ANNEX 1 : THE VALUES, BENEFITS AND COSTS TO CONSIDER IN FOREST VALUATION

The functions of forests and the benefits derived from them were summarized in box 1 in the introduction; they are the origin of forest values. In the process of capturing these values, "penalties" are incurred, often in the form of opportunity costs arising from missed opportunities to use resources in a different way. Table A1.1 summarizes examples of forest benefits, values and associated costs.

It has become conventional wisdom that forests (particularly the tropical ones) are much more than a stock of wood and that the lack of proper valuation of non-timber goods and services has encouraged a perception that forests have low value and so has contributed to deforestation in favour of more "valuable" land uses. Interest has come to focus on goods and services other than wood provided by a forest, e.g. non-wood forest products (NWFPs), habitat conservation and biological diversity, carbon sequestration for reducing global warming and existence values which leave options for future use open.

Valuation exercises need to take into account at least the most important of the values in table A1.1. To illustrate the process, this section will provide suggestions under the following products or functions: commercial timber stands, non-wood forest products, recreation, watershed, carbon sequestration, habitat protection and biological diversity, and option and existence values, selected from among the sources of value in the scheme of Table A1.1 (see also box 1 in Chapter 1).

The treatment of commercial/industrial market goods in this document focuses not on valuation by straightforward use of market prices, which is a simple exercise, but on techniques where alternative ways have to be adopted. Market prices also exist for certain services, such as ecotourism: for these, as for market goods, it can be fairly easy to work out the demand at given prices and so to calculate overall value derivable.

In many countries forests are largely or even exclusively under public ownership and the exercise of a more rewarding control over the utilization of forest resources has become a major concern. The term "forest fees" is used to designate all payments which the grantee has to make to the owner for the rights to remove and utilize the wood in a specific forest area and for the purchase of that wood. These fees include area fee, forest fees for specific purposes and stumpage fee. The latter, by far the most important of forest fees, is the price at which the forest owner sells the raw material to the grantee. Forest fees do not include transport taxes, export duties on sawnwood or logs, and duties on imported machinery and equipment which are not levied specially for the granted rights (Schmithüsen, 1977).

The stumpage fee can be determined by a unilateral act of the forest owner setting out a fixed schedule of fees, by public auction or tender or by individual negotiations between the parties (Schmithüsen, 1977). "Stumpage appraisal" is commonly understood to cover the estimation of the unit residual value to a prospective purchaser of standing timber, as derived from the prices and costs of log prices or of production of processed products^A1.1.

Table A1.1. Values associated with forest contributions to human welfare.

Table A1.1 continued.

Source: Adapted from Gregersen et al. (1995).

Notes: - The above table presents only some examples of potential benefits and costs. The reader is expected to go further and think about others;

- Any of the above values can be considered at different levels, e.g. individual forest, watershed catchment, country, regional, global.

A second example of less straightforward valuation applied to market goods is to cover cases (and there are many) where market prices are distorted and shadow prices have to be used as proxies. Derivation procedures for such shadow prices are well documented in the literature on project evaluation: e.g., Little and Mirrlees (1974); Squire and van der Tak (1975); Gregersen and Contreras (1979); Gittinger (1982); Gregersen and Contreras (1992); Gregersen et al. (1993). Many of these procedures are of general application but can be adapted to commercial forest products^A1.2.

As a rule of thumb, Gregersen and Contreras (1992: p. 79) suggest that the development of shadow prices is usually required for:

- Anything imported or exported (anything that involves the expenditure of foreign exchange, especially if the exchange rate is artificially pegged);

- Anything subsidized or bearing fixed prices (any good or service to be used in the project that is currently subsidized, such as the production and sale of seedlings in nurseries);

- Labour, if there is chronic unemployment or underemployment in the country.

However, in deciding to use market or shadow pricing, the analyst generally is faced with time and budget constraints. Not every input and output will be shadow priced. The choice has to be made between using a rough "guesstimate" of an appropriate shadow price or using the market price, even though it is recognized to be a less than perfect measure of economic analysis. This choice requires the analyst’s expertise and experience.

