . . . , ... , .. . . ........ '" ... . , . .. , .... .. . , ...... ,. ..... 11 LIST OF TABLES . .. . .. . .. . ... ... .. , '" ... ... ... ... ... ... .. , ... ... ... ... ... ... ... .... VI LIST OF FIGURES .. . . , . .. , ... '" ..... , '" ... ... .. , ... ... ... ... ... ... ... .. , ... ... . ,. Vlll LIST OF PLATES .. .. .. . . . ... . ... . . . . . .. . . . . . . . . .. .. .... . .. . .. ... . . . '" '" ... .. , ..... IX LIST OF ABBREVIATIONS ... . .. . . . '" ... . , . ... ... ...... .. , ... '" ... ... ... ... .... X ABSTRACT . . . '" ... ... .. , ... ... ... ...... ... ... ... '" ...... ...... ... ... ... '" ... ... ... . Xl ABSTRAK ... ... ... .. .... .. .. .. ... ... '" ... ... ... ... ... ...... ... ... '" '" ... . , . ... '" ... Xlll

CHAPTER

I IN'TRODUCTION . " ... ... ... ... ...... '" ... . " ... '" ." ...... '" ... ... 1 Background of the Study . .. .. ... . .. . . . ... .... . . .. ... .. ... . .. . . .. . . .. . ... , 1 Economic Impacts .. . '" ... . , .... '" ... . , . ...... ... . , . ... '" ... . , ... , .... 3 Problem Statement . .. '" ............ ... ...... ... ... ... .. , ... ... ... ... ... 5 Objectives of the Study.................. ... ... ... ... ... ... .. .... ... . . .. 5 Limitations of the Study . . .. .. .. . ... . . ... ... , ... ... ... ... ... ... ... .. . .. . 6

n LITERATURE REVIEW .. .. , . ...... '" ... ... ....... ,. ... ... ... .... 8 Introduction .. . ... .. .. , . .. , ... '" ., . ... ... .... , . ...... ... ... ... ... '" ..... 8 Effects of Soil Erosion . .... .. .. ..... , ... ... ...... '" ........ ........ , ... 8 Measurement of Soil Loss .. .. . ..... . . ... . .. . .. . , . .. , ... '" ......... , .. 9 Valuing the Costs of Soil Erosion .. . ... .. ... . .. .. . ... . ... . . ... .... . .. 11 Economic Models for On-site Costs of Soil Erosion . .. . ... . . .. . , .. 11

Hedonic Pricing '" ... ... ......... ... ......... . " ... ... ... ... .. ... 11 Productivity Approach...... ...... ...... ....... .. ... ...... .. .. . . . 12 Replacement Cost Approach ... . . .. .. ... ... . . .. . , ........... , .. 16 Net Benefits of Conservation ...... ... '" ... ... .. . . .. ... ... .. . .. 20

Economic Model s for Off-site Costs of Sedimentation ... ..... . . 23

m RESEARCH METHODS... ... ... ...... ... ...... ... ...... ...... ...... 26 Introduction . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 26 Modelling Framework: Estimation of Damages from Erosion and Sedimentation. . . ... ... ... ... ... ... ... ... ... . .. ... ... ... ... ... ... ... . 26 Theory of Market Failure, Joint Production and Off-site Costs of Vegetable Farming ... . . . ... . . .. .. .. . . . . .. . . .. . . . .. . ... . .. ... . .. ..... 27

111

Study Site ... '" '" ... '" ... " . " ., ....... ... '" ... '" ..... ..... ........ :. . 30 Population ...... ........ , ...... ...... ...... . , . . , ... .......... ... . , .. , 31 Demography ...... . , . ... .... " ... ... ... ... ... ... ... ... ... ... ... ... . 31 Soil Characteristics...... ... ... ... ... ... ... ... ... ...... ......... ... 32 Land Uses ... ...... ............... ...... ... ... ...... ... ...... ... . " .. 32 Socio-economics ... ... ...... ...... ... ......... ... ... ... ...... ..... 32 The Sung ai Ikan and relom Catchments ........ , ... .. , ... .. , 33

