Economic Feasibility

Knowing how much carbon can be stored and the extent to which crop yields can be increased under various management scenarios is only the first step in a feasibility assessment. The second step is to evaluate whether farmers would in fact be able to afford to implement promising practices. Limited investment capital among smallholders has been recognized as major obstacle to adoption of soil fertility management strategies, regardless of their long-term financial and social profitability (Izac, 1997; Sanchez et al., 1997; Ayuk, 2001).

Results from a cost-benefit analysis of the most promising land use and management options (Tschakert, 2004b) suggest three important points. First, costs for poor farmers are expected to be considerably higher than those for medium and rich farmers. This is due to the fact that most poor farmers lack the key resources for improving current practices and, thus, would have to buy the necessary inputs. This discrepancy is illustrated in Table 22.2 which lists first-year costs for 15 'best' management practices. Second, first-year costs for inputs are likely to exceed costs for foregone labor and rent when converting cropland to alternative uses. Third, there is a large variation in costs between the various management practices. Some of the practices listed in Table 22.2 include income-generating activities to compensate farmers for foregone production and to make alternatives more attractive. Animal fattening (13) and live hedges with high-value Acacaia leatea seeds (4) require considerable upfront cash. (The second

Table 22.2 First-Year Costs for "Best" Management Practices and Three Resource Endowment Groups ($ h-1)

Management Number Practices

1 Compost 2 t

2 Conversion ag land to grassland

3 Grassland + protection kad* (baskets)

4 Grassland + protection kad* (live hedges)

5 Cattle manure 4 t

6 Cattle manure 4 t +

fertilizer

7 Sheep manure 5 t

8 3 yr fallow + organic matter 2t

9 Sheep manure 10 t

10 3 yr fallow + laucaena prunings 2 t

11 Kad* plantation (250

trees/ha)

12 10 yr fallow + organic matter 2 t

matter + animal fattening

14 10 yr fallow + leucaena prunings 2 t

15 Optimum agricultural intensification

Poor Medium Rich

Households Households Households

1,198

232

232

54

0

0

180

122

122

1,124

974

974

1,455

0

0

1,511

56

56

1,068

702

388

228

0

0

2,060

1,696

1,381

323

106

106

723

650

650

225

0

0

3,074

2,849

2,849

323

106

106

1,215

942

654

*Kad = Faidherbia albida

Source: Based on Tschakert, P. 2004b. The costs of soil carbon sequestration: an economic analysis for smallholder farming systems in Senegal. Agric. Syst., 81:227-253.

scenario is based on suggestions from Senegalese agronomists summarized in Christopherson and Faye, 1999.) The same is true for options involving the purchase of animals to generate large amounts of manure.

A comparison of net present values (NPVs) also reveals large differences between resource endowment groups on the

Table 22.3 Net Present Values for "Best" Management Practices After a 25-Year Period (in $ ha-1), Based on Discount Rate of 20%

Management Number Practices

1 Compost 2 t

2 Conversion ag land to grassland

3 Grassland + protection kad* (baskets)

4 Grassland + protection kad* (live hedges)

5 Cattle manure 4 t

6 Cattle manure 4 t +

fertilizer

7 Sheep manure 5 t

8 3 yr fallow + organic matter 2 t

9 Sheep manure 10 t

10 3 yr fallow + laucaena prunings 2 t

11 Kad* plantation (250

trees/ha)

12 10 yr fallow + organic matter 2 t

matter + animal fattening

14 10 yr fallow + leucaena prunings 2 t

15 Optimum agricultural intensification

Poor Medium Rich

Households Households Households

-643

22

22

-603

-379

-260

-549

-319

-201

2,155

2,476

2,595

-2,042

474

474

-1,128

720

720

-424

12

131

-440

99

99

-119

395

433

-514

11

11

-344

-116

2

-707

-260

-136

-1,116

-669

-546

-795

-344

-220

-1,037

11

408

*Kad = Faidherbia albida

Source: Based on Tschakert, P. 2004b. The costs of soil carbon sequestration: an economic analysis for smallholder farming systems in Senegal. Agric. Syst., 81:227-253.

one hand, and the various management practices on the other hand (Table 22.3). (NPVs are discounted net costs and benefits. They indicate the profitability of an option. The discount rate used here was 20%.) Calculated for 1 hectare and for 25 years, NPVs ranged from -$2042 to +$2595. Only one practice would be lucrative for poor households (4) while medium and rich farmers would have a choice of profitable options. Some practices, such as the conversion of cropland to grassland or long-term fallow without a parallel income-generating component, are unlikely to yield positive returns, even for high-resource-endowment households.

Another way to appraise the value of "best" management strategies is to look at tradeoffs between options that increase soil C and those that enhance economic profitability (Gokowski et al., 2000, cited in Sanchez, 2000). The idea is to identify options that optimize these tradeoffs. Figure 22.6 depicts the tradeoffs for 15 "best" management options for the Peanut Basin.

