Evaluating land management practices under fertilizer subsidy or carbon

sequestration compensation in Kenya

By Paswel MarenyaInternational Food Policy Research Institute

Seminar Presentation at World Agro forestry Center-NairobiMay 14, 2010

With others at IFPRI:Yanyan LiuEphraim NkonyaJose Deustua Rossel Paul Thangata

Research Questions• What is the best way to organize input support systems for

smallholder agriculture?

• Are Subsidies the ‘New Normal’ as a final hope for improved input use in Africa?– Are subsidies not rather expensive?

• What role is there for integrated soil fertility management (ISFM)?

• Can the production of a global public good (carbon sequestration) offer extra revenue streams thereby relieving pressure on subsidy budgets?

Outline

• Introductory Background• Key features and requisites for

agricultural carbon markets • Some tentative economic indicators for

further analysis• Implications and future directions• Your Inputs

Introduction• Carbon sequestration in the agriculture sector refers to the capacity of

agricultural lands and forests to remove carbon dioxide from the atmosphere.

• Carbon dioxide is absorbed by trees, plants and crops through photosynthesis and stored as carbon in biomass in tree trunks, branches, foliage and roots

– Eventually forming soil organic matter (SOM)

• SOM is an important variable in soil health

– It improves soil structure, the soil is capable of absorbing water faster, retaining more moisture, and resisting erosion by wind and rain.

– soil organic matter also acts as receptacles and reservoirs of nutrients.

– provides carbon needed by soil microbial communities for metabolism.

Introduction• The amount of carbon stored in soil organic

matter is influenced by – the addition of carbon from dead plant material

among other things

• By employing farming practices that involve biomass retention: – farmers may be able to slow or even reverse the

loss of carbon from their fields.

Examples• Establishing crops in the residue of previous

crops, which are purposely left on the soil surface.

• Cover crops and manures• Land restoration and land use changes that

encourage the conservation and improvement of soil, water and air quality

• Converting marginal cropland to trees or grass maximizes

The value of soil carbon: Potential benefits foragriculture

• ‘Creating farm and forestry systems with strong incentives for growing soil carbon could well be at the center of climate stabilization’ Mazza (2007)

• As with any farm produce, farmers need a market for the sequestered carbon – as well as a price that will make it profitable to grow.

• From a broader social context, the questions of who will purchase this new output and what is a fair price – are also of private and public importance.

Putting a Value on Sequestered Carbon

1. Carbon Tax– entities that emit greenhouse gases or use carbon-based fuels will

have an incentive to switch to alternatives adopt practices that

would lower their level of GHG emissions.

2. Cap and Trade– by creating a new property right — the right to emit with limitations

and ability to trade these rights. – groups that exceed caps must purchase offsets from other entities

that emit less than their allowance or from entities that sequester carbon.

3. Subsidizing Positive behavior– Farmers can receive incentives to adopt new practices or receive

support to maintain such practices.

Requisites for Agricultural Carbon Markets

• Verifiability• The Chicago Climate Exchange (CCX) divided

the United States into zones and allocated specific levels of carbon sequestration to each acre farmed in a particular zone under continuous no-till practices

• The CCX does not verify the actual carbon storage as a result of the practice change, but only monitors that the practice is maintained during the life of the contract.

Requisites for Agricultural Carbon Markets

• Additionality– Additionality refers to the issue that a farmer

can only offer and be paid for an offset for a new sequestration of carbon, not for a practice or a system of production already in place.

• Permanence– For farmers to provide carbon offsets they must

be willing to make long term, or even permanent, changes in not only practices but perhaps whole systems of production• What happens after a farmer decides to change

practices and potentially reverse sequestration?

Comparing Agricultural and Forest Carbon Markets

• Both have considerable uncertainties surrounding verifiability and monitoring

• Agricultural carbon has superior appropriat-ability (more secure private claims to sequestered carbon)– Pilot projects in agriculture can offer insights into private incentives

and carbon sequestration

• The potential spatial scale covered by agricultural carbon is much larger

• Admittedly transaction costs for agricultural carbon markets may be steeper

Methodology

• Simulations using a DSSAT crop modeling

– To generate yield streams under various treatments over a 30-year horizon

– Generate soil carbon under these treatments

• Valuation of yield streams from DSSAT

• Calculating net present values (NPVs)– Differences in revenues and costs (labor and fertilizer)

• Econometric tests

Some Indicative Findings: Impacts of Sustainable Land Management

Some Indicative Results on the Impacts of Sustainable Land Management

No Inputs

Compost 1.67 to

ns/ha,

100% crop re

sidues

40kgN/h

a, man

ure 1.67to

ns/ha &

50% crop re

sidue

80kgN/h

a, 5 to

ns/ha m

anure

, 100% cr

op resid

ue

-7000

-6000

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

Thirty Year Difference in Soil Carbon: Last 10 years minus First 10 years

RiceMaizeMillet

NoCC CSIRO NoCC CSIRO NoCC CSIROMAIZE MILLET RICE

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000A Nigerian Example: Thirty Year NPVs: 80kgN/ha, 5t Manure, 100%

