Economics of Dryland Management
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The Economics of Dryland Management The Economics of Dryland Management John A. Dixon East-West Center David E.James Macquarie University PaulB. Sherman East-West Center EARTHSCAN PUBLICATIONS LTD LONDON First published in 1989 by Earthscan Publications Ltd 3 Endsleigh Street, London WC1H ODD Copyright © 1989 by United Nations Environment Programme - The Australian Government - East-West Center All rights reserved 1 British Library Cataloguing in Publication Data Dixon, John A. (|ohn Alexander), 1946- The economics of dryland management. 1. Arid regions. Natural resources. Management I. Title •. James, David E. III. Sherman, Paul B. 333.73 ISBN 1-85383-052-6 Production by David Williams Associates 01-521 4130 Typeset by TJB Photosetting Ltd, Grantham, Lincolnshire 1 Printed by WBC Ltd, Bristol Earthscan Publications Limited is an editorially independent and wholly owned subsidiary of the International Institute for Environment and Development. Contents Foreword xi Preface xv 1. The Dryland Problem 1 Dimensions of the problem, 5 History and background of dryland usage; Current conditions in the drylands; The future of the drylands References 12 2. Dryland Characteristics and the Degradation Process 15 . Physical and biological characteristics 15 Climate; Surface water and groundwater resources; Topography and soils; Vegetation; Animal populations Degrada tion and land use 24 Degradation processes; Livestock production; Rainfed crop production; Irrigated agriculture; Forestry and agroforestry; Other land uses Social and institutional factors • 37 Human factors; Institutional and political factors References 41 3. The Role of Public Policy in Dryland Development and Management 43 Policies towards the drylands 43 Diversity of dryland problems; The case for public assistance; General policy issues in development planning; Formulation of policies, programmes and projects; Economics and the policy process Designing appropriate policies 49 Economic issues in designing remedial action; Determining the appropriate level of protection; Desirable characteristics of policies, programmes and projects vi The Economics of Dryland Management Social, cultural and institutional factors 59 Human factors {Institutional factors References 60 4. General Economic Principles and Techniques of Analysis 62 Concepts of economic welfare 63 Measurement of benefits and costs 64 Price distortions; Economic externalities; Use rights and resource management systems; The effect of time; Breakdown of resource management systems; Renewable and non-renewable resources; Irreversible damage to resources; Risk and uncertainty Design of an economic analysis 79 Techniques of economic analysis 79 References 80 5. Managing Drylands as Renewable Economic Resources 82 Renewable production systems in dryland areas 82 Sustainable production from dryland ecosystems; Products of dryland areas; Economic management objectives Degradation: causes and corrective actions 87 Perspective of the land user; Externalities and open-access common property resource effects; Corrective policies and strategies Dryland agriculture and forestry 94 Rainfed crop management; Dryland forestry; Appropriate farm technology; Soil and water conservation Grazing systems 100 Key variables in grazing management; Handling stochastic conditions; Computer simulation modelling of dryland grazing systems References 106 6. Economic Appraisal of Investments in Dryland Programmes and Proj ects 109 Financial analysis 110 Social benefit-cost analysis 117 Project costs; Physical boundaries of analysis; Shadow prices; Dealing with inflation; Secondary impacts; Calculation of net social benefits; Income distribution Decision criteria Choosing a decision criterion Cost-effectiveness analysis References 7. Valuation of On-Site and Off-Site Effects Valuation of productivity changes On-site productivity changes; Off-site productivity changes; Effects of production changes on prices, factor markets and consumers and producer's surplus Valuation of other effects Damage to property and materials; Human life and health; Population dislocation; Dealing with intangibles and non-quantifiables Cost analysis techniques Preventive expenditures; Replacement cost; Opportunity-cost approach; Travel-cost approach References 8. Risk and Uncertainty in Dryland Development and Management Handling risk and uncertainty Sources of risk and uncertainty in dryland decision-making; Definitions of risk and uncertainty Risk analysis Applications of risk analysis; A framework for risk analysis; Interpretation of results of risk analysis Decision-making under conditions of uncertainty Decisions based on available information; Sensitivity analysis; Decision analysis techniques; Uncertainty