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Journal of Environmental Management 68 (2003) 343353

Soil erosion in developing countries: a socio-economic appraisal

Jayanath Ananda, Gamini Herath*
School of Business, La Trobe University, Albury-Wodonga Campus, Parkers Road, P.O. Box 821, Wodonga, Vic. 3689, Australia
Received 17 September 2002; revised 14 February 2003; accepted 7 April 2003

Soil erosion is the single most important environmental degradation problem in the developing world. Despite the plethora of literature that
exists on the incidence, causes and impacts of soil erosion, a concrete understanding of this complex problem is lacking. This paper examines
the soil erosion problem in developing countries in order to understand the complex inter-relationships between population pressure, poverty
and environmental-institutional dynamics. Two recent theoretical developments, namely Boserups theory on population pressure, poverty
and soil erosion and Lopezs theory on environmental and institutional dynamics have been reviewed. The analysis reveals that negative
impacts of technical change, inappropriate government policies and poor institutions are largely responsible for the continued soil erosion in
developing countries. On the other hand, potential for market-based approaches to mitigate the problem is also low due to the negative
externalities involved. A deeper appreciation of institutional and environmental dynamics and policy reforms to strengthen weak institutions
may help mitigate the problem.
q 2003 Elsevier Ltd. All rights reserved.
Keywords: Soil erosion; Market approaches; Institutions; Technical change; Government policy

1. Introduction the Sichuan province lost 1110 metric tons of soil per ha/y
(Han, 1989). About 15% of the farmland lose between 80
Soil erosion is a widespread problem in agriculture in the and 120 tons of soil/ha due to erosion (Tomic, 1998).
developing countries. The problem has far-reaching econ- A study of Java estimated that on-site crop productivity
omic, political, social and environmental implications due losses from man made soil erosion on upland farms to be
to both on-site and off-site damages (Thampapillai and US$320 million annually (Magrath and Arens, 1989).
Anderson, 1994; Grepperud, 1995). Each year, 75 billion The off-site impacts of upland soil erosion in tropical and
tons of soil are removed due to erosion with most coming subtropical watersheds include siltation, water flow irregu-
from agricultural land and around 20 million hectares of larities, reduction of irrigation, water pollution and
land are lost. Soil erosion is very high in Asia, Africa and agrochemical run-off. The soil sediments can reduce the
South America averaging 30 40 t/ha/y (Barrow, 1991). In capacity of reservoirs adversely affecting irrigated agricul-
the humid tropics of Asia, farmers grow subsistence crops in ture and hydro-electricity generation. The 6.6 billion tons of
sloping land using highly erosive practices. An average rate soil lost in India each year contains 5.4 million tons of
of soil loss for Asia is 138 t/ha/y (Sfeir-Younis, 1986). In the fertiliser worth Rs. 2.2 billion (Pimental, 1993). In Costa
densely populated Java, the extent of severely eroded land Rica, yearly erosion from farm and pastureland removes
increases at 1 2% per annum (Barbier, 1990). In the Citarik nutrients worth 17% of the crop value and 14% of the value
subwatershed in West Java, soil erosion was estimated to be of livestock products. In the Philippines, significant
94 and 103 t/ha/y in 1991 and 1992, respectively (Kusman- ecological damages have been incurred on coral reefs and
dari and Mitchell, 1997). China has experienced serious soil fisheries and scuba diving sites in Bacuit Bay (Hodson and
erosion problems during the last 40 years. The most serious Dixon, 1988). Magrath and Arens (1989) estimated the total
erosion were in the Loess Plateau where around 300 metric on-site and off-site cost of soil erosion in Java at US$340 to
tons of soil were lost (Liu, 1988). Some regions of 406 million or 0.5% of the total GDP per year.
In order to adequately explain the complex issues in soil
* Corresponding author. Tel.: 61-2-6058-3837; fax: 61-2-6058-3833. erosion, it is necessary to identify the underlying causes and
E-mail address: (G. Herath). gain a comprehensive understanding of the physical,
0301-4797/03/$ - see front matter q 2003 Elsevier Ltd. All rights reserved.
344 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353

economic, political, institutional and social dimensions. growth can promote more intensive agricultural practices
There are at least three major theoretical viewpoints on soil and more favourable technological and organisational
erosion. First, the population explanation, which argues that innovation that will not only increase productivity but
growing population pressure, causes rural people to migrate improve environmental quality as well. Boserup (1981)
to forest areas where they clear the forest to establish suggests a number of technology and investment paths to
agricultural livelihoods. Second, past policies such as price the intensification of agriculture that farmers can follow in
support, subsidized credit and soil conservation subsidies the face of rapid population growth. The first approach is
created distortions and have in some cases exacerbated often referred to as capital led intensification. The capital
erosion. Third, poor institutions such as weak property led approach involves substantial use of capital which
rights and high transactions costs have prevented the include non-labour inputs such as chemical fertilizer, land
emergence of markets that would have mitigated soil conservation infrastructure such as terraces and grass strips
erosion but has not received adequate attention. This and planting perennials such as coffee and bananas. Her
paper examines how population growth, government policy theory suggests the following sequence of events in the
and the institutional environment lead farmers to practice capital led approach. Rapid population growth leads to
erosive methods. It analyses the fundamental underlying scarcity of land relative to labour, which triggers
causes of soil erosion (mainly on-site erosion) to be able to intensification of agricultural production. Relative prices
explain why it is continuing so that appropriate solutions change as food prices increase due to increased demand.
