iii FOREWORD Soil degradation is a major global environmental problem, having widespread and serious negative effects on water quality and biodiversity and promoting the emission of climate changing greenhouse gases. The chemical and physical deterioration of soils severely compromises agricultural productivity and the incomes of some of the poorest members of the global society. According to the International Food Policy Research Institute s calculations, soil degradation affects the productivity of of 40 percent of the world s agricultural land on average, with rates up to 75 percent for some regions. A primary cause of soil degradation is soil depletion associated with farming. Although farmers themselves may benefit from higher levels of soil quality, it has proven difficult to achieve the changes in farm management practices necessary to reach this goal. How farmers make decisions about the management of soil resources and the constraints they face is an issue that is still not well understood. At the same time, understanding this process is a critical requirement for improving policy-making for sustainable development. The issue is particularly important in the context of rural poverty, as improving the quality and productivity of soil resources is often a key component of rural poverty alleviation, and because poverty is a major determinant of the way in which people make decisions about resource use. In the two papers presented in this volume the relationship between socio-economic conditions and soil degradation is explored using both qualitative and quantitative approaches. In the first paper by Lipper, the focus is on providing a better understanding of the incentives and constraints faced by poor farmers in making soil management decisions. The first part of the paper focuses on the relationship between soil degradation and agricultural productivity. The findings indicate that the farm level costs associated with soil depletion are quite heterogeneous across varying soil types and cropping patterns, as are the costs associated with reversing or decreasing the process of degradation. The second part of the paper describes the major findings in the economic literature on the impact of varying manifestations of poverty on soil resource management. One important way in which poverty influences the incentives of producers to invest in soil resources is by increasing the value to the farmer of a secure food or income source. Since poor farmers are exposed to higher levels of risk, measures which decrease production variability may have a greater value to them, thus creating incentives to invest in soil conservation. At the same time, poor producers have less capacity to insure in formal markets and the means they adopt to manage their risk may result in disincentives to soil resource investments, particularly those which are lumpy and not easily liquified. Other barriers to investment such as instability in property rights regimes and lack of access to financial services were found to be significantly higher amongst poor producers. However, the evidence on the relationship between soil resource endowments and socio-economic conditions was found to be inconclusive at present, with a need for further studies in order to determine whether this issue is a significant disincentive to soil resource investment among the poor. The paper concludes with a discussion of the research needs which are implied by the information gaps identified throughout the analysis. The second paper in the volume by Osgood and Lipper addresses one of the research gaps identified in the first paper: the causal relationships between socio-economic conditions and soil degradation.
iv This paper discusses the methodological issues which arise in conducting such an analysis through an applied example in which econometric analysis of socio-economic and geographic information systems data is performed. In particular, issues of endogeneity in the analysis of dynamic systems, and the integration of data across varying scales are raised, and empirical examples for their treatment are presented. William H. Meyers Director Agriculture and Economic Development Analysis Division