Forestry is characterized by many indirect effects (externalities or non-market priced effects) for which it is difficult, if not impossible, to establish a value and consequently to develop an acceptable shadow price (e.g. in valuing scenic beauty, spiritual and cultural values). In such cases it can be suggested that the analyst describe the effects in physical and/or qualitative terms and suggest how they are likely to affect the project outcome and its impact on society.

Table A1.2 illustrates a very simple case of shadow pricing calculation as a proxy value based on substitution. Suppose that in a specified region animal dung and crop residues are used as fuel in the absence of the fuelwood. Assume further that if they were incorporated into the soil they could contribute to an increase in the value of agricultural crops because of their properties as soil builders and fertilizers. Thus, the net value of the increase in crop output or the value of crop losses avoided can provide a measure of the benefits of establishing a fuelwood plantation. The fuelwood would be an indirect substitute for fertilizer and soil builders, and this value is determined by the value of these resources when they are released and available for agricultural production.

Among the direct consumptive uses of forests, many products do not enter the market: of these, many are non-wood forest products (NWFPs), which are used here as an example of other non-marketed forest products^A1.3.

Table A1.2. - Derivation of shadow price for fuelwood substituting for crop residues^a

Source: Gregersen and Contreras (1992): p. 84.

Notes a Hypothetical example.

A1.3.1 Elements of non-wood forest product values

Valuation of NWFPs has received great attention^A1.4. Many attempts have been made to fully value non-marketed forest products, especially NWFPs. Extraction and increased trade of NWFPs has been advocated as an alternative to timber-focused utilization, on the grounds that it could be pursued without causing tropical deforestation. Consequently, NWFPs are thought capable of playing a constructive role in forest conservation and development^A1.5. However, this assumes that their harvesting, even at commercial level, would have little or no adverse ecological impact on a forest. This can be questioned. The impact on the forest ecosystem of an increase in harvesting NWFPs is unknown (Gunatilake et al., 1993; Peters, 1994). Lescuyer (1996) argues that the establishment of monetary value for each NWFP leads to a change in the modes of use of the resource which, in turn, can cause or accelerate a process of restrictive appropriation of these resources.

NWFPs are a source of income, medicines and foods. Edible NWFPs, including fruits, nuts and game, are a major and accessible source of vitamins, minerals, proteins, carbohydrates and fats. For forest-dependent people, they may be the principal source of dietary intake. According to Roche (1986), over 1500 species of wild uncultivated plants are used by local people in the tropics as leafy vegetables. In Nigeria, studies have shown that there are about 150 species of woody plants used by local people for a variety of nutritional purposes (Roche, 1986). Gentry and Blaney (1990) report that in Iquitos, Peru, 139 out of 193 forest fruit trees are used locally and at least one-tenth of the diet of the campesino is derived from wild fruit. Jacobs (1982), quoted in Myers (1990), reports that Peninsular Malaysia’s forests contain at least 1250 non-timber plant species (roughly one in six of all species present) of use to humans. Lescuyer (1996) reports that in a short study carried out in Gouté (East Cameroon) more than 500 forest products were listed, not including game. So, when local people have their access to collect NWFPs denied, for example, by the establishment of a park or a reserve, they are the ones who bear the costs while the benefits are shared at global level.

Other examples of the importance of the forest to local people are provided in Clay (1988), Shukla et al. (1990), Berkes and Folke (1992), Appasamy (1993) and Ganesan (1993). Medicines and fauna are among those NWFPs that deserve attention but are better covered within the context of habitat and biological diversity conservation (section A1.7). Fauna is a major source of protein for human consumption in many parts of the world (De Vos, 1977). Wildlife-based tourism can also be a major source of value-addition to forests.

The existence of NWFPs is perceived by many experts as essential for household food security, specially during drought periods when other foods are scarce (Chambers, 1981; Falconer and Arnold, 1989; Tacconi, 1995; Lescuyer, 1996). Kanel (1990) felt that under such conditions, the value-in-use, i.e. the true benefits brought to resource users, is much greater than the value-in-exchange, i.e. market value. Bettencourt (1992) suggested that, since only a small proportion of the products consumed are traded in the market, any full valuation that relies on prices and quantities found at the market level (value-in-exchange) will underestimate the true economic value of the resource. The argument of Grut (1987) is that, because the marketable and easily quantifiable benefits of forests are sometimes only the tip of the iceberg, the market is a poor guide in this sector.

