Agnes C. Rola, Asa Jose U. Sajise, Dieldre S. Harder, Joe Marvin Alpuerto

1. Agricultural Productivity Growth and Environmental Externalities“Can Soil Conservation Practices Increase Upland Farm Productivity?” Agnes C. Rola, Asa Jose U. Sajise, Dieldre S. Harder, Joe Marvin Alpuerto (Paper presented during the Asian Society of Ag Economists Meeting, Makati,Philippines, 28-30 Aug. 2008)

2. Introduction • Present results from a larger study • Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) Productivity Growth for Philippine Agriculture Project • Project component on Agricultural Productivity and Environmental Externality • Upland-Lowland Agriculture (Aggie to Aggie externality)

3. Focus of Presentation Introduction: Detail of Larger Study In-Situ Effects of Soil Erosion on Upland Farm Productivity Technology Adoption & Soil Erosion Ex-Situ Effects of Soil Erosion (thru Irrigation Systems) on Lowland Farm Productivity Soil Erosion and Irrigation Systems Review of Literature on Upland Corn Cultivation and Soil Erosion Empirical Case Study: Panel Data Analysis Review of Literature on Irrigation and Lowland Farm Productivity “Empirical” Case Study: Productivity Change Analysis

4. Rationale for Scope of the Study • Ecosystem: Upland Agricultural Systems • Commodity: Corn • Natural Resource Base: Soil • Environmental Factor: Soil Loss/ Erosion • Why? • Soil erosion has been identified as a leading problem in upland resource management • Upland areas will be the potential bread basket because of dwindling lowland areas • Huge amount of R and D investments on soil erosion control (agroforestry, SALT, etc.)

5. General Methodology • No direct measure of soil erosion • Therefore, look at the indirect relationship • Adoption practices -> Soil Loss -> Decline/ Increase in Productivity • Review literature on corn production and soil erosion • Case Study: use data and estimate a panel stochastic frontier on a primal production determination function

6. Empirical Methodology • Posit the following yield/ production determination function: • Corn Yieldit =f(Ωit, θit, dit) where • Ωit is a vector of household/ plot characteristics for household i at time t • Θt is a vector of economic/ institutional / physical variables for household i at time t • dit is an indicator variable d=1 if adopts a soil conservation practice, assumes value of 0 otherwise for household i at time t

7. Econometric Specification: Stochastic Frontier • Corn Yieldit =f(Ωit, θit, dit) + εit + μit where • εitis the usual error term for household i at time t • μitis the truncated error term that represents technical inefficiency for household i at time t • Furthermore we specify a time varying technical efficiency term of the form

8. Econometric Issue • Adopting a conservation measure or not is endogenous • A function of some set of variables • A better or alternative way to look at it: Measurement error • soil erosion is a latent variable (in the absence of an indicator) or may not be measured properly • using only adoption of soil conservation technology as a proxy • Roughly: Prob(d=1) = soil erosion + Є

9. Solution: Two Stage Estimation or Treatment Effects • 1st Stage: Discrete Choice • Probit on discrete decision to adopt • Get Mill’s ratio for non-adoption and adoption • 2nd Stage: Stochastic Frontier • Revised specification: • E[Corn Yield|Ωit,θit,1]= f(Ωit,θit,1) + • E[Corn Yield|Ωit,θit,0]=f(Ωit,θit,0) +

10. Results of Review of Literature: Some Statistics • Corn production (kg./ha) in the Philippines is lagging behind it’s SEA neighbors (FAO Statistics)

11. Results of Review of Literature: Some Statistics • In terms of agro-zone • Uplands has lower minimum and maximum production • In general, wide range of production (i.e. more erratic)

12. Summary of Literature Review • Yield gap is due to a variety of reasons: biological constraints, soil and water constraints, socio-economic constraints, ‘erratic and unpredictable’ weather conditions and storms, use of sub-optimal fertilizer input due to capital constraints, soil acidity, and declining soil fertility • Literature acknowledges that corn in the uplands is very soil erosive • However, obviously dampened by adoption of technology (e.g. crop rotation, hedge rows, etc.)

13. Results of Empirical Study • SANREM panel data from 1994 to 2006 of from 195 households in 1994 to 80 households in 2006; and about 109 plots in 2006 • Data series includes corn input, output, soil conservation practices, demographic characteristics, some data on rainfall patterns, village level data on water quality • Site is in Lantapan Bukidnon

14. Casual look at trends in production show increasing production for adopters

15. Data Problem • One problem is corn plot attrition (around 80%) • Various reasons: out migration; shift to other crops • Can test for effects of attrition based on observables • Use baseline data • Regress yield with inputs, other variables and an attrition indicator • Test shows that attrition indicator is not significant, implying attrition is not a real problem

16. Determinants of Technology Adoption • Probability of adoption higher in farms located in higher slopes • Favorable price expectations leads to higher likelihood of adoption • Households relying on family labor are more likely to adopt soil conservation technologies

17. Determinants of Technology Adoption (continued) • Farms with higher productivity are more likely to be put under a soil conservation regime • Adoption is also more likely during the base year than later years.

18. In-Situ Impact of Technology Adoption (Soil Erosion) on Upland Farm Productivity • All production inputs have the right signs and directly related to production • Adoption of soil conservation increases production implying that controlling erosion increases productivity among upland farms

19. In-Situ Impact of Technology Adoption (Soil Erosion) on Upland Farm Productivity • Drought dummy for (1997=8;others=0) drastically reduced production • Farms located in higher watershed also had lower corn yields • However, the interaction term between watershed location and adoption imply that farmers in the upper watershed who use soil conservation techniques will tend to have higher yields • Soil conservation can mitigate locational disadvantages

20. Other interesting insights • Calculated marginal effects for each variable • Marginal effects show that the impact of adoption on productivity is higher compared to the productivity effects of conventional input usage (singly or combined) • The technical inefficiency term is increasing across time • Some farmers are indigenous people (IP), thus, practices time old traditional conservation and cultivation • Why then is there declining efficiency? • Labor opportunities in the lowland • More variability in weather

21. Summary and Policy Implications (so far) • Target extension (and R and D) efforts on the upper watersheds • There are productivity gains to R and D efforts and soil conservation adoption. Gains commensurate (or even higher) than efforts to increase productivity through encouraging input use • Another bite at the Green Revolution

22. Summary Preview in the Context of the Larger Study • Our initial review of literature for the latter half of the study • Hard to trace soil erosion from upland farms to irrigation systems • Many other sources of soil erosion (mining, roads, etc.) • Not all soil erosion goes directly towards the irrigation systems. Some ends up in the banks of rivers and other reservoirs

23. Summary Preview in the Context of the Larger Study • Point #1: Literature is clear however that large development (and more disruptive land use changes like mining) are more likely to be more significant sources of soil erosion • Point # 2: Soil erosion from upland farms may therefore have very miniscule impact on irrigation systems and therefore on lowland agriculture • Point #1 + Point #2 implies that aggie to aggie externality may not be that great an issue

24. Summary Preview in the Context of the Larger Study • Can we therefore justify intervention on the basis of efficiency? • Results of the larger study say: Maybe Not • But it maybe justified on equity grounds, i.e. to increase production (and thus income) in poverty stricken upland areas • We have been doing the right things for the wrong reasons because of lack of empirics.

25. What we failed to get • Actual irrigation and farm data in the lowland areas • Focused on aggie to aggie or farm to farm externalities • What about Farm to Fish externalities? • Large part of eroded soil goes to coastal areas and river banks • Coastal non-point source pollution is a big issue • But this might be a more wieldy study

26. Maraming Salamat Po