On-site Cost Estimation Methods... ... ... ... ... ... ... ... ... ... ... ... . 37 Determination of the Sediment Eroded with and without Fanning ...... ... ... ...... ... ... ...... ...... ...... ... ... ...... ... ... 37 Empirical Data ...... ... ... ...... ...... ... ............ ... .......... 38 Calculation for the Economic Valuation of Nutrients Loss (N, P, K) ... . . . ... ... ..... . . .. ... . .. '" ...... ......... ......... ..... 40 Production Ftmction Analysis (Yield Loss Due to Lost of Nutrients) ... .. . . .. ... ... ... ... ... .. . ... ... .. . ... ... ... ... ... ... ... 44

Off-site Cost Estimation Methods ........ , ..... , ... ....... , . .. , ... ... 47 Empirical Study ... . .. .. . ... ... ... ... ... ... ... ... ... ... .. . .. . ... ... 51 Incremental Social Damag e Cost due to Sedimentation.... 53

Data Collection '" ... ... . . . ... ... ... ... . .. ... . .. ... ... . .. ... ... ... ... ... 56 The Present Value (PV) and Future Value (FV) of the Cost of Soil Erosion and Sedimentation ............... .. , ... ... ... ... ... ... ... .. 57

IV RESULTS AND DISCUSSION . . . '" ... ... ... ... ... ... ... ... ... ..... 58 On-site Costs of Soil Erosion ...... ... ... ...... ... ...... ... ... ... ...... 58

I) Losses of Soil Nutrients of Soil Erosion ... ......... ... .... 58 II) The Economic Value of the Nutrient Loss from Erosion. 63

Off-site Costs of Sedimentation ... ... ...... .. , ... ..... , .. , ... .. , ... . .. 67 Hydroelectric Power Stations... ... ... ... ... ... ... ... ... ... ... .. 67 Telom Intake Sedimentation ... ... ... ...... ........ , .. , .. , ....... 68 Telom Intake Improvement Work - The Telom Desander.. 68 Desilting of Tel om Tunnel ...... ... ......... ...... ... ...... ..... , 69 Increased Replacement and Maintenance of Machines or Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 71

Extra Working Payment ... .. , ... ... ... ... ... ... ... ... ... ... ...... 71 Dredg ing Cost... ... .. . ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. 72 HEP Production Forgone ...... ... ... ..... , ... ... ... ... ... ... .... 72 Differential Cost ... ........ , ..... , .. , ........... , ... .. . ... ... .. . ... 73 Benefits of Selling Sand ... ... ...... ... .. , ... ... ... ... .. . ... ... .. 73

Valuation of the Total Incremental Cost to TNB . .. ... ... . ... . .. . . 74 Valuation of the Total Off-site Cost to Society ...... ... ... ... ...... 75 Full Costing of Farming... ...... ... ... ... ... ... ... ... ... ... ............. 77

IV

V CONCLUSION AND POLICY IMPLICATIONS ... ... ...... 79 Conclusion of the Study ... ......... ......... ...... ... ... . .. ...... ..... 79 Implications of the Study ... .. .......... ... '" ... ... .. , ... .. , ... . ,. ... . 80 Recommendations...... ... ... ...... ...... ... ......... ... ...... .......... 81

On-site ...... ........................... ... .................. ............... .... 81 Off-site ... ... ... .. , ... . , . ... ... ... ... ... ... .. , ... ... ... . ,. ... ... ... 83

Limitations of the Study ............ ... ..... ..... ,. ... ... ... . .. ... ... ... 85

REFERENCES . .. ...... .. . ... . .. ... ..... , ...... ... ... ...... ... ... ... ... ...... ... ... 86

APPENDIX

A Data and Results Analy sis for the Average Soil Erosion Loss for 3 Locations Observed in Cameron Highlands . .. ... ... ... ... ... ..... 92

