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The Impact of Policy and Institutional Environment on Costs and Benefits of Sustainable Agricultural Land Uses: The Case of the Chittagong Hill Tracts, Bangladesh

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Abstract

As in other mountain regions of Asia, agricultural lands in the Chittagong Hill Tracts (CHT) of Bangladesh are undergoing degradation due primarily to environmentally incompatible land-use systems such as shifting cultivation (jhum) and annual cash crops. The suitable land-use systems such as agroforestry and timber tree plantation provide benefit to the society at large, but they might not provide attractive economic benefits to farmers, eventually constraining a wide-scale adoption of such land-use systems. Therefore, it is essential to evaluate agricultural land-use systems from both societal and private perspectives in the pursuit of promoting particularly environmentally sustainable systems. This article evaluated five major land-use systems being practiced in CHT, namely jhum, annual cash crops, horticulture, agroforestry, and timber plantation. The results of the financial analysis revealed the annual cash crops as the most attractive land use and jhum as the least attractive of the five land-use systems considered under the study. Horticulture, timber plantation, and agroforestry, considered to be suitable land-use systems particularly for mountainous areas, held the middle ground between these two systems. Annual cash crops provided the highest financial return at the cost of a very high rate of soil erosion. When the societal cost of soil erosion is considered, annual cash crops appear to be the most costly land-use system, followed by jhum and horticulture. Although financially less attractive compared to annual cash crops and horticulture, agroforestry and timber plantation are the socially most beneficial land-use systems. Findings of the alternative policy analyses indicate that there is a good prospect for making environmentally sustainable land-use systems, such as agroforestry and timber plantation, attractive for the farmers by eliminating existing legal and institutional barriers, combined with the provision of necessary support services and facilities.

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Notes

  1. Private profitability is measured based on prices faced by individual farmers (e.g., price of seeds, fertilizers, rice, or wheat) at which goods and services are actually being exchanged. These are also called market or financial prices. Social profitability, on the other hand, is measured on the basis of undistorted prices, which would prevail in the absence of any policy distortions and market imperfections. These are sometimes called shadow prices, efficiency prices, or opportunity costs (Monke and Pearson 1989).

  2. Private and social discount rates can vary and the social discount rate can be much lower than the private, as the time preference is relatively higher for an individual than a society. Because of that, the discount rate for economic analysis should be lower than the rate of financial analysis. Although a high discount rate might reduce the profitability of certain land uses, for which the gestation period is relatively large such as timber plantation and agroforestry, we used the same discount rate (12%) for both financial and economic analyses following the advice of renowned economist Samuelson (1976), who suggested taking a high discount rate for forestry projects because of high risks and uncertainties.

  3. Some argue that replacement cost might overstate the cost of soil erosion, as much of the soil eroded from one field is merely transported to another field rather than into streams. Others (Stocking 1987; Lal 1995), however, considered that replacement costs cannot take into account all of the effects of soil erosion, such as damages of soil physical structure and diminishes the resilience of the soil. In fact, it is impossible to value the actual cost of all environmental implications of soil erosion, and none of the nonmarket valuation techniques is a perfect substitute for the real market value. However, the valuation of nutrients lost provides some basis for quantification of the environmental cost incurred through soil erosion. Alhough not perfect, such assessment is far better than the subjective assessment of the nutrients value and very helpful for policy-making. Because of this, the replacement cost approach has been widely used by environmental and natural resource economists, in particular, and policy-makers to assess the environmental cost of human-induced activities.

  4. A question of whether the cost of on-site soil erosion is a private or social cost might be raised. In CHT of Bangladesh, most land is owned by the state and the land users avoid the cost of nutrient replacement by shifting plots. Although individual land users avoid this cost by moving from one plot to another, the society as a whole has to bear the cost of soil erosion, which degrades the stock of natural capital of a nation.

  5. As one of the anonymous reviewers pointed out, the farm-gate price of timber might not increase proportionately because of price elasticity of supply; the higher price will lead to higher timber production and result in a lower price in the long run. Yes, it is correct in a state of constant demand. However, the case of Bangladesh is different. In view of the steadily growing demand for timber in Bangladesh arising from the growing urbanization, industrialization, and fast population growth and constantly shrinking area for tree plantation, we assumed that the price effect of supply would be offset by the increasing demand for timber.

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Acknowledgments

Sincere thanks are extended to four anonymous reviewers whose valuable comments contributed to improvement of this article. The field survey for this research was funded by a research grant provided by the Danida-supported Integrated Watershed Development and Management Program of the Asian Institute Technology (AIT), Thailand. The first author’s salary while working on the article came from the International Centre for Integrated Mountain Development (ICIMOD)’s “Promotion of Sustainable Policy Initiatives in the Management of Natural Resources in the Hindu Kush-Himalayas” project funded by the GTZ.

The views expressed in the article are those of the authors and do not necessarily reflect the views of the institutions with which they are affiliated.

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  1. International Centre for Integrated Mountain Development, Kathmandu, 3226, Nepal

    Golam Rasul

  2. School of Environment, Resources and Development, Asian Institute of Technology, Klong Luang, P.O. Box 4, Pathum Thani, 12120, Thailand

    Gopal B. Thapa

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Rasul, G., Thapa, G.B. The Impact of Policy and Institutional Environment on Costs and Benefits of Sustainable Agricultural Land Uses: The Case of the Chittagong Hill Tracts, Bangladesh. Environmental Management 40, 272–283 (2007). https://doi.org/10.1007/s00267-005-0083-8

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