A1.3.2 Basis for assessing realistic values of non-wood forest products

NWFPs should be valued on the basis of sound estimation of demand and supply potential^A1.6. Factors to consider include: whether there is a market and the possibility that markets fail to materialize; whether an increase in income might lead to growth or decline in consumption of NWFPs (Bishop and Eaton, 1996); and whether the yield of the NWFP is sufficient to cope with a shift from a subsistence to a commercial harvest level; and what might be the effects to the forest in the case of such a shift. The analyst should bear in mind such factors and seek assurance that they can be satisfactorily answered as far as current knowledge allows, otherwise it is difficult to put defensible values on NWFPs.

Contrary to correct professional practice, which should be to use conservative estimates until better knowledge is available, analysts have tended to downplay supply constraints and to take an optimistic view of markets for even the most obscure NWFPs. Products that have hitherto been used or consumed only by local populations far from the main demand centres are assumed to be required in large quantities and to have the total production sold at full price.

Questions as to the size, geographical distribution and stability of the market for these products need to be answered. In most cases this market is locally restricted. According to Padoch (1987), utilization is often associated with traditions of only local significance, the pattern of which can be highly varied and complex. In many societies the harvesting of NWFPs can be understood not just as an economic, monetarized activity but as a much more socio-cultural activity (Lescuyer, 1996). Even within a single country the market potential for many valuable NWFPs may be only guessed. People living within the same country or even only a short distance apart may have different tastes for NWFPs. For example, Southgate and Clark (1993) mention failed attempts to "export" NWFPs within Peru from Iquitos to Lima. The valuation analyst should be wary of over-optimism in estimating likely future contribution of NWFPs. Many of these commodities have been in use for thousands of years and yet have not made a breakthrough in terms of market value; assumptions of radical change must be supported by very good reasons. It should also be remembered that the actions of other countries through international trade increasingly influence national commodity markets in ways that are difficult to predict.

On the supply side, it is often assumed (for reasons that are unclear) that storage and transport problems, even for perishable NWFPs, have been solved or can easily be solved. The possibility that production may vary considerably from season to season is not taken fully into account. Such assumptions need to be guarded against.

Economic, social, legal and other societal institutions will change over time in ways that are difficult to foresee. Hence, in the face of rapid socio-economic change, estimates of future market supply and demand for specific products are often highly uncertain.

Once the market and production aspects of NWFPs have been studied and monetary values estimated, the main additional aspect to consider is the value of their cultural significance. How is one to do this in monetary terms? In practice, all that may be possible is to strongly highlight this cultural aspect in qualitative terms, without attempting to place monetary values. This recognizes that the decision-maker can take account both quantitative and qualitative factors.

Often, it cannot be assumed that NWFPs will continue to give value in the long term. Lack of land and resource tenure and the need for immediate survival lead peasants or forest-dependent people to feel insecure and to have short time horizons. Consequently they prefer to realize the value of NTFPs in the short term rather than the more distant future.

A1.3.3 Benefits and costs

NWFPs are very important, not just in the rural economy, but also because they can represent food security for many poor rural people. In some instances, such as the Brazil nut, the NWFP can be a source of foreign currency and, consequently, contribute to the national economy. One of the costs that can be imposed on rural people that rely on NWFPs, including game, is when their access to the forest is denied, for example, because of the establishment of a reserve or park. Many people, even nations, have been faced by serious economic problems which lead them to need cash desperately. This, in turn, can lead to an increasing harvest of those NWFPs that have higher values, particularly those that can be sold on the international market. This can impose very high costs in terms of damage to the forest ecosystem.