associated with irreversible damage to resources Defensive strategies to cope with risk and uncertainty Overcoming the effects of risk; Investment in information; Use of expert systems; Adaptive environmental assessment and management; Critical zones and safe minimum standards References viii The Economics of Dryland Management 9. Models for Dryland Development Planning 193 General policy issues in dryland development planning 193 Linear programming models 194 General properties and applications of linear programming models; Setting up a linear programming model; Finding the optimum solution; Introducing an environmental externality; Limitations of the linear programming approach Sectoral planning models 206 General properties of input-output models; Solving an input-output system; Simulating the effects of new production; Incorporating consumption expenditure; Data sources and construction of input-output models; Application of multipliers to dryland development planning Natural-resource accounts 215 Approaches to NRA Global models 219 References 221 10. Implementation of Policies, Programmes and Projects 224 Presenting results to decision-makers 225 Characteristics of a useful economic analysis; Important elements of an economic analysis Creation of implementation incentives 227 Direct government expenditure; Influencing private behaviour; Characteristics of efficient incentives Selecting the appropriate incentives 233 Constraints on the use of economic incentives; A checklist of incentive characteristics Social and cultural constraints to implementation 234 Policies on land tenure and use rights 236 Systems and incentives; Accommodation and change Management of programmes and projects 246 Technical management; Financial management; Social management; Administrative management References 248 Contents ix 11. Case Study: Benefit-Cost Analysis of Soil Conservation in Maphutseng, Lesotho by Jan Bojo 250 Background 250 The FISC project and the Maphutseng area The economic analysis 254 Choice of evaluation criteria; Quantification of costs; Quantification of benefits; Valuation of costs andbenefits in economic prices; Discounting; Time horizon; Results; Distributional effects; Uncertainty and sensitivity analysis; Summary of sensitivity analysis; Policy implications of the economic analysis The financial analysis 275 The farmers viewpoint; The long-run perspective; Policy implications of the financial analysis Acknowledgements 279 List of persons contacted in Lesotho Annex: cost calculations 280 References 286 Index 289 Foreword Since its inception in 1972, and particularly since the United Nations Conference on Desertification in 1977, the United Nations Environment Programme has worked to assess the nature, extent and significance of desertification; to identify and promote effect• ive technological, policy and organizational means of combating desertification. In addition, UNEP has worked to make available (in co-operation with concerned institutions) training, technical co• operation and information on desertification control. It has been UNEP's belief that a major factor in the failure of governments to give adequate policy attention and funds for desertification control is that the economic significance of dryland degradation, as well as of its rehabilitation, has not been clearly understood by them. The Drylands Project began in 1985 following a major review of the UN Plan of Action to Combat Desertification (PACD), initially formulated by the UN Conference on Desertification in 1977. The 1985 review revealed that limited progress had been made in imple• menting the Plan. Adverse pressures of economic development had continued to outstrip the benefits of remedial actions being taken in dryland areas. Dryland degradation and rehabilitation is a public policy area of vital significance, to which environmental assessment, economic- development planning techniques and social benefit-cost analysis can be applied. By 1985, a significant body of economic analysis had been developed that could be applied, in general, to deal with environmental and natural resource problems. It was then that UNEP, the Government of Australia and the East - West Center came together to initiate the process of evolving a systematic approach to analysing dryland degradation and rehabilitation issues within the framework of economic analysis. The present volume is a product of that collaborative effort. The Drylands Project, with its focus on the role of economics in dryland management, is seeking to develop a systematic approach xii The Economics of Dryland Management to dealing with the challenge of improved dryland management. To date, this work has been guided by a global conference and three regional workshops involving over 300 participants from 45 countries, and generously