EL ARADO: BREAKING GROUND FOR PAYMENT FOR ENVIRONMENTAL SERVICES BASED ON OPPORTUNITY COSTS OF CONSERVATION IN ECUADOR A thesis presented to the faculty of the Center for International Studies of Ohio University In partial fulfillment of the requirements for the degree Master of Arts Chela Kirpal Moore June 2004 This thesis entitled EL ARADO: BREAKING GROUND FOR PAYMENT FOR ENVIRONMENTAL SERVICES BASED ON OPPORTUNITY COSTS OF CONSERVATION IN ECUADOR BY CHELA KIRPAL MOORE has been approved for the Center for International Studies by Brad Jokisch Director, Latin American Studies Josep Rota Director, Center for International Studies MOORE, CHELA KIRPAL. M.A. June 2004. International Development Studies El Arado: Breaking Ground for Payment for Environmental Services Based on Opportunity Costs of Conservation in Ecuador (117pp.) Director of Thesis: Brad Jokisch Payment for Environmental Services is a market mechanism designed to achieve sustainable development, with beneficiaries of environmental services paying landholders whose resources provide those services. This thesis explores how opportunity costs of conservation can be a tool for designing effective payments. Interviews with smallholder farmers in Ecuador’s Mazar Watershed were combined with secondary sources. The value of production per hectare per year, a proxy for farmers’ opportunity costs, was calculated for three land uses: potato and corn cultivation, and dairy. The thesis demonstrates: 1. dairy farming’s value of production is declining and does not constitute the highest return; 2. there are poor conditions for potato cultivation, generating a low value of production; 3. corn cultivation results in the highest value of production. Therefore, two scenarios for designing payments per hectare per year are suggested: the highest value of production, $239.13, and the value from a production mosaic, $190.40. Approved: Brad Jokisch Director, Latin American Studies ACKNOWLEDGEMENTS While there are many to thank, I have to start with the generous and kind people of San Vicente and Colepato, Ecuador. I would particularly like to thank Don Severo Calle and his family for opening their home to me, for providing invaluable insight, and for being incredibly patient with my Spanish and my weird vegetarian diet. Thank you to Stuart White and his family for inviting me to the Mazar in the first place, for giving me my first glimpse of the Mazar’s forest and páramo from their beautiful home, for giving me the opportunity to work with them and their neighbors, and for outstanding suggestions and advice. Your work and your organization, FCT, inspire me. My experience with FCT would not have been the same without Tania, Maria Augusta, and Soraya, either. You helped me so much with my work, but it is your friendship that I value most. And, finally, thank you to Ramiro Carrión for his support and collaboration. Here in the United States, I would like thank first and foremost Brad Jokisch for going above and beyond anything I expected from a thesis advisor. How lucky was I to have my thesis advisor in-country at the same time I was doing my research? You have been a mentor and a friend. Thank you also to Ariaster Chimeli for making economics simple (as possible) and for reminding me that the fate of the world (or even a small part of it) does not rest on me or this study, and to Ann Tickamyer for her guidance and friendship early on. Finally, I thank my parents for loving me and for putting up with my frantic phone calls. My extended family, too, has been there even from a distance. In particular, I would like to acknowledge my Grandfather John Moore, a farmer from Ohio, who I know would have gotten a kick out of visiting the farms in the Mazar and who helped to create a tradition of higher education within our family. I would also like to thank my friends here at Ohio University who made these two years an amazing trip in itself. And, lastly, to Albert…there is too much to thank you for. But, most of all, I appreciate your constant support and your love. 6 TABLE OF CONTENTS Abstract................................................................................................................................3 Acknowledgements..............................................................................................................4 List of Tables .......................................................................................................................8 List of Figures....................................................................................................................10 List of Acronyms ...............................................................................................................11 Chapter 1 Introduction ......................................................................................................13 Chapter 2 Deforestation and Payment for Environmental Services: A Review of the Literature ...............................................................................17 Deforestation...................................................................................................17 PES Markets....................................................................................................23 PES Case Studies ............................................................................................26 Conclusion ......................................................................................................31 Chapter 3 Background and Research Questions...............................................................33 Regional Background......................................................................................33 Political Background.......................................................................................38 Demographic Background ..............................................................................41 Problem Statement and Research Questions...................................................41 Chapter 4 Methodology ....................................................................................................44 Institutional Affiliation and Support...............................................................44 Other Organizations........................................................................................45 Site Selection ..................................................................................................47 Interview Design.............................................................................................49 Interviewee Selection......................................................................................53 Data Considerations........................................................................................56 Scope of the Study ..........................................................................................58 7 Chapter 5 Data ..................................................................................................................60 Potatoes...........................................................................................................60 Corn.................................................................................................................68 Dairy Farming.................................................................................................72 Conclusion ......................................................................................................75 Chapter 6 Data Analysis ...................................................................................................77 Potato Cultivation ...........................................................................................77 Corn Cultivation..............................................................................................82 Dairy Farming.................................................................................................85 Payment Scenarios..........................................................................................88 Conclusion ......................................................................................................93 Chapter 7 Conclusion........................................................................................................95 Significance for PES in the Mazar: Some Practical Suggestions ...................95 Significance for PES: Suggestions on Theoretical Approach ........................98 Final Comments............................................................................................105 Literature Cited ................................................................................................................107 Appendix 1 Interview Questions ....................................................................................112 Appendix 2 Assumptions................................................................................................116 Appendix 3 Definition of Units ......................................................................................117 8 LIST OF TABLES Table 2.1 Payment Plans within the Costa Rican PES System.........................................27 Table 2.2 Payment Plans within the Pimampiro, Ecuador, PES System..........................31 Table 4.1 Accounting Profits Per Hectare Per Year for Various Crops in Ecuador.........49 Table 4.2 Inputs and Outputs Considered in the Interviews: Potatoes and Corn .............51 Table 4.3 Inputs and Outputs Considered in the Interviews: Dairy Farming