may be advanced to deal with it in an effective manner. Wages decline due to increased availability of labour but
The specific objectives of this paper are to examine: land prices increase. New institutions such as private
property rights will emerge which facilitate the intensifica-
(a) the theoretical frameworks developed to explain soil tion and greater investments that improve the land
erosion in developing countries; resources.
(b) how technical change, government policies and poor There is evidence to support the capital led approach
institutions affected the incidence of soil erosion; and (Templeton and Scherr, 1996; Tiffen et al., 1994). Barbier
(c) the potential of market-based approaches, and (1998) found that in West Africa, population pressure leads
appropriate policy and institutional changes to to intensification and investment in land conservation
mitigate the soil erosion problem. practices and increasing market opportunities can play a
more positive role in boosting productivity (Barbier, 1998).
The paper is organized as follows. In Section 2 the basic A study of five East African and five West African countries
theories on soil erosion are outlined. Section 3 presents a show that African farmers make considerable capital
discussion of government policies in accelerating adoption investments in protecting their land (Turner et al., 1993).
of new technologies in agriculture and how these policies According to Matlon and Spencer (1984) the capital led path
exacerbated soil erosion. Section 4 presents an analysis of is more sustainable and productive in fragile resource-poor
the potential of economic and institutional approaches to areas in Africa because it improves land quality and
control soil erosion and Section 5 concludes with some productivity. For example, in the Sahel, the Sudano-
policy implications. Guinean climatic zone where rainfall exceeds 800 mm/y
and the soil is good, intensification has taken place specially
in the cultivation of cotton and cereals. Fertilizer, pesticides
2. Theories of soil erosion and price guarantees have supported intensification (Gorse
and Steeds, 1987).
2.1. Boserups theory of population pressure, The labour led approach is distinct from the capital led
poverty and soil erosion approach where farmers add more labour to the production
process. The labour led path is unsustainable without
A common hypothesis is that the rural poor are additional capital to enhance soil fertility. In East Africa,
dependent on natural resources for survival and hence areas with steep slopes and heavy rainfall, land conservation
poverty is a major source of soil erosion. Population investments are critical (Matlon and Spencer, 1984). Lele
growth has intensified the pressure on land for agriculture and Stone (1989) identified the agro-climatic and policy
in rural areas forcing many farmers to cultivate easily settings where either one or the other of these two paths will
eroded hillsides. Rapid deforestation and shifting cultiva- dominate. They argue that the labour led path has not led to
tion have increased as a result. Since tropical uplands are increases in productivity specially in sub-Saharan Africa.
typically shallow and fragile in structure, they are easily For example, in the Sudanian climatic zone of the Sahel
eroded. Productivity will decline but this may not be however, rainfall is less than 800 mm/y, population
noticeable until the topsoil has been depleted and the densities are high, fallow periods are shorter and soil
infertile subsoil is exposed (Lal, 1990). Boserup (1981) degradation is heavy (Southgate et al., 1990). Lele and
asserts that population growth may not necessarily lead to Stone (1989) assert that the capital led path is of critical
land degradation. According to Boserup (1981) population importance for sustainable development.
J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353 345

However, in many Asian, Latin American and African property rights to communal lands. Monitoring is required
countries, Boserups sequence was not observed (Kates and but there may be no effective institutions that can provide
Haarmann, 1992). Severe erosion has occurred in Asia and the monitoring function. Traditional village institutions are
Latin America in areas where population growth has been often ill equipped to deal with this situation. These
very rapid, biologically vulnerable or fragile, and the socio- internally generated weakening of traditional institutions
economic conditions prevented the implementation of enhance soil erosion, degradation of land and perpetuate
conservation measures. Without additional capital, this poverty (Lopez, 1997).
path is unsustainable and lead to erosion of land (Lele and Illegal logging can increase soil erosion. In 1995, 1.6
Stone, 1989). Thus an explanation which captures the million cubic meters of logs were extracted in Cambodia.