B Profit Maximization of A Farm Producer... ... ... ... ... ... ... ... ... ...... 93

C Photographs of the Study Site ... ... ... ... ... ... . , . ... ... ... ... .. , ... ... ... 95

D QuestIonnalre ..... , ... ... ... ... ... ... '" ... ... ..... , ... . , . .... , . ... '" ... .... 99

E Calculation for Sediment Yield in Farmland .. . ... . ,. . .. ... ... . . . ... ... 103

F Result From the SPSS Regression Analysis for English Cabbage Production (With Independent Variables : Area, Fertilizer. Chicken Dung and Labour) ... ... .. . '" .,. '" ., . ... ... ... ... ...... ...... ... '" .,. ... .... 104

G Result From the SPSS Regression Analy sis for English Cabbage Production (With Independent Variables: Area. Fertilizer, Chicken Dung. Skilled Labour and Unskilled Labour) .................. '" ... '" ...... 105

H Calculation of Tree Stand Value in Sungai Ikan Catchment ...... ... 106

VITA ... ... . .. ... ... ...... ... ... ... ... ... ... ... ... ...... ... ... ... ... ... ... ... ... .......... 107

v

LIST OF TABLES

TABLE

1 : The General Impacts of Soil Erosion and Sedimentation in

Page

Cameron Highlands . , . . . . . . . . . . '" . . . . . . . . . . . . . . . . . . . . . . . . . . . '" . . . . . . . . . . . . . 7

2 : Quantity of Silt / Sediment Removed from Ringlet, Robinson Falls, Telom Intake (desander) and Sultan Abu Bakar Dam. . . . . . . . . . . . . . . . . . . 36

3 : The Physical Impacts of the Sedimentation from Sungai Ikan Farmland on TNB, TNBG and Society, Cameron Highlands . . . . . . . . . . .. . . . '" . . . . 48

4 : Cameron Highlands Power Station - Installed Capacity . . . .. . . . . . .. . . . . 49

5 : Soil Chemistry ofTanah Rata, Cameron Highlands . . . .. . . . . . . . . . . . . . . . . 59

6 : Quantity of Nutrients Eroded by Soil Erosion -Sungai Ikan Catchment, Cameron Highlands... . . . . . . . . . . . . . . . ... ... . . . . . . ... . . . . . . . . . . . . 61

7 : On-Site Costs of Soil Erosion - (in Ringgit Malaysia) Sungai lkan Catchment, Cameron Highlands, Malaysia (1998) . . . . . . 62

8 : The Estimated Nutrient Loss for Sungai Ikan Catchment from 1981 to 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. . ..... . . . . . . . .. . . . . . . 63

9 : Results of the Regression Analysis for English Cabbage Production .. . . . . . . . . . . ... . . . . . . . . . . .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . ..... . . 64

10 : Average Net Revenue Forgone Replacing of Nutrient Loss by Different Fertlizers . . . . . . . . . . . . . . . '" ... .. , ... ... ... ... ... ... ... ... ... ... .. . 66

11 : Total Net Revenue Forgone in Sungai Ikan Catchment from 1981 to 1998 ... ... ,.. .. . ...... . ... ............ . . . . . . . . ... . . . ... . .. . . . .... .. 66

12 : The Percentage of On-site Cost to the Total Vegetable Production Cost and Total Revenue . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 67

13 : Sediment Load in Telom Intake from 1981 to 1998 '" '" . . . . . .. . . '" 68

14 : Incremental Cost for TNB, Cameron Highlands due to Sedimentation from 1981 until 1998. (based on 1981, with 8% discount rate) . . . . . . . . . . . . ' " ... .... , . ... ... ' " ' " ., ... , ... ... .. . 74

vi

15 : Incremental Off-site Cost to Society due to Sedimentation From Sungai Ikan and Telom Catchment (based on 1981, with 8% discount rate) ......... ...... ' " .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ' " . . . . . . . ... . . 75