A1.3.4 Constraints to realizing non-wood forest product benefits

The extraction of economically valuable NWFPs is an ancient practice. According to Padoch (1987), in Peru some NWFPs were being traded even before the founding of Iquitos in the 17th and 18th centuries; these included medicinal plants, e.g. copaiba (Copaifera reticulata), naval stores, e.g. copal (Dacryodes spp.), condiments, e.g. vanilla (Vanilla planifolia) and sarsaparilla (Smilax spp.). Since then, many other NWFPs have been exploited, traded and exported; many of these have, according to Homma (1992), passed through their expansion phase and have reached stagnation and decline. Natural rubber in Brazil is one example, lac in India is another. Substitutions both for NWFPs and timber have taken place: Indian lac was entirely displaced by synthetics in the manufacture of gramophone records and natural rubber by the plantation equivalent and by synthetics; in Britain the major oak timber industry was shattered when iron and steel replaced timber in shipbuilding.

Estimating the values associated with non-wood resources, particularly in tropical forests, is difficult because of the absence of market prices and because of insufficient knowledge of who are the beneficiaries and what are the benefits involved (Condon and White, 1994). For example, according to Emerton (1996), the use of Oldonyo Orok Forest, Kenya, is almost entirely for subsistence purposes and there has been virtually no commercial exploitation. There is no local market or price, and there are no close market substitutes for forest resources (Emerton, 1996). This suggests that a monetary economy plays little role in local production and consumption systems. Although throughout the world millions of people rely on NWFPs in their daily lives (Burgess, 1993), the use of many wild forest foods is not well documented and often not properly accounted for.

In spite of this, Gregersen (1982) concluded that non-market outputs (goods and services) from the tropical forest probably are not short-changed in development decisions because of the fact that they cannot be valued in monetary terms. If they are neglected, it is rather because they are considered relatively unimportant in a broader, often political, context. Another factor is the period over which reliable values can be derived for NWFPs. As stated earlier, lack of land and resource tenure and the need to survive lead forest-dependent people to feel insecure and hence prefer to realize the value of NWFPs in the short term. Thus, although exploring how to derive monetary measures of values for non-market outputs is an interesting and possibly productive task, it is not the most effective antidote to poor land use and rapid destructive deforestation.

The assumption that extraction of NWFPs does not disturb the forest as much as logging needs to be tested, particularly if harvesting rises above the subsistence needs of a sparse rural population. Indeed, there is evidence that even indigenous and/or local people may also deplete the forest. As with timber, many NWFPs can be harvested on a large scale to provide cash^A1.7.

Factors for consideration in the valuation of NWFPs or other non-marketed direct use goods are summarized in box A1.1.

A1.4.1 General considerations

Recreational services of the forest tend to be more valuable to urban people in affluent societies. Such services are unlikely to have the same appeal for poor people, even those living in urban areas of developing countries as they struggle to survive. For developing countries, particularly those endowed with luxurious tropical forests, the use of these forests for recreational purposes has been advocated mainly as income generator.

A forest used as a recreational area may help prevent the impoverishment of biological diversity. However, a recreational site does not necessarily mean an area of great biological diversity. In some circumstances an increase in diversity may even lead to impaired recreational experiences (Naskali, 1995).

A1.4.2 Elements of recreation values

Use of the forest for recreational purposes was probably the first non-consumptive use of the forest to be advocated. As early as the 1950s recreation was of importance in the United States. Recently, along with the emergence of the environmentalist movement, the use of forest for recreation purposes as a way to save forests, particularly tropical ones, (with the advantage of being a possible income generator) has been highly publicized. The concept of "ecotourism" has become very popular.

Recreational activities are many and varied. They can include hunting for sport but, given major concern about the environment, greater emphasis has been put on recreational activities focused on hiking, camping, sightseeing and photography of scenic beauty, diverse wildlife populations, relative clean air, picnicking and so on. It is important to bear in mind that these values have a greater appeal for people in urban areas, particularly in industrialized countries, than to people who live in and/or rely on the forest for their survival.