essential features of the soil erosion problem in much of Logs exported illegally in 1995 were worth $185 million
Asia, Africa and Latin America need to address the (Slocomb, 2002). Laws and regulations to control logging
dynamics of the soil erosion problem. were violated due to poor enforcement. In Cameroon, the
Another important issue is extensive agriculture taking expansion of logging and development of logging roads
place in frontier environments where land resources are not increased exploitation of forest. These processes are caused
limiting. Boserup (1981) did not explain this phenomenon. by weak institutions, particularly unclear property rights
Pichon (1996) conceptualised the dynamics of resource (Brown and Ekoko, 2000). Logging in East and Central
allocation by farmers in frontier environments such as the Kalimanthan in Indonesia, suggests that it is a complex
Amazon basin. In these environments as population phenomenon deeply engrained in the realities of rural life in
expands, more land is brought under cultivation. No Indonesia (Casson and Obidzinski, 2002). Where there are
technological change will occur because of the remoteness large stands of timber under the care of government forestry
of the land and lack of demand for such technologies. Hence officers, commercial cutting with official connivance is
deterioration of the land resource is inevitable at least in the clearly the greater cause of deforestation. In Costa Rica,
short term. provision of credit depends on the extent of land cleared,
which has encouraged farmers to deforest their land so that
2.2. Lopezs environmental and institutional dynamics they might qualify for credit.
view of soil erosion
2.4. Institutional dynamics
Lopez (1997) developed a framework based on environ-
mental and institutional dynamics to explain the soil erosion Private property rights are considered best to minimise
problem. According to Lopez (1997) the dynamics of land degradation and soil erosion specially in fragile lands.
institutional change relative to environmental dynamics is However, private property rights may not emerge or will be
crucial. The theory posits that if environmental dynamics slow to emerge in such land. Hence, when population
dominate institutional dynamics, then the soil erosion pressure leads to greater intensification and erosion of
problem will be exacerbated. However, if institutional fragile lands, it becomes even harder for relevant insti-
dynamics dominates environmental dynamics, then new tutions to emerge (Lopez, 1997). One can envision a process
institutions that protect the land will emerge, while where soil erosion and degradation in these lands makes
improving the economic status of the farmers. land less valuable and lower their demand. Lower incomes,
high subjective discount rate among rural poor, and absence
2.3. Environmental dynamics of economies of scale make markets less likely to emerge.
Also with rapid population growth, greater will be the
Environmental dynamics is a predisposing factor in soil demand for intensification of land use and more likely that
erosion. Many communities use fragile soils such as those in environmental dynamics will dominate over institutional
hilly slopes and practise shifting cultivation. In the unfenced dynamics.
areas of Rajasthan Desert, farmers tend to overgraze the
land because of high population pressure and free use of 2.5. Interactive dynamics between institutions
land (Kumar and Bhandari, 1992). In the Philippines, and the environment
logging interests have denuded large areas of forest without
any measures to arrest the degradation of the soil. Severe If lands are fragile and institutions are weak, then
erosion of land due to excessive population growth has been irreversible damage to the land base can occur because
documented for Nepal and Kenya (Metz, 1991; Campbell, institutions such as private property rights that can reduce
1981). These societies require intensive production to meet damage will not emerge soon enough. If initial institutions
the rising food demand, but intensification leads to severe are strong and the environmental base is solid, institutional
erosion damage. The investments needed to minimise soil dynamics will dominate environmental dynamics, leading
erosion (building terraces, bunds, etc.) are not made due to to successful intensification of production and increased per
absence of credit, poor tenure conditions and absence of capita income even in fragile areas (Lopez, 1997). In areas
community cooperation to provide the labour due to lack of where the soil erosion is a continuing problem, it is clear
346 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353

that environmental dynamics dominate institutional area between the Green and Post-Green Revolution periods
dynamics. This is the case in many tropical countries (Murgai et al., 2001). In 1987, farmers in Ngadas, East Java
where soils are fragile. In many temperate countries, the used 1000 kg of subsidized fertilizer per ha to produce a
soils are more stable and the relevant institutions evolve crop that was half the size of what could have been produced
before irreversible damage to the soils occurs. with improved soil conservation and green manuring
(Barbier et al., 1990). The upward trend in rice and wheat
yields occurred in spite of cropping being extended to some
3. Technical change in agriculture, government marginal lands due particularly to heavy fertilizer use which
policies and soil erosion exacerbated the off-site effects of soil erosion.
During the Post-Green Revolution period, when intensi-
The connection between technical change, economic fication was adopted, the marginal returns have been lower.
policies and the environment is of primary importance Continued intensification led to degradation of the natural
because of the accelerated depletion of soil resources resource base including soil erosion, salinisation etc.
observed in the developing countries. In the 1970s, the (Murgai et al., 2001). In the Post-Green Revolution period,
desire of most governments in developing countries to attain wheat yield in Indian and Pakistan Punjab grew at 2% a year
food self-sufficiency led to the measures that provide but negative for rice, raising questions about the sustain-
incentives for adoption of the Green Revolution technology ability of the Green Revolution technology. There has been
(Herath, 1985). There is increasing recognition that these considerable degradation of the soil and water resource base
support policies contributed to soil erosion in addition to in both the Indian and Pakistan Punjab. The study by Murgai
other environmental problems. The technical change based et al.(2001) show that in Pakistan Punjab, technological
on intensive use of irrigation and chemical inputs can lead to change and other improvements produced an average
soil erosion. The sections below present a discussion of growth rate of 0.94% per year and that resource degradation
some of the major government policies that were in aggregate lowered growth by 0.53% per year. Despite
heavy erosion and decline in acreage per capita, improved
farm technologies have so far contributed to an increase in
3.1. Government support policies for technology adoption
the food supply but the trend does not augur well for China
in the long run (Tomic, 1998).