16 : The Incremental Society Cost Per Metric Ton of Sediment ......... 76

17 : Intake Information of Jabatan Bekalan Air, Cameron Highlands ... 76

18 : Full Costing for Farming in Sungai Ikan Catchment (Based 1981 with 8% Discount Rate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

19 : The Total Incremental On-site and Off-site Cost of Soil Erosion and Sedimentation in Sungai Ikan Catchment ... ' " . . . .. , . . . . . . . . . . . . . . . . . . 80

20 : Data and Results Analysis for the Average Soil Erosion Loss for 3 Locations Observed in Cameron Highlands ..... , . . . .. . . . . . . , . . . . . . . . . 92

21 : Calculation of Tree Stand Value in Sungai lkan Catchment .. , . . . . . 106

vii

LIST OF FIGURES

FIGURE Page

1 : Change in Productivity Approach to Measuring On-Site Costs of Soil Erosion . . . . . . .. . ... . .. . . . . . . ... . . . . .. . . . . . . . . . . . . .. . . . . . . , '" ... ,.. 14

2 : Replacement Cost Approach to Measuring On-Site Costs of Soil Erosion . . . . . . . . . . . . . . . . . . . . . . . . . . . ... '" . .. . . . . . .. . . . . . . . , '" . . . . . . 1 8

3 : Net Benefits of Conservation Approach to Measuring On-Site Costs of Soil Erosion . . . '" ...... ...... ... .. , ... ... ... ... ...... ... ... ..... , 22

4 : The Market Failure Diagram ... .. . . . . . . . . . . . . . . . . . . . . . . .. . . .. '" ... ... .. 28

5 : Location of Cameron Highlands . . . . . . . . . .. . . . . . . . . . , '" .. . . .. . .. .. , '" 30

6 : Location of Sungai Ikan Catchment, Cameron Highlands... . . . . . . . 34

7 : Replacement Cost Approach to Measuring On-Site Costs of Soil Erosion . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .. . . . . ... . . . . . . . . . . . . . . . 38

8 : Locations of Power Stations, Intakes and Tunnels of1NB . . . ... . .. 50

9 : The Physical Impacts of Sedimentation in Cameron Highlands... . 52

10 : Flow Diagram Illustrating the Calculation of the Financial Cost of Replacement . .. . . . . . . . .. . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . ... . . . . . . . . . . .. 59

11 : Layout of the Telom Desander . . . . .. . . . .. . ... . . . ... . .. . . ... . ... ... .. . ... 70

Vlll

LIST OF PLATES

PLATE Page

1 : One of the hill plantation in Sungai Ikan Catchment... ... ... ... ... ... 33

2 : An English Cabbage farmland beside a hill slope in Sungai Ikan Catchment .. . ... .. . ... ... ... ... .. . . .. ... ... ... ... ... ... ... ... ... ... ... ... ... . 95

3 : A hill had been cut for farming in Sungai Ikan Catchment ... ... ... .. 95

4 : The river water is muddy in the Sungai Ikan Catchment ... ... ... ... . 96

5 : Telom Intake of TNB in Cameron Highlands ... . .. ... ... ... ... ... ..... 96

6 : The water in the Telom Intake is muddy after passing the weir ... .. 97

7 : A farmer is packaging his English Cabbage for sell ... ... ... ... ... ... 98

ix

LIST OF ABBREVIATIONS

REP : Hydroelectric Power

mt : Metric Tonne

meq : Milli equivalent

O.M. : Organic Matter

Pers. Com. : Personal Communication

: Part per million

: Tenaga Nasional Berhad

ppm

TNB

TNBG : Tenaga Nasional Berhad Generation

x

Abstract of thesis presented to the Senate ofUniversiti Putra Malaysia in partial fulfilment of the requirements for the degree of Master of Science.

ECONOMIC VALUATION OF SOIL EROSION AND SEDIMENTATION IN CAMERON IDGBLANDS

By

CHEW CHANG GUAN

April 1999

Chairman : Associate Professor Mohd Shahwabid Haji Othman, Ph.D.