v CONTENTS page ABSTRACT RÉSUMÉ RESUMEN ABSTRACT (ARABIC) ix x xi xii DIRT POOR: POVERTY, FARMERS AND SOIL RESOURCE INVESTMENT 1 1. Introduction 3 2. Natural resources in agricultural production 4 2.1 Natural resources as a capital asset in the investment portfolio 4 2.2 Incentives for investment 5 2.2.1 Time preferences and investment 5 2.2.1 Investment under uncertainty 7 2.2.3 Externalities and investment incentives 8 2.3 Natural capital in agricultural production: farm level income and insurance services 10 2.3.1 Relationship between soil resources and average agricultural productivity levels 10 2.3.2 Impact of erosion on crop yield variability 16 2.3.3 Costs of soil conserving and mitigating inputs 17 2.4 Conclusions 20 3. The investment profile of poor agricultural producers 22 3.1 Natural capital endowments and the incidence of poverty 22 3.1.1 Productivity enhancing natural capital endowment and the incidence of poverty 22 3.1.2 The share of natural capital assets in the income generating capacity of poor agricultural producers 27 3.2 Institutions and access to natural capital assets among poor agricultural producers 28 3.3 Access to financial capital 32 3.3.1 Poverty, risk and insurance mechanisms 33 3.3.2 Poverty and the discount rate 36 4. Policy implications 39 5. Research needs 42 References 43 METHODOLOGICAL ISSUES IN ANALYSING THE LINKAGES BETWEEN SOCIO-ECONOMIC AND ENVIRONMENTAL SYSTEMS 49 1. Introduction 51 2. Soil degradation and socio-economic conditions: concepts 53 3. Data 55 3.1 Datasets 55 3.1.1 Soil degradation 55 3.1.2 Rainfall and windspeed 56
vi page 3.1.3 Rainfall variability and slope 57 3.1.4 Surface crustal temperature 57 3.1.5 National boundaries and socio-economic statistics 57 3.1.6 The Ghana aquaculture geographical information system 57 3.2 Data sources 58 3.2.1 Data clearinghouses 58 3.2.2 Subnational studies 58 3.2.3 Simulation models 59 4. Data integration 61 4.1 Regression 61 4.2 Interpolation 62 5. Statistical analysis and presentation 63 5.1 Continent level analysis: Africa 63 5.1.1 Socio-economic effects on soil degradation 63 5.1.2 Impact of soil degradation on welfare 66 5.2 Country level analysis: Ghana 69 6. Conclusions and directions for future research 71 References 74 List of useful Web sites and data sources 76
vii LIST OF FIGURES 1. Soil degradation: Africa (GLASOD) 77 2. False elevation representation of average windspeed 78 3. Illiteracy rates: Africa 79 4. Percent change in terms of trade: Africa 80 5. Ghana: poverty rate 81 6. Ghana: rainfall 82 7. Ghana: road density 83 8. Wind and soil degradation 84 9. Wind and soil degradation: closeup 85 10. Terms of trade and soil degradation 86 11. Soil degradation and per capita income 87 12. Illiteracy and decreases in per capita income 88 13. Soil degradation and decreases in per capita income: closeup 89 14. Illiteracy and decreases in per capita income: closeup 90 15. Ghana: soil degradation (GLASOD) 91 16. Ghana: soil degradation and poverty 92
ix ABSTRACT This publication contains two papers which analyse the relationship between poverty and soil degradation. The first adopts a qualitative approach while the second uses innovative quantitative methods involving the use of geographic information systems (GIS) data. In both cases, the focus is on providing a better understanding of the incentives and constraints of poor farmers in making soil management decisions, and the policy implications these have for poverty alleviation and improved environmental management. The first paper by Lipper starts with a brief introduction to the major issues of analysing natural capital assets in an investment framework, followed by a discussion of the key determinants of investment behaviour and the role of environmental externalities in investment analysis. Then, a detailed analysis of the costs associated with soil degradation from the farmers' perspective is given, including the impacts on average productivity and the variance of agricultural yields. A description of the theoretical and empirical literature on the investment constraints of poor farmers follows, together with an analysis of the implications for soil investment behaviour. The paper concludes with a discussion of the implications for policy-making and an agenda for research based upon information gaps identified throughout the paper. One of the research areas identified is the quantitative analysis of causal links between poverty and soil degradation, which is the subject of the second paper presented in this volume. The second paper by Osgood and Lipper focuses on methodological issues involved in conducting quantitative analyses of causal relationships between poverty and soil degradation. The two key methodological issues addressed in the paper are: (i) the problem of endogeneity between dependent and independent variables; and (ii) the methods and implications of combining spatially referenced GIS and socio-economic data in statistical analysis. The paper presents the results of econometric analyses of poverty and soil degradation at national and subnational levels for Africa and Ghana.