3.1.1. Fertilizer and agricultural credit policies
The adverse effects of cheap fertilizer were further
Since the 1960s, the Green Revolution technologies were
exacerbated by cheap credit. In the Philippines, during the
introduced in many countries actively supported by
1966 70 period, an annual average of 349.5 m pesos
irrigation development, subsidized credit and fertilizer
(US$6.72) was granted to rice producers. The Masagana 99
programs. In most countries in Asia government control
program in the Philippines and the BIMAS program in
of the agricultural sector was the norm and self-sufficiency
was the main objective. In Vietnam, central planning Indonesia provided cheap credit to farmers. Similar
created a highly dependent wet-rice system, which led to examples are found in Sri Lanka, and Bangladesh (Herath
massive resource misallocation and land degradation (Sikor and Jayasuriya, 1996). The Brazilian government encour-
and ORourke, 1996). Self-sufficiency is not economically aged massive private investment in expanding beef cattle
efficient and often these are adopted for political reasons production in fragile ecological conditions in the Brazilian
creating excessive damage to natural resources. In Maoist Amazon supported by the tax concessions. Some Brazilian
China agricultural practices led to heavy erosion. A recent corporations have been allowed to take up to 50% credit
study indicates that economic development in China is against their federal income tax liabilities under certain
likely to avoid soil degradation because of the positive conditions and subsidized credit lines for cattle ranching.
feedback to soil quality arising from rising average income, (Warford and Partow, 1990). Livestock projects in Brazil
market integration and property rights (institutional supported by the government have been the single most
dynamics) that may counterbalance the effects of population important source of deforestation.
growth (Lindert, 1999). In many other countries, incentives In case of crop failure, loans were drastically reduced or
given to rice production through government policies led to written off. In Sri Lanka there were 28,000 cases pending
erosion. There was rapid increase in agrochemical and with the Agrarian Commissioner since 1989 which were not
fertilizer use fostered by lower prices relative to crop being adjudicated and these loans have been written off
prices. In 1984, in the Philippines, Urea was sold 30% below several times on the eve of an election (Herath and
cost. In Sri Lanka, Urea was sold 56% below cost (Berg, Jayasuriya, 1996). Reluctance to take legal action against
1985). In India, subsidies on the four major inputs grew by defaulters and the writing off of debt on the eve of an
9 12% a year in real terms between 1981 and 1993, election highlight the political nature of these programs.
accounting for between 2.2 and 2.7% of the gross domestic Input subsidies have been a major cause of inefficient use of
product (Gulati and Sharma, 1995). In India fertilizer use inputs and a shift of cropping systems toward water and
jumped from 33 to 156 kg of nutrients per ha of cropped fertilizer intensive crops contributing to soil erosion
J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353 347

problems. Some of the policies deepened poverty and farmers (Herath, 2001). Jodha (1990) found that in 82
exacerbated the adverse impact on the environment. villages in Rajastan, only 16% obliged to maintain and
repair irrigation infrastructure. Bardhan (2000) found that
3.1.2. Food pricing policies the water user associations in canal irrigation set up by the
Lower food prices were adopted because of consumer bureaucracy ended up as fundraisers rather than efficient
pressure, poverty and malnutrition in developing countries. distributors of irrigation water. Conflicts and misunder-
Lower domestic food prices are distortionary and can have standings were common in the Muda irrigation project in
two effects. Low food prices penalize producers, reduce Malaysia (Johnson, 2000). Government policies did not
production and hence reduce the magnitude of the erosion achieve the productivity gains expected and water saving
problem. However, lower food prices lower net returns, was not satisfactory. There has been significant overuse of
which may create disincentives for producers to adopt soil water and a reduction in rice yields (Johnson, 2000). The
conservation technologies. Lower output prices may productivity of land did not increase as expected due to
encourage subsistence farmers to increase resource exploi- irrigation and the negative consequences such as erosion,
tation, which can increase erosion. Development of the salinisation, water logging and submergence of forests have
Sahelo-Sudanian and Sudanian climatic zones, and the been widespread (Vaidyanathan, 1999).
humid tropical Africa have stalled because of low farm gate
prices and farmers opt for extensive production in fragile 3.1.4. Incentives for adoption of soil conservation measures
lands (Southgate et al., 1990). Many developing country governments provided direct
Policies such as import controls and high prices can also assistance to farmers to adopt soil conservation measures.
enhance soil erosion. In Indonesia, the higher prices The results of these programs are disappointing. Lapar and
encourage farmers to grow vegetables in steeply sloped Pandey (1999) examined the adoption of hedgerows by
volcanic rocks (Barbier, 1990). In Mexico, price distortions upland farmers in the Philippines. They found that high
in favour of maize, a very land intensive crop increased costs of establishment and maintenance and the loss of land
deforestation (Deininger and Minten, 1999). Further, global to hedgerows are the major constraints to adoption. In Sri
food policies such as food subsidies in the United States and Lanka, soil erosion control programs supported by govern-
the European Union and food aid lower international food ment subsidies are available for tea, rubber and coconuts.