Faculty : Economics and Management

This study was conducted primarily to determine and quantify the costs associated

with soil erosion ( on-site costs) and sedimentation ( off-site costs) in Sungai Ikan

Catchment, Cameron Highlands. Data used on rate of sediment yield in the area was

obtained from a study of Baharuddin et aI., 1996. The average sediment yield in the

Sungai Ikan Catchment was estimated to be 19.7 mt/halyear. The on-site cost estimation

revealed that a hectare of soil loss in a year is worth RM8178.62, which is the forgone net

revenue of the fanner. The on-site cost is about 9.16% of the production cost of

vegetable production. The total on-site cost due to erosion in Sungai Ikan Catchment is

more than RMl8.3 million for 18 years. For calculating the off-site costs, the

incremental cost to TNB due to sedimentation is used. It shows that every metric tonne of

sediment from Sungai Ikan Catchment incurred RM171.69 extra cost to TNB. The

incremental cost due to sedimentation is about 10.09010 of the total net revenue to TNB.

The incremental off-site cost to Society, which taking into account the benefit of selling

xi

sand and the differential cost of electric to TNBG, the total incremental off-site cost to

society is RM72.5 million for 18 years. The finding of this study could hopefully serve as

a useful guide to the local authority in the preparation of land development and other

parties who needed it. Implications of this finding for soil erosion and suggestions are

discussed.

xii

Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai memenuhi sebahagian kepeduan untuk ijazah Master Sains.

PENaAIAN EKONOMI BAGI HAKISAN TANAH DAN ENDAPAN DI CAMERON IDGHLANDS

Oleh

CHEW CHANG GUAN

April 1999

Pengerusi : Profesor Madya Mohd Shahwahid Haji Othman, Ph.D.

Fakulti : Ekonomi dan Pengurusan

Kajian ini adalah bertujuan untuk menentu dan menilai kos-kos yang berkaitan

dengan hakisan (kos "on-site") dan endapan (kos "off-site") di Tadahan Sungai Ikan,

Cameron Highlands. Data hasil endapan yang digunakan di kawasan ini adalah dapat

dati kajian Baharuddin et al., 1996. Purata hasil endapan di Tadahan Sungai Ikan

didapati ialah 19.7 mtJha/tahun. Hasil kajian kos "on-site" ini mendapati hakisan tanah di

setiap hektar dalam setiap tabun adalah bernilai RM8178.62, dimana ini adalah hasil

bersih yang dilepaskan. Kos "on-site" ini adalah lebih kurang 9.16% dari kos

pengeluaran sayur. Jumlah kos "on-site" yang disebabkan oleh hakisan tanah di Tadahan

Sungai Ikan adalah lebih daripada RM18.3 juta untuk 18 tahun. Untuk mengira kos "off-

site", kos tambahan kepada TNB yang disebabkan oleh endapan digunakan. Kajian ini

menunjukkan setiap metrik ton endapan dari Tadahan Sungai Ikan telah mengakibatkan

sebanyak RM171.69 kos tambahan kepada TNB. Kos tambahan yang disebabkan oleh

endapan ini adalah 10.09% daripada jumlah basil bersih TNB. Kos tambahan "off-site"

kepada masyarakat, dimana mengambil kira keuntungan dari jualan pasir dan juga

perbezaan kos electrik kepada TNBG, jumlah tambahan kos "off-site" kepada masyarakat

X1I1

ialah RM72.5 juta untuk 18 tahun. Hasil kajian ini diharapkan boleh menjadi satu

panduan kepada kerajaan tempatan untuk persediaan pembangunan tanah serta pihak­

pihak lain yang memerlukannya. Implikasi basil kajian ini tentang hakisan tanah serta

cadangan-cadangan juga dibincangkan.

XlV

CHAPTER I

INTRODUCTION

Background of the Study

In the past three decades, land degradation caused by erosion was considered of

minor importance for many countries, including Asian and European communities.

