Lessons from PES: pros and cons of smallholder incentives

SHARP publishes directory of Payments for Ecosystem Services projects and consults experts on experiences in initiatives to improve farming practices

Earlier this year, SHARP published a study of Payments for Ecosystem Services projects that involve smallholder farmers in tropical forested areas, based on a wide-ranging literature review by Helen Cross and Willie McGhee. We have now added to the SHARP website a directory of the 28 projects reviewed in the study, which we hope will be a useful resource. Click here to see the PES project directory. The SHARP secretariat also took the opportunity to contact a range of practitioners and researchers for their insights into smallholder-oriented PES projects. Here we report the results.

Think rewards, not payments

Payments for Ecosystem or Environmental Services (PES) are incentives used to encourage the protection of natural goods and services, particularly through good land or water management. PES schemes targeted at smallholder farmers have been in existence since the mid-1990s and often combine poverty alleviation with conservation goals. There are potential lessons from PES for the SHARP partnership, and in particular for the RSS framework and the HCV for smallholders approach, which both aim to encourage sustainable farming practices in forested regions by supporting and incentivising smallholders in some way.

The PES approach was initially conceived as a transactional model involving the payment of financial compensation to those that protect an ecosystem service (such as farmers) by those that benefit from it (such as downstream water users). In practice, the notion of ‘payment’ has become much broader. The PES directory on the SHARP website shows a wide range of compensatory mechanisms which can reward whole groups such as villages as well as individual farmers and which include non-financial incentives such as secure land tenure, capacity-building and public services. Ina Porras and colleagues at IIED have written on this in a recent study, published here.

“We define payments for ecosystem services as transfers that reward smallholders for improving agricultural practices and land use that result in better provision of ecosystem services. They are conditional, in the sense that agreed activities need to take place, and should be additional to what would have happened without the project. Payments can take different forms: they can be cash or in kind (or a mix of both), one-off, continuous or time-bound; they could be made directly to the farmer or to a community or a group of farmers.” Porras et al., Payments for Ecosystem Services in Smallholder Agriculture.

The experts consulted by SHARP agreed with the study’s conclusion that alternative compensatory options are often as appropriate as direct cash incentives. They report that cash payments to smallholders in poor rural areas can have adverse effects such as creating dependency, encouraging elite capture or distorting social relationships. The IIED study warns of women being excluded from PES projects, while research by Beria Leimona and colleagues found that if the ratio of farmers to beneficiaries is too low, individual payments will be too small to reduce poverty levels and may not cover the opportunities costs faced by farmers who have to change their farming practices.

The greatest benefits to smallholders can be in creating opportunities

Dr Leimona suggests that rather than cash payments, the greatest benefits to participating smallholders can be in creating opportunities for them to “to diversify, or capture greater value from, their income sources” and in increasing their conservation knowledge and business networks. Paul Hatanga Mukiza, formerly of the Chimpanzee Sanctuary & Wildlife Conservation Trust which is involved in a PES project in Uganda, agrees. As an example of non-financial compensation, “smallholders appreciated the role of easily reachable community monitors who provide technical advice,” he says.

Conditions for success

The SHARP study identified several elements of successful PES projects. Our consulted experts ranked three as particularly important:

  • Work with a local partner known and trusted by the targeted smallholder group;
  • Understand local land tenure and aim to improve tenure security for participants; and
  • Take steps to understand local preferences for activities and incentives, and ensure participant engagement in project delivery.

Local partners such as a local NGO can provide a channel for communication between smallholders and payees such as donors, companies and governments. They also build trust and help to tailor the project design to the local context. Dr Leimona and colleagues have studied several projects in Indonesia and elsewhere in Asia where smallholder communities were incentivised to change farming practices to protect watersheds. They found that intermediaries play a role in bringing together multiple sources of information for such projects. Local ecological knowledge, more general government prescriptions and scientific research all have strengths and weaknesses. They need to be considered together to develop measures for participating smallholders to follow that are sustainable over time and don’t result in adverse effects.

For example, in one project in Indonesia, farmers were blamed for deforestation that was causing sedimentation and affecting fish numbers. However, scientific data found that the sedimentation was largely caused by rainfall variability, and the fish stock was mostly being affected by over-harvesting downstream.

However, while potentially valuable intermediaries, NGOs, like all stakeholders, may have vested interests and there is a risk of projects becoming donor-driven and of pilot sites being selected on the basis of donor obligations or the availability of information.

A good understanding of local preferences for activities and incentives can counter donor bias. It can also help with broadening the approach from payments to rewards that respond to the particular needs of participating farmers and communities. Equitable treatment of people and groups within the project is important. But the experts add that having a wider governance framework with a supportive government and policy environment is key to implementation. Tony Rinaudo of World Vision, who helped to implement the Humbo community forestry PES project in Ethiopia, says successful PES projects need “integrity and technical skill of project facilitators; and steadfastness and vision of community leaders – often in face of opposition.”

Call for dialogue

SHARP asked the experts if there is a need for a forum for practitioners, donors, researchers and community representatives to discuss the opportunities and challenges of PES projects involving smallholders. They indicated that there is a strong need for such a forum. There are already several online resources for the PES and REDD communities, but few focus on smallholders. A workshop, webinar or regional dialogue could address this gap. “Regional dialogues potentially give community members an opportunity to be heard and to learn, and they physically bring all stakeholders together, which can be very powerful,” says Tony Rinaudo.

Lessons for SHARP

How can experiences from PES projects help the SHARP partnership? Three observations stand out.

  1. The experts emphasise the value in focusing on creating opportunity in smallholder communities rather than financially rewarding individual households. Incentives and forms of compensation that are non-financial or that reward groups rather than individuals could promise a more transformative and longer-lasting effect, not only on local farming practices but on local livelihoods more generally. Diverse mechanisms such as road improvements, building farmers’ business skills, increasing farmers’ conservation knowledge and delivering secure land tenure may bring benefits. It is crucial to enable participating communities to define their experience of poverty and their own needs – this is relevant to the needs assessment and provision of farmer support under Pillar 2 of the RSS framework.
  2. Experiences with PES point to the importance of drawing on multiple sources of knowledge for natural resource management projects. Notably, scientific research can be used to complement local understandings of ecological processes; and together, they can challenge received wisdom concerning the causes of environmental problems and contextualise government conservation measures. These lessons are useful for the HCV for smallholders approach, when group managers work with smallholders to identify High Conservation Values in the landscape and develop precautionary practices.
  3. Successful PES projects benefit from an effective support network involving skilled, trusted intermediaries and a conducive government and policy framework. For example, in the SHARP study, we note that the government of Uganda has facilitated the development of PES projects by adopting smallholder-appropriate forestry legislation. Communication and capacity are key – echoed in the call among the experts that SHARP consulted for a forum to share lessons from smallholder-oriented PES projects. This observation supports an early finding from pilots of the RSS framework (click here) and HCV for smallholders approach (click here), that both supportive third-party involvement and capacity-building for smallholder groups and implementing entities are crucial.

For further lessons from the reviewed PES projects, see the conclusions and recommendations of the study.


Images: T Burlace.