prices. The extent, to which these are transmitted into However, the performance of these subsidy programs is not
domestic food prices and international policies, can have an satisfactory due to high transactions cost and inadequacy of
impact on soil erosion. the subsidy to cover costs (Ariyabandu, 1994). Shively
(1997, 1999) found that in the Philippines non-adoption of
3.1.3. Inefficient pricing of water soil conservation measures is due to consumption risk and
Inefficient pricing of water can lead to excessive water other socio-economic characteristics. Evidence shows that
use and soil erosion. Many farmers in developing countries conservation investment in semi-arid India is affected by
pay a minimum charge for irrigation, which do not reflect factor-market imperfections including credit (Pender and
the demand patterns that exist. With a flat fee, the marginal Kerr, 1998).
cost of additional water is zero, which is the worst form of Subsidies are provided for bench terracing in the upper
pricing. Obviously, water users have very little incentive to watershed areas in Java of up to 50% slope along with
change their water use patterns. technical information to shift to high value crops. Nearly
Poor water pricing led to poor cost recovery. In 87% of the poorer farmers could not adopt terracing due to
Bangladesh, Philippines, Pakistan and Indonesia irrigation lack of money and rural credit in upland areas (Barbier,
user fees are 10 90% less than the cost of operation and 1990). The richer farmers adopted commercial apple
maintenance. The cost to the farmers of irrigation water is production (profits of $3000 6000 per year) and also
extremely low, varying between 5 and 15% of the canals back sloping tied ridges reducing erosion to less than 10 t/ha
operating cost (Sampath, 1992). In Vietnam, the percentage (Carson, 1987). The erodibility and profitability of different
of water fees collected is only about 50% of the expected farming systems determine whether upland farmers adopt
revenue (Chien, 2001). These budgetary problems led to the soil conservation strategy. The input output prices,
poor maintenance and quick deterioration of existing discount rate, soil characteristics, population, off-farm
irrigation infrastructure, which exacerbated the soil erosion employment, poverty and lack of appropriate technologies
problem. affect adoption of erosion control investments. They also
Market intervention and government policies in irriga- found that where poverty is widespread and support policies
tion created other adverse effects. Wade (1982) found that are lacking, adoption of erosion control measures is low.
irrigation engineers in India raise vast amounts of illicit A survey carried out in the Rio Ovejas watershed,
revenue from the distribution of water and redistribute part Colombia showed that long-standing effort to promote soil
of this with their superior officers and politicians. Govern- conservation practices with credit and technical assistance
ment policies in irrigation in Sri Lanka resulted in abuse, has made little headway (Ashby et al., 1996). Shirferaw and
theft of water and even bribing of officers by better off Holden (1999) showed that perception of the threat of soil
348 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353

erosion and land and farm characteristics determine failure. Both economic instruments and strong institutions
adoption of soil erosion control measures in the Ethiopian have the potential to improve the performance of past
highlands. policies. The sections below evaluate the markets and
Regulations have been introduced to control erosion, institutions, their potential and shortcomings in controlling
such as banning cultivation in hilly land, but farmers violate soil erosion.
most of these regulations. In Kenya, the law forbids
cultivation of land with a slope higher than 35% but this 4.1. Market approaches
is widely violated. Thomson and Pretty (1996) state In
Kenya, inadequacies of technology packages, information, Portney (2000) states that incentives-based approaches to
and land ownership rights and inconsistent implementation environmental protection will become more important.
have been identified as causes for low adoption of soil Market-based approaches depend on incentives and the
conservation measures. command and control (CAC) methods require mandatory
Fujisaka (1993) and Thampapillai and Anderson (1994) regulation. The main advantage of market-based approaches
show that the incompatibility of the erosion control is that they are economically efficient. Liberalisation of the
technology with the socio-economic characteristics of market, removing price distortions, Pigouvian taxes, trade-
farmers constrain adoption of soil conservation measures. able permits etc come under market-based approaches.
Also the lack of appropriate technology has been advanced
as a reason for the failure to adopt some of the costly 4.2. Pigouvian taxes
engineering approaches. In Indonesia, agro-forestry and
forestry have shown very good results in obtaining less Economists have concluded that excessive erosion
erosion at lower costs (Kusmandari and Mitchell, 1997). On occurs because private and social costs diverge and there
slopes higher than 45 50%, agro-forestry systems are is no mechanism to force users to consider the effects of soil
encouraged to replace annual cropping, fuel wood and erosion on others. Thus private profit maximising economic
fodder. However, for poor upland farmers, living on small decisions of farmers lead to outcomes that are detrimental to
parcels of land, the waiting period of three or more years in society as a whole. Where such externalities occur
agro-forestry is too long. Security of tenure also affects government intervention can often lead to more socially
agro-forestry because if long-term security of tenure is not desirable outcomes. Pigouvian taxes remain one of the
available they will not plant such long-term crops. Lower standard answers to reduce soil erosion (negative external-
private incentives to internalize the intertemporal land ities). Economists advocate a tax on each unit of soil lost
degradation externality may require different form of public (where the tax equals the marginal social damage due to
intervention (Shirferaw and Holden, 1999). erosion). The tax is attached directly to the soil sediment.