Residue

Yield revenue Only Yield+Carbon Revenues at $4/tCO2e Yield+Carbon Revenues at $13/tCO2e Yield Revenue only with 25% fertlizer SubsidyYield Revenue only with 50% fertlizer Subsidy

No Inputs

Compost 1.67 to

ns/ha,

100% crop re

sidues

40kgN/h

a, man

ure 1.67to

ns/ha &

50% crop re

sidue

80kgN/h

a, 5 to

ns/ha m

anure

, 100% cr

op resid

ue0

5001000150020002500300035004000

Total Labor and Fertilizer Costs

Total Labor and Fertilizer Costs

Cost

s in

US

$

No Inputs

Compost 1.67 to

ns/ha, 1

00% crop re

sidues

40kgN/ha, m

anure 1.67tons/ha &

50% crop re

sidue

80kgN/ha, 5

tons/h

a manure, 1

00% crop re

sidue

010002000300040005000600070008000

Average Annual Yields over a 30-Year Simulation

Rice Maize Millet

Treatment Average 30 year NPVCrop

Revenue Only

Crop Revenue Plus Carbon Seq. Credit @ $4/CO2e

Crop Revenue

Plus Carbon Seq.

Credit @ $13/CO2e

Crop Revenue @ 25%

Fertilizer Subsidy

Crop Revenue @ 50%

Fertilizer Subsidy

Normal practices, all zero input, no fallow in dry seasons

5555(93)

16955(283)

42606(710)

NA NA

Compost 1.67 tons/ha, 50% crop residues

8027(133)

19591(326)

45611(760)

NA NA

Manure 1.67 tons/ha, 50% crop residues 9437(157)

21141(352)

47475(791)

NA NA

Compost 1.67 tons/ha, 100% crop residues

8820(147)

20474(341)

46695(778)

NA NA

Manure 1.67 tons/ha, 100% crop residues

10174(170)

22046(367)

48757(813)

NA NA

Some Indicative Findings: NPVs of Some ISLMs (US$)

Treatment Average 30 year NPVCrop

Revenue Only

Crop Revenue Plus Carbon Seq. Credit @ $4/CO2e

Crop Revenue

Plus Carbon

Seq. Credit @

$13/CO2e

Crop Revenue @ 25%

Fertilizer Subsidy

Crop Revenue @ 50%

Fertilizer Subsidy

40kgN/ha 7071(117)

18412(307)

44051(734)

7206(120)

7395(123)

40kgN/ha, manure 1.67tons/ha & 50% crop residue

10037(167)

21935(365)

48706(812)

10226(170)

10414(174)

80kgN/ha, 100% crop residue 9512(159)

21701(362)

49125(819)

9890(165)

10267(171)

80kgN/ha, 5 tons/ha compost, 100% crop residue

8943(150)

21675(361)

50321(839)

9321(155)

9698(162)

80kgN/ha, 5 tons/ha manure, 100% crop residue

9496(158)

23597(393)

52522(875)

10829(180)

11118(185)

Some Indicative Findings: NPVs of Some ISLMs (US$)

Total Nitrogen Costs

Costs with Fertilizer at

Market Price

Costs with Fertilizer at subsidy 25%

Costs with Fertilizer at subsidy 50%

No Inputs 0 13300 NA NA

Compost 1.67 tons/ha, 50% crop residues 0 15300 NA NA

Manure 1.67 tons/ha, 50% crop residues 0 15300 NA NA

Compost 1.67 tons/ha, 100% crop residues 0 15300 NA NA

Manure 1.67 tons/ha, 100% crop residues 0 15300 NA NA

40kgN/ha 6000 19300 17800 16300

80kgN/ha, 100% crop residue 12000 27300 24300 21300

80kgN/ha, 5 tons/ha compost, 100% crop residue 12000 37300 34300 31300

80kgN/ha, 5 tons/ha manure, 100% crop residue 12000 37300 34300 31300

Variable No Inputs

Compost 1.67 tons/ha, 100% crop residues

40kgN/ha, manure 1.67tons/ha & 50% crop residue

80kgN/ha, 5 tons/ha manure, 100% crop residue

Soil Carbon 1.702*** 1.065*** 0.211 0.152*

Yield Time Trend -0.013*** -0.003*** -0.002*** 0.000

Impact of CSIRO Climate Change Scenario -5.515** -0.659 -1.334 1.789

Impact of Climate Change Scenario taking Carbon inputs into account (CSIRO X Soil Carbon)

0.477** 0.004 0.052 0.234

Econometric Indications

Key Messages and Future Directions for Research• A diverse revenue source may help in supporting adoption of intensive

NRM and ISFM

– Or better prices for current outputs can also do that

• The escalation of costs for the high input ISLMs may overtake yield and revenue growth

• Econometric tests begin to suggest there is a discernible negative impact of Climate change on yields

• Intensive organic and inorganic inputs mitigate these effects somewhat

• In this research we want to investigate the role of carbon revenues in supporting ISFM

• This is important to support the needed ISFM investments needed to face an uncertain climate future and sustain reasonable productivity

Thank You

• Questions and Comments Welcome