Today, land degradation is a major concern in land use management throughout the

world. Recent estimate by Food and Agriculture Organization (FAO) shows that global

loss of productive cropland due to soil erosion and degradation is estimated to be nearly

seven million hectares annually (FAO, 1991). In relation to this, world organizations

such as the World Bank and Economy and Environment Program for South East Asia

(EEPSEA) are focusing their research and projects on soil degradation and conservation

to master this environmental problem. For instance, on October 28, 1997, the World

Bank approved a US$55 million loan to finance the Land Management III Project in

Brazil, which was designed to increase and sustain agricultural production, productivity,

and income of thousands of farm families facing serious soil and water degradation

problems in the State of Sao Paulo (World Bank, 1997).

With a growing demand for forested land (for agriculture & housing) and natural

resources such as water (for fresh water and hydro-electric power generation), forested

2

catchmentl areas are getting scarce. Forest catchment provides different types of goods

and services including commodities such as water, food, timber and environmental

services such as bio-diversity, carbon storage and flood control. However, these benefits

are not known and largely ignored because they are not traded in the market. In fact,

most of the fresh water used in Malaysia for household, industry, agriculture uses are

drawn from forested catchment. Moreover, hydroelectric power (HEP) generation, which

constitutes 1 0% of the total energy production, requires water flows from catchment

areas to run the turbines (Pers. Com. Mohd Ismail, 1998).

A forest catchment area may also be suitable for agricultural and tourism

purposes, especially in the highlands. The highland weather is suitable for certain

temperate crops, such as cabbage, tomato and flower. With an increasing demand for

agricultural land, changes would take place to the ecosystem. For example, by opening

the forestland, man exposes the soil surface to erosion from water and wind. The lack of

proper care of the forest catchment will result in accelerated soil erosion and

sedimentation. This damages the forest cover or vegetation, thus affecting its ability to

hold large capacity of water and to regulate the flow of water. In addition to that, soil

erosion diminishes crop productivity by removing nutrients, reducing organic matter, and

restricting rooting depth as the soil thins (OTA, 1982).

Soil erosion is the process by which soil particles are detached from a place of

origin and transported and deposited elsewhere. According to Troeh et a/.(1980), there

I Forested Catchment is defined as naturally occurring units of the landscape, which contains a complex array of inter-linked and inter-dependent resource and activities bonded by topographic features.

3

are three main types of water erosion classified in tenns of nature and extent of soil

removel, namely sheet erosion, rill erosion and gully erosion. Sheet erosion pertains to

the removal of thin layers of soil by raindrop splash and surface flow acting over the

whole soil surface. Rill erosion, on the other hand, refers to the situation where erosions

channels are small enough to be removed by normal tillage operation. In gully erosion

type, erosion channels are already so large to be erased by ordinary tillage (Francisco,

1986).

Beside soil erosion, the eroded soil deposits on waterways and reservoir. This

process is known as sedimentation. The degree of damage is determined, to a great

extent, by the nature of the soil and its position in the landscape (Harlin and Berardi,

1987). Example of damages of sedimentation include the reduction of fish catch for

downstream users, increase in sediment of dead storage in reservoirs, and water pollution

for the usage of downstream users.

Economic Impacts

The impacts of soil erosion and sedimentation have profound economic

implications for many countries, including Malaysia. For instance, degradation of land

resources threatens prospects for economic growth and human welfare. The erosion and

sedimentation impacts that result from human activities on the forest catchment areas can

be classified into on-site and off-site impacts.

The on-site impacts of soil degradation measures the decline in quality of the land

resource itself, such as degradation of natural soil fertility, loss of organic matter,

market prices of agricultural inputs and outputs, and are therefore easily neglected in

public and private decision-making. Thus, to incorporate these degradations in a cost

benefit analysis would require measuring these impacts over an appropriate period of

time and incorporating the economic costs of these degradations.