Part of the blame for excessive encroachment must be With a tax on soil sediments, farmers will equate marginal
assigned to low investment in the scientific base under- abatement cost of sediment reduction to the tax. A tax
pinning agriculture in the Amazon region. Crop and lowers the net receipts to the farmer and thus discourages
livestock yields in Amazonia are low which means that production. Farmers may shift to land uses with higher
growing demands for agricultural commodities tend to be returns per hectare. Alternatively, a tax can be applied to an
satisfied through shifts in agricultures extensive margin input such as the extent of land cultivated or the amount of
(Southgate et al., 1990). Technological research have had fertilizer used. A tax on fertilizer may cause a shift to
limited success in increasing the adoption of soil erosion technologies with higher returns to a unit of fertilizer. A tax
control technologies in the uplands in Asia. can be applied to unit of agricultural output produced. A
subsidy can also be used to reduce soil erosion. Here we
subsidise an activity that reduces soil erosion.
4. Potential of economic and institutional approaches Taxes and subsidies rely on the market mechanism,
to control soil erosion which is more efficient and lowers overall compliance costs.
However, when a tax is imposed on the input or output
It is argued that removal of price distortions in the form where the pollutant cannot be easily monitored, it gives rise
of input subsidies, price support etc. would be a major step to the second best problem. Also in the long run, there are
toward halting soil erosion and land degradation. Such an important asymmetries in taxes and subsidies for entry and
approach would encourage higher productivity growth by exit decisions of farmers. A subsidy can in certain instances
freeing up resources for high priority investments and increase the levels of soil erosion (Cropper and Oates,
diversification with less erosive crops. Theoretically, the 1992). The other problem in using taxes is that there is
market can be used to manage the erosion problem because considerable uncertainty with respect to the incidence and
these instruments can be flexible and responsive to changing damages and the difficulty of identifying sources of soil
technology and market conditions. Also government inter- erosion (Wills, 1987). Non-point sources cannot be
vention has destabilised the capacity of rural institutions to monitored with accuracy and at low cost. In developing
self-govern and act collectively, a clear case of institutional countries, there are thousands of farmers and their
J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353 349

innumerable interactions prevent the calculation of mar- various measures. It may be argued that irrigation water
ginal damages and the derivation of Pigouvian taxes. is a private good and hence should be gradually handed
Further, soil erosion is inherently stochastic and taxes are over to the private markets. Water markets are not
not likely to be an effective instrument to control soil widespread because of the high cost of obtaining
erosion. information and monitoring and enforcing rules (Rose-
Some examples of the use of market incentives have been grant and Binswanger, 1994). The transactions costs are
reported in the Asia Pacific region however. In the Peoples high because of the scattered nature of water across the
Republic of China, the pollution levies increase by 1% each country. Measurement and enforcement are costly.
day the payment is delayed. Indonesian authorities in 1989 Further, asymmetric information contributes to opportu-
revoked 48 logging concessions and suspended 237 others nistic behaviour, which can increase enforcement costs.
while fines totaling up to $4 million were issued for Strong institutions are required for better water manage-
breaking harvest rules. In 1986 87, 22 logging concessions ment but past policies ignored the relevance of
were cancelled and 29 others revoked in the Philippines, institutions to the success of water markets.
while 40 sawmills were closed down for processing illegally Several instances where water markets have worked well
cut logs (World Bank, 1989). However, whether markets (although limited) have been reported. In Nepal, volumetric
will provide the necessary incentives remains an open charges are used in a communal system where water shares
question because in most developing countries the insti- are allocated in proportion to their participation to construct
tutions are weak and the rule of law is not applied the system. This has led to efficiency improvements (Ghate,
uniformly. Many governments have failed to perform their 1987). In the Peoples Republic of China, volumetric
institutional function as credible regulators to uphold the Schemes also exist and these are being gradually increased.
rule of law. In India, market instruments are used to address dysfunc-
tional water pumps. In Northeast Thailand, full cost
4.3. Tradeable permits recovery was implemented for hand pumps after subsidized
Schemes failed, with 50% of the system not working after
Tradeable permits require less information than other five years.
methods such as taxes.1 Here, transferable quotas are
distributed to individuals, the total amount being equal to 4.5. Institutional approaches to soil erosion control
the allowable limit of pollution (Bertram, 1992). The
main advantage here is that those, whose erosion costs For many rural communities existing markets do not give
are less will be able to sell off permits and use part of them the incentive to engage in wider trade. This is because
the proceeds to erosion reduction. Tradeable permits can institutions that transmit information, enforce property
also lower compliance costs (Cropper and Oates, 1992). rights and contracts, manage the degree of competition
In the US, tradeable permits for reducing phosphorus are and provide the incentives to promote market transactions
used in the Dillon Reservoir in Colorado (Cropper and are either absent or weak (World Development Report,
Oates, 1992). Australias experience in using tradeable 2002). Institutions thus affect the distribution of incomes
permits for phosphorus reduction is limited to some pilot and efficiency of market transactions. Further they should be
studies done in the Belubula River and the Nepean innovative and match local conditions (World Development
Hawkesbury River catchment. The potential of this Report, 2002).
approach for soil erosion in the developing countries According to New Institutional Economics, developing
remains untested. country markets have asymmetric information and decision
makers are boundedly rational (Williamson, 1985).