x RÉSUMÉ Le présent volume contient deux documents qui analysent les relations entre la pauvreté et la dégradation du sol. Tous deux visent à faire mieux comprendre les incitations et les contraintes que perçoivent les agriculteurs pauvres qui doivent prendre des décisions en matière d aménagement du sol, et leurs répercussions générales sur la lutte contre la pauvreté et la gestion améliorée de l environnement. Le premier document adopte une approche qualitative et le second une méthode quantitative novatrice comportant l utilisation des données des systèmes d information géographique (SIG). Le premier document de Lipper s ouvre sur une brève introduction à l analyse des biens d équipement naturels dans un contexte d investissement, puis présente un débat sur les éléments déterminants du comportement en matière d investissement et le rôle des facteurs environnementaux dans l analyse de l investissement. Il contient une analyse détaillée du coût de la dégradation du sol du point de vue des agriculteurs, y compris l incidence sur la productivité moyenne et la variance des rendements agricoles. Il poursuit par une description de la documentation théorique et empirique sur les contraintes de l investissement pour les agriculteurs pauvres, accompagnée d une analyse des répercussions sur le comportement des agriculteurs en matière d investissement dans le sol. Le document conclut par un débat sur les conséquences pour l élaboration des politiques et un programme de recherche basé sur les lacunes en matière d information identifiées tout au long du document. Un des domaines de recherche identifiés est l analyse quantitative des liens de cause à effet entre la pauvreté et la dégradation du sol, qui est le thème du deuxième document de ce volume. Le deuxième document, par Osgood et Lipper, porte sur les problèmes méthodologiques que posent les analyses quantitatives des rapports de cause à effet entre la pauvreté et la dégradation du sol. Les deux questions méthodologiques essentielles traitées dans le document sont les suivantes: 1) le problème de l endogénéité entre les variables dépendantes et indépendantes et 2) les méthodes et les répercussions de l association des données SIG référencées dans l espace et des données socio-économiques dans l analyse statistique. Le document présente les résultats des analyses économétriques de la pauvreté et de la dégradation du sol aux niveaux national et subnational pour l Afrique et le Ghana.
xi RESUMEN Este volumen contiene dos documentos de los que se analiza la relación entre la pobreza y la degradación del suelo. En ambos documentos, se trata de proporcionar un conocimiento mejor de los incentivos y limitaciones de los agricultores pobres para adoptar decisiones sobre ordenación de suelos, y las repercusiones de política para la mitigación de la pobreza y la mejora de la ordenación ambiental. El primer documento adopta un enfoque cualitativo, mientras que el segundo utiliza métodos cuantitativos innovadores con el empleo de datos de sistemas de información geográfica (SIG). El primer documento, de Lipper, comienza con una breve introducción al análisis de los bienes de capital natural en un entorno de inversión, a la que sigue un examen de las determinantes fundamentales del comportamiento de inversión y la función de las externalidades ambientales en el análisis de la inversión. Se ofrece un análisis detallado de los costos relacionados con la degradación de los suelos desde el punto de vista de los agricultores, incluyendo las consecuencias para la productividad media y la variación de los rendimientos agrícolas. Sigue una descripción de la literatura teórica y empírica sobre las limitaciones de inversión de los agricultores pobres, junto con un análisis de las consecuencias para el comportamiento de los agricultores en relación con la inversión en la mejora de los suelos. El documento concluye con un examen de las consecuencias para la elaboración de políticas y un programa de investigación basado en las lagunas de información determinadas en todo el documento. Una de las esferas de investigación que se determina es la del análisis cuantitativo de los vínculos causales entre la pobreza y la degradación del suelo, que es el objeto del segundo documento de este volumen. El segundo documento, de Osgood y Lipper, se centra en cuestiones metodológicas relacionadas con la realización de análisis cuantitativos de las relaciones causales entre la pobreza y la degradación de los suelos. Las dos cuestiones metodológicas fundamentales tratadas en el documento son: 1) el problema de la endogeneidad entre variables dependientes e independientes, y 2) los métodos y consecuencias de combinar datos de SIG espacialmente referenciados y socioeconómicos en el análisis estadístico. El documento presenta los resultados de análisis econométricos de la pobreza y la degradación de los suelos a nivel nacional y subnacional en África y Ghana.