Problem Statement

The conversion of forestland to agricultural activities (legally or illegally) attests

to the seriousness of soil erosion problems in the Cameron Highlands. The water

resources are highly turbid and sediment laden and also exposed to organic and chemical

pollution from heavy use of fertilizer (organic and inorganic) and pesticide. The loss in

productivity due to erosion has an impact at all levels of society. If this problem is still

ignored by society, the economic loss to society will be much higher in the future due to

higher abatement cost. Seeing the weight of the on-site and off-site problem, a study on

economic valuation of environmental impacts from erosion and sedimentation in

Cameron Highlands can perhaps ensure environmentally sound development of the area.

The main stakeholders2 involved or affected are the farmers, local district council,

Tenaga Nasional Berhad (TNB), Forestry Department and general public, where the soil

erosion problem will increase their cost of maintenance and management.

Objectives of the Study

The objective of this paper was to quantify the net revenue of farmland when the

external cost of erosion and sedimentation are taken into account. In order to do that, on-

2 Stakeholders are groups of people, organized or unorganized, who share a common interest or stake in the system (Mohd Shahwahid et al., 1998).

6

site and off-site costs associated with soil eroSIOn and sedimentation in Cameron

Highlands have to be computed. For the on-site cost, this would first require quantifying

the physical quantities of topsoil and nutrient loss. Evaluating their value would require

estimating the physical inputs (fertilizers) as replacement for the nutrient loss. The effect

on production of certain crops owing to the amount of nutrient loss was estimated. For

off-site cost of the sediment problem, the main downstream party affected is TNB. The

extra production cost and the benefits forgone by 1NB are computed. Having quantified

the economic cost of the impact of soil erosion from farmland to the economy of

Cameron Highlands, recommendation to address the soil erosion problem is given.

Limitations of the Study

This study undoubtedly represents an important step in quantification of soil

erosion impact. The analysis, however, is partial in nature and based on a number of

assumptions and generalizations which need refinement. The estimated value is a little

underestimated. There are many other impacts of soil erosion and sedimentation, which

have not been incorporated due to lack of time and budget. These impacts of soil

degradation are shown in Table 1.

Table 1 : The General Impacts of Soil Erosion and Sedimentation in Cameron Highlands

Problem

On-Site (Soil Erosion)

Off-Site (Sedimentation)

Impacts

Farmer • Loss of soil moisture-holding capacity • Restriction of rooting depth • Loss of nutrients and organic matter

Society • Land slide • Real property destruction • Threats to human life

Natural Resources • Loss of Bio-diversity • Loss of timber • Loss of carbon storage • Loss of flood control • Loss of habitat for fauna

Resident downstream (Orang Asli) • Declining quality of domestic water supply • Increment in medical fee and expenses • Real property and crop destruction

Tourism • Sedimentation of recreation park • Decline in tourist arrival • Decreasing income for hotels and other

tourist oriented businesses

Tenaga Nasional Berhad (TNB) • Increase in investment cost • Increase in maintenance cost • Decline in HEP production

7

CHAPTERll

LITERATURE REVIEW

Introduction

This chapter reviews and discusses different ways which have been used by

researchers to study soil erosion. This includes the methods for evaluation of on-site and

off-site costs, requirement of data, advantages and disadvantages of the approaches.

Effects of Soil Erosion

Evidence of the exhaustion of arable land under agriculture is found throughout

history and in all parts of the world. Several authors (Tolley and Riggs, 1961; Pasig,

1981) have pointed out the need to treat the watershed as a unit in economic analysis and

planning. This is due to the fact that the activities being performed in the uplands or

forest zones, which generally result in soil erosion, will certainly affect the stability of the

lowlands through sedimentation.

Khoshoo and Tejwani (1993), as quoted by Alladeen (1997) suggested that the

consequences of erosion are all pervasive and pernicious. Soil erosion adversely affects

the functioning of natural ecosystem (ecological impact), the production base (economic

impact) and life of the people (social impact). Bishop (1992) for instance, pointed out

that the consequences of erosion can be a cost or benefit which is not reflected in the

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market prices. Sedimentation of downstream reservOIrs, hydroelectric facilities or

irrigation channels is a typical negative externality. In comparison, the protection of

watersheds provided by tree plantations, orchards and other perennial crops is an example

of a positive externality. Such environmental externalities are often difficult to measure.