Bounded rationality implies that decision makers ability
4.4. Efficient water pricing
to process all available information is limited. Such
situations lead to opportunistic behaviour i.e. some
Poor water pricing can lead to excessive use of water
members of society will try to unfairly acquire for
and enhanced soil erosion. Economising on water use can
themselves more benefits from a transaction. Institutions
reduce soil erosion (Rosegrant and Binswanger, 1994).
evolve in order to economise on bounded rationality and
Water problems have now become very critical in
minimise opportunistic behaviour. Strong institutions can
developing countries. Well-defined and enforceable
minimise opportunistic behaviour but often developing
property rights and prices that reflect the full economic
countries have weak institutions. Hence efforts to minimise
costs of water are essential for the efficient operation of
soil erosion has resulted in imperfect enforcement, corrup-
the water market. Increasing scarcity has encouraged
tion and exacerbation of inequities. Governments need to
governments to transform water property rights through
strengthen institutions to provide an environment for market
The other advantages of tradeable permits are that they create a market
agents to behave efficiently. Some of the main institutions in
for pollution, provide least cost control, provide automatic adjustment and developing countries and their role in mitigating soil erosion
ensure the attainment of optimal pollution. are discussed in Sections 4.6 and 4.7.
350 J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353

4.6. Property rights They contend that even though Pareto optimality is a good
concept, the difficulties of using such an approach in an
Poorly defined and/or absence of property rights to most actual setting makes it only a theoretical nicety. Cropper and
agricultural land in developing countries is a significant Oates (1992) state that a Nash equilibrium instead is, for
problem. The absence of an efficient set of property rights to most environmental problems, a practically achievable
water and land resources can cause both on-site as well as goal.3
off-site erosion. Coase (1960) argued that if property rights
to land are clearly specified, bargaining and trading will 4.7. Social capital
occur amongst the property owners and a Pareto optimal
solution with the optimal level of erosion will be achieved.2
Social capital is defined as the social connections and the
The central argument is that property rights affect the
attendant norms and trust and reciprocity that enable
management of natural resources by creating different
participants to act together more effectively to pursue
incentive structures. Insecure land tenure and property
shared objectives. It facilitates collective action. Many poor
rights in developing countries weaken farmers investment
societies have few resources other than their capacity for
incentives in the land, specially long-term land saving
collective action (Putnam, 1993). Most small holder farmers
investments. The problem in the case of soil erosion is that
in Asia, Africa and Latin America have no legal title
even if property rights are defined for land and water, it may
defining private property rights but have longstanding rights
not lead to efficient bargaining due to large transactions
to the communal land. The social capital embodied in
costs. The number of farmers and victims are so large that
communal land is robust enough to ensure their sustainable
the two groups often overlap significantly. Thus, direct
use. Common property resources such as water, forests and
negotiations among the farmers and victims to specify and
land provide security to users brought about by collective
monitor contracts are too complex and the transactions costs
action (social capital) which is often ignored. Deininger and
will be high.
In the semi-arid Sahel, some property arrangements Minten (1999) found no evidence that communal land leads
discourage intensification and conservation. Under commu- to increase in deforestation in Mexico. A wide array of
nal tenure in the Sahel, a family is entitled for temporary institutions has arisen to provide security and create
tenure. Planting tree crops and other permanent crops is conditions for collective action.
discouraged by the government. This is an institutional The importance of social capital is accepted but attempts
constraint for deforestation (Southgate et al., 1990). Li et al. to create social capital through government intervention
(1998) state that land tenure rights in China and associated have not succeeded (Fox and Gershman, 2000). In parts of
property rights affect production behaviour. Governments in India, it is the decline of the traditional market-based
Tropical Africa failed to offer legal title for protecting approaches due to social and institutional changes such as
communal land rights. Common properties are converted to land privatization and new panchayat systems that
government lands and private property rights but govern- undermined communal property rights and control of
ment capacity to manage and the legal infrastructure are community lands (Jodha, 1990). New institutions for
poor. Unless viable institutional arrangements are provided irrigation such as farmer organisations have been tried in
there is no incentive for the forests and the soil to be Pakistan, Sri Lanka, Indonesia and several other countries.
