vation for potential future commercial value) as reasons to promote forest con-
servation. To measure the value of these nonmarket environmental forest ser-
vices, Peruvian farmers were asked to state the yearly compensation amount
that they would require to adopt agroforestry practices, this time specifically
taking into account the perceived environmental benefits associated with the
proposed land use change. The average compensation was found to be only
$97 per year and per hectare. In other words, the implicit value of forest envi-
ronmental services was estimated to be about $41, expressed in terms of a for-
gone compensation (i.e., the difference between the two compensation
amounts, or $138 – $97). This striking result shows not only that Peruvian
farmers derive positive benefits from environmental services associated with
forest conservation via agroforestry practices but also that the value attributed
to these environmental externalities is surprisingly high, at about 30 percent
of the total compensation required to change land use.
Mourato and Smith (2002) also investigated whether forest carbon mar-
kets may enable slash-and-burn farmers to capture some of the positive global
externalities of agroforestry while encouraging land use change. The cost of
carbon for the study area, based on farmers’ required compensation, was cal-
culated to range from $8 to $31 per ton of carbon, depending on the discount
rate used. These estimates are toward the higher end of cost estimates from
comparable forestry-based carbon sequestration projects in developing coun-
tries: in an analysis of eight developing country carbon sequestration forestry
projects, the average cost per ton of carbon was $12, ranging from $3 to $35
(Ridley 1998). However, previous cost estimates made no adjustments for the
typically shorter duration of projects relative to the residency time of carbon
in the atmosphere. Although some very low-cost projects clearly exist in the
energy sector, the carbon costs estimated for agroforestry conversion in the
Peruvian Amazon are much lower than the average cost of reducing carbon
emissions through fuel-switching projects in nine countries, estimated at an
average cost of $165 per ton of carbon (Ridley 1998). This implies that there
might be scope for gains from trade, even given the limitations and uncertain-
ties associated with these estimates (such as lack of consideration of transac-
tion and implementation costs, difficulty in proving additionality, and quality
of carbon data used in the calculations).
Conclusions
The case studies discussed in this chapter suggest important features of agro-
forestry land uses when viewed from an economic standpoint. First, agro-
forestry systems provide a multiplicity of benefits to farmers and local and
national populations. These include not only yields from crops, timber pro-
duction, and collection of other forest products but also ecological services
such as watershed protection, soil improvement, and protection from the
- The Economic Valuation of Agroforestry’s Environmental Services 83