A section of the crowd that attended a payments for environmental services auction held at Ntchisi in September 2008. PHOTO/V. Meadu.

A pilot programme in Malawi where farmers receive cash payments for growing trees could provide useful lessons for other environmental service projects elsewhere in Africa.  The study examines different approaches to setting prices and allocating environmental service contracts when the budget for participation is limited.

This project is running in the central Malawi district of Ntchisi. “We selected central Malawi because it balances the population pressure of the south, where there is no spare land for growing trees, with the already forested North, where farmers would not need to be paid since they’re already growing trees,” says Kelsey Jack, a Harvard-based researcher.

Farmers enrolled in this project are paid 12,000 Kwacha (US$ 80) over a period of three years to plant indigenous trees on half an acre of their farms.

Each farmer gets tree seedlings and training. In turn, the farmer is given an incentive to ensure that as many seedlings as possible survive to maturity.

There are four payment instalments during the three year project, all depending on how many seedlings have actually survived. The disadvantage to this approach is that it requires regular field monitoring, a difficult task whenever you have many farmers over a large area.

“Central Malawi is a suitable site because, though there is a need for forestation, the land pressure is not as high as in the southern parts of the country,” adds Kelsey. This researcher is interested in market-oriented approaches to encourage the private provision of public goods such as environmental services. Her work draws on experimental economics, game theory and behavioural economics in examining individual decision-making.

How it was done

An initial study identified 27 villages with 538 households but the project’s financial resources were not enough for all of these households to receive the tree contracts. In order to better understand different allocation approaches to identifying a subset of the farmers, an auction was held in September 2008.

A total of 467 people were registered as eligible for the contracts and were divided into two equal groups through a lottery. Each person had to sign a consent form. Both groups were given information about the contracts in the local dialect by lecturers from the University of Malawi.

The first group made bids on how much money they would require to allocate half an acre of their farms to trees. The bid cards were collected and data analyzed to obtain a price that enrolled the maximum number of farmers for the available budget. Next, the price obtained from the auction was taken to the second group as a fixed price. Amazingly, over 90% of people in the second group agreed to this price!

The auction set a clearing price that was given to everyone who ended up with a contract to avoid any conflicts from different pricing.  The different outcomes from the two different approaches to enrolling low cost farmers – an auction and a posted offer – suggests that establishing environmental service markets requires a better understanding of how landholders in developing countries respond to new and unfamiliar transactions.

In November 2008, the contract farmers began receiving tree seedlings.

What happens next

Kelsey Jack during the Ntchisi auction. PHOTO/V. Meadu

The cash payments will be made in four instalments over three years. “The farmers will get their first payment 6 months after the beginning of the contract, followed by another payment a year after the contract,” explains Kelsey. Subsequently, the remaining two instalments will be paid at the end of the second and third years.

“We decided on a three year contract because seedlings require a lot of labour in the initial phase of their lives,” says Kelsey. The payment of instalments will be based on the number of seedlings still surviving, thus giving the more diligent farmers more cash.

There are plans to conduct further research on the livelihood and environmental impacts of allocating land for growing of trees as well as to investigate any differences in compliance with the contract between the two groups.

The project is a joint initiative by the World Agroforestry Centre (ICRAF) and the government of Malawi. Government extension officers trained the contract farmers and remain the most important implementing partners.

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