conserved (Southgate et al., 1990). In the Amazonian Basin These in general have not worked well (Samad, 2001). In
inappropriate tenure conditions led to excessive land Nigeria traditional forest resources management systems
clearing due to lack of capacity of the public sector to its have decision making processes, rules and regulations on
properties. resource use, and patterns of resource ownership as well as
Also soil erosion can generate a multitude of off-site in-built social regulatory mechanisms about the use of
damages for different types of water users such as resources. In recent times such institutions are increasingly
recreational, domestic and industrial water users. Separating unable to exert sufficient control over the exploitation of
these external effects from one another and assigning the forest resources. Sanctions for the abuse and misuse of
weights and monitoring are technically difficult due to forest resources are not as effective as they were
measurement problems when sediment is transported from three decades ago. Community members disregard tra-
one location to another (Cox et al., 2002; Southgate and ditional laws and customs in the process of forest manage-
Macke, 1989). Many economists now question whether ment (Ite, 1997). Thus the efforts of governments to make
Coasian efficiency levels are practically achievable at all. these farmers more market oriented has had limited
The Coase theorem is valid only when the transactions costs are zero
and that there are no income effects. The large number of negotiators will In a Nash equilibrium, each producing firm is assumed to rationally
create high transactions costs. If the income elasticity of demand differed think through the consequences of its choices, in the knowledge that the
between the two parties to the negotiations, the pattern of demand, and other firm knows the situation and is also rationally thinking things through.
hence the equilibrium price and quantity would differ under alternative The outputs that the firms produce are then taken to be the Nash
assignment of rights. equilibrium. Nash equilibrium is not necessarily Pareto optimal.
J. Ananda, G. Herath / Journal of Environmental Management 68 (2003) 343353 351

Governments should only facilitate the emergence of and improve returns on investment to soil conservation
social capital. For example, in Gal Oya, Sri Lanka, irrigation measures. There is a need to have more market-based policies
associations of 15 25 farmers have been set up to help in these areas so that resources will be allocated more
decide how the revenue collected from irrigation fees is to efficiently. The market distortions need to be eliminated for
be spent. Not surprisingly, revenue collected for irrigation institutional dynamics to counteract environmental
fees has risen to 80%, the highest in the country (Uphoff and dynamics. Market incentives may not work in the absence
Wijayaratna, 2000). In the Philippines, womens coopera- of appropriate institutions. Strong institutions that would
tives manage communal irrigation water pipes and collect uphold the rule of law and structure of governance supporting
the fees to pay for metered supplies. In Japan, irrigation is market approaches are essential. Such institutions lower
controlled by local cooperatives known as Land Improve- transaction costs and facilitate market exchange.
ment Districts where farmers pay about 32,540 yen per However, in some tropical and sub-tropical areas with
hectare. for operation and maintenance of the system highly fragile soils, mechanisms to slow down environ-
(Nakashima, 1998). mental dynamics through provision of extension support,
infrastructure, credit and subsidy assistance may still be
needed. In these areas, the poor predominate and land users
5. Concluding comments and policy implications may not have the resources to invest on erosion conserva-
tion mechanisms without external support. Thus support
Review of the soil erosion problem in developing policies must be applied selectively and not uniformly as
countries reveals that a dynamic view of the problem is has been done in the past. Targeting subsidies to farmers in
necessary to ensure that the important elements of the areas where soil erosion is very severe is futile. In such
problem are understood for any remedial measures to be cases, incentives to retire land may provide better dividends
undertaken. The extent of soil erosion depends on the in the long-run.
complex interaction of a number of factors such as the Technological approaches to control soil erosion have
resilience of the natural resource base, the institutional often been promoted to the exclusion of other effective
conditions, rate of population growth and the policy approaches. However, adoption of conservation measures
environment. Many tropical and sub-tropical regions of and returns to conservation depend on the specific agro-
the world have fragile soils. Poor farmers in these countries ecological conditions, the technologies used and the prices
are compelled to use erosive methods and the soil is eroded of inputs and outputs produced. A full examination of the
with continued use. This environmental dynamics can
role of government policy in conservation needs to consider
however be arrested through institutions such as clearly
the off-site effects and distortions observed in price signals
defined and enforceable property rights and appropriate
resulting government policies and marker failures. Sub-
policies. Transition to private property rights will provide
sidies often cause perverse incentives. The soil conservation
the institutional structure that will create incentives to adopt
methods have mostly been of physical structures and more
soil conservation. It should be noted however, that private
research is needed to find ways of using other approaches
property rights are not the only property rights that help
such as extension, education, etc. Hence institutional and
arrest soil erosion. Common property resources are used
policy reforms as well as technologies that not only reduce
sustainably by farmers through collective action and social
soil erosion but increase farmers incomes are needed. It is
capital. The implication is that these systems need to be
necessary to emphasise that greater understanding of the
supported by governments by providing adequate legal
recognition and facilitating the definition of legal communal dynamics of land use changes in-situ is essential in
rights over common property rights. The policies should designing technological, institutional and policy interven-
emphasize support and improvement of community insti- tion to minimise the soil erosion problem.
tutions that permit the most efficient utilization of the
environmental resources. This would encourage popular
participation where the role of the government is limited to
observer, facilitator or regulator.
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