As in Sanchez's example from Cameroon, there is no win-win situation (high C gains and high profitability) for small-scale farming systems in semi-arid Senegal. However, using more organic matter in the form of manure (4 to 5 metric tons ha-1) and short-term improved fallows would optimize the tradeoffs between the profitability interest of farmers and the interests of global society to obtain higher C uptake and storage. The high C/very low profitability options (10 and 15) might only work for better-endowed farmers. The high C/neg-ative profitability options (11 through 14), although highly attractive to global society, are economically not feasible for local farmers, unless substantial financial support is provided. The only practice that shows a positive NPV for all resource endowment groups (4), because of its income-generating component, yields only low C gains.

The final question is how estimated costs, profitability, and tradeoff scenarios compare to actual household revenues, expenditures, and overall budgets. Annual revenues and large variations were shown to exist between sample households. For the low-resource endowment group, 9 of the total 15 management practices exceed annual household income ($577). Medium and rich households, with an annual income of $1282 and $2102, respectively, would be able to afford more than half of the tested practices, but not those with very high upfront costs as indicated in Table 22.1. However, these calculations do not take into account household expenditures. In the research sample, expenditures ranged from $68 year-1 to

16 14 12 10

ii k

High C Negative P

High C Very low P

17 I

High C High P

C = carbon P = profitability

Very high P

000 -500 0 500 1,000 1,500 2,000 2,500 3,000 Profitability (NPV), 20% Discount rate ($ ha-1)

Management Practices (1 ha, 25 years)

1 Compost 2t

2 Conversion ag land to grassland

3 Grassland + protection kad* (baskets)

4 Grassland + protection kad* (live hedges)

5 Cattle manure 4t

6 Cattle manure 4t + fertilizer

7 Sheep manure 5t

8 3 yr fallow + organic matter 2t

9 Sheep manure 10t

10 3 yr fallow + leucaena prunings 2t

11 Kad* plantation (250 trees/ha)

12 10 yr fallow + organic matter 2t

13 10 yr fallow + 2 torg. matter + animal fattening

14 10 yr fallow + leucaena prunings 2t

15 Optimum agricultural intensification_

Figure 22.6 Gains in soil carbon vs. profitability (net present values) of several alternative land use types and management practices. Results are for a 25-year period and medium resource endowment farmers.

$425year-1 per AE. Nearly half of all household revenues were spent on food (mean 46%). Expenditures for clothing (12%) and family support and other social investments (6%) represented other important categories. It should be stressed that the large majority of household funds spent on food are spent on imported rice, which usually constitutes the basis for one meal per day, and not on millet.

Whether actual household budgets (revenues - expenditures) would be sufficient to cover initial investment costs of "best" management practices was assessed through a cash-flow analysis simulated with STELLA (Tschakert, 2004b). The results suggest that poor farmers would not have the necessary capital to invest in any of the proposed management practices after covering their basic household needs. Medium households are likely to be able to cover costs for two practices, and rich households costs for three options. These are practices with lowest rates of manure application. The shortage of first-year funds varies from $588 to $1217 on average. These figures fail to take access to credit and specific savings into account.

However, if external financial support were to be provided to complement local cash resources, especially at the beginning, household funds would probably experience an economic "takeoff" and build up crucial capital. Examples of such a takeoff are shown in Figure 22.7. Although such capital accumulation and time for takeoff vary from practice to practice, all three resource endowment groups can be expected to benefit. Simulated gains range from $1200 to $25000 at the end of a 25-year investment cycle, assuming that there are no "luxury investments," such as the construction of large brick houses. The simulation results also suggest that rich households would require only short-term external financial support (1 to 4 years), while poor households are likely to need financial commitment for longer periods of time, except for practices with immediate revenues and relatively low costs, such as the fattening of sheep.

Agricultural intensification

Conversion of cropland to grassland + protection of kad + live hedges (Acacia leatea)

Sheep manure 10 t

Agricultural intensification

-500

25,000 20,000 15,000 10,000 5,000 0

Conversion of cropland to grassland + protection of kad + live hedges (Acacia leatea)

25,000 20,000 15,000 10,000 5,000 0

10,0008,0006,0004,0002,000 0

25,000 20,000 15,000 10000, 5,000 0

25,000 20,000 15,000 10000, 5,000 0

12,00010,0008,0006,0004,0002,0000 "P 1 ' Years' 1 -2 000* 5 10 15 20 25

10,0008,0006,0004,0002,000 0

Years 10 15

14,000

12,00010,0008,0006,0004,0002,0000 "P 1 ' Years' 1 -2 000* 5 10 15 20 25

-500

o Missing funds met by external financial support

A Househould budget change

Figure 22.7 STELLA output showing monthly changes in household budgets ($) as a result of carbon sequestration practices, compared to a base scenario (household cash flows as they would occur without these practices). Also shown are "missing household funds" (the amount the household lacks to invest in a certain practice). Ideally, these missing amounts would be met by external funding sources. The examples are for poor and rich households. (Based on Tschkert, P. 2004b. The costs of soil carbon sequestration: an economic analysis for smallholder farming systems in Senegal. Agric. Syst., ^ 81:227-253.) «

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