Measurement of Soil Loss

One of the methods in estimating the soil erosion loss is using the "Universal Soil

Loss Equation". The "Universal Soil Loss Equation" (USLE) was developed in the

United States through statistical analyses of erosion measurements by using an empirical

equation. It was developed based on agricultural plots with certain ranges of variations in

soil, climatological and slope conditions. The development of USLE was pioneered by

W. H. Wischmeier and D. D. Smith from the US Agriculture (USDA), Agriculture

Research Service and Purdue University in the late 1950s (Renard et al., 1991). The

amount of soil loss in mtlha/year (A) was estimated by multiplying the rainfall / runoff

(R), the erodibility factor of the soil (K), the length of the slope (L), the steepness of

slope factor (S), the cropping and management factor (C) and the supporting conservation

practice factor (P). It reflects the influence of all the major factors known to affect

rainfall erosion. The equation is given as:

where,

A = Amount of soil loss (mt/ha/year) R = Rainfall erosivity factor K = Erodibility factor of the soil L = Length of slope factor S = Steepness of slope factor C = Cropping and management factor

A=R*K*L*S*C*P

P = Supporting conservation practice factor (terracing, contouring an so forth)

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According to Roslan (1996), to estimate the average annual soil loss, numerical

values have to be established for all the factors. However, such data are lacking in

Malaysia, for instance as in the case of Cameron Highlands. Thus, more research work

on this field is needed. The importance of the soil-loss equation is to serve as a guide to

the soil conservation programs for assisting in land use planning and management

decision. From his study the soil erosion loss at three locations in Cameron Highlands

using the USLE are computed as 95.092 mtJhaJ3 months for Gunung Brinchang, 46.814

mtlha/3 months for Sungai Ikan and 2.468 mt/haJ3 months for Tanah Rata area. The

values ofR, K, L, S, C and P used in the computation are shown in Appendix A.

Arnoldus (1977) warned users of USLE to take precaution in applying the

equation to countries outside the United States for which it was originally designed.

Modifications have to be made to make the equation applicable to outside environments

like the tropical watersheds. For instance, in the modified model, vegetation-

management (VM) factor will be replaced soil cover-management factor (C) and the soil

conservation practice factor (P) in USLE (Baharuddin et al., 1999). The new model is

called modified soil loss equation, (MSLE) (Warrington et al., 1980). The modified

equation is given as:

where,

R = Rainfall erosivity factor K = Erodibility factor of the soil L = Length of slope factor S = Steepness of slope factor VM = vegetation-management factor

A=R*K*L*S*VM

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Valuing the Costs of Soil Erosion

A range of analytical techniques is used to evaluate the impacts of soil

degradation in terms of economic costs and benefits.

On-site impacts are most frequently studied, generally by an analysis of the effect

of soil loss on crop production (Bishop, 1992). Assessments of off-site effects have been

hampered by a lack of physical data. Barbier (1995) added that the off-site impacts of

land degradation are often much harder to evaluate because the off-site benefits provided

by land resources are not traded at all.

Economic Models for On-site Costs of Soil Erosion

VariollS methods are available to estimate the value of on-site costs for erosion.

Each approach has its disadvantages and advantages:

Hedonic Pricing

Hedonic pricing compares the sale or rental price of plots of land which differ only in

the extent of physical degradation (Bishop, 1992). This method is applicable only where

land markets are well developed, and price data are available. The technique presumes

that physical degradation is in fact reflected in land price. However, if property rights are

ill defined or when speculation or policy distorts land markets, problems can arise. In

view of this, Hedonic pricing may be more applicable in a developed country context in

which rural real estate markets are well-established (Norse and Saigal, 1993). This

approach may also understate the full cost of soil degradation to society, as it captures