Box A1.1. - Considerations in valuation of non-marketed direct use goods such as non-wood forest products

- It has been assumed that, unlike timber-focused utilization, extraction of non-wood forest products (NWFPs) does not damage the forest and instead has a constructive role in forest conservation and development. This assumption can be questioned on the basis, for example, that the impact on the forest ecosystem of a shift from subsistence to commercial harvesting of NWFPs is unknown. Evidence suggests that an increase in collection of NWFPs may lead to damage of the forest ecosystem in the same fashion as logging;

- The establishment of monetary value for each NWFP may lead to a change in the modes of use of the resource which, in turn, may cause or accelerate a process of restrictive appropriation of these resources, such as privatization of user’s rights;

- For forest-dependent people, edible NWFPs may be an important source of dietary intake, and even a question of household food security, particularly during drought periods when other foods are scarce. Within this context, harvesting of NWFPs does not necessarily mean a monetary economy; on the contrary, it is primarily a subsistence economy and there is no local market or price for them;

- In many contexts the value-in-use of NWFPs, i.e. the true benefits brought to resource users, is much greater than the value-in-exchange, i.e. market value. So, a valuation that relies on prices and quantities found at the market level (value-in-exchange) can underestimate the true economic value of the resource. The marketable and easily quantifiable benefits of forests are sometimes only the tip of the iceberg. The market can be a poor guide in this sector;

- The potential supply and demand of many NWFPs is unknown; sometimes the market is only local or is short-lived. The possibility of markets failing to materialize should be considered. For example, an increase in people’s income can lead to a decline in their consumption of some NWFPs (i.e. they may be "inferior goods" in economic terms, with negative income elasticity of demand);

- The yield of the NWFPs may be enough to cope with subsistence harvesting but not with commercial harvesting. Yields of NWFPs are unpredictable, by season or by other time period. Some forest species yield the desirable products on unpredictable time cycles;

- The extraction of economically valuable NWFPs is an ancient practice. However, many of them have passed through an expansion phase, reached stagnation and then declined. This may be attributable to substitution effects, among other things, or to passing fashions and tastes;

- Thus valuation of NWFPs deserves caution.

A1.4.3 Basis for assessing recreation values

Statistics on the levels of the non-consumptive uses referred to above are generally incomplete or even non-existent. However, because of the emphasis that has been put on non-consumptive use of the forest, studies have been carried out to demonstrate the importance of recreational activities. The travel cost method (TCM) and contingent valuation method (CVM) have been widely used by these studies, in

both developed and developing country contexts. However, it should be stressed that the estimated values do not have necessarily the same importance in both contexts.

A1.4.4 Benefits and costs

Recreational activities have different environmental impacts. Activities such as camping, boating and fishing can be considered as activities with minor impacts whereas others, such as hunting and off-road vehicle travel, can be classified as activities with major impacts. This is not a fixed classification since any of these activities can have destructive effects on the environment if they take place in an uncontrolled way. Hence, the benefits and costs are a function of how these activities take place.

The benefits may be in terms of employment and income generation in rural areas, e.g. local tour guides. However, they may impose opportunity costs on local people if they have their access to the forest denied.

A1.4.5 Constraints to realization of recreation values

Income generation has been assumed to be one of the major benefits of recreational activities. However, this should be taken into account with caution. There may be hidden revenues obtained from hotels, travel agents and retail economies. These revenues are not always generated within the country and therefore do not necessarily return to or remain within the country. As far as local people are concerned, it is likely that just a small proportion of the income generated accrues to them. In extreme situations, they have no gain at all and, on the contrary, may suffer losses if, for example, they have their access rights denied.

Revenues obtained from licences, permits and fees for permission to hunt for sport are not always channelled back to the appropriate recipient. In the United States, a significant proportion of revenues from licences and permits is channelled back to the local wildlife manager to improve habitats and hunting conditions. However, in countries such as Kenya, these revenues go to the central government and little money returns to the wildlife manager for conservation purposes (Ffolliott et al., 1995). Indeed, this is not surprising, given that any developing country exploits its natural resources such as forests in order to earn foreign currency which is expected to contribute to its economic growth as well as its balance of payments (Cho wdhry, 1992). Points to consider in valuation of recreational services are summarized in box A1.2.

Watershed management should be viewed as multiple-use management involving the manipulation of natural, agricultural and human resources and taking into consideration social, economic and institutional factors operating within the boundaries of a watershed. Within this context, a wide range of forestry projects can contribute to watershed conservation. Therefore, the project does not necessary need to be focused only on watershed conservation. For example, a plantation established to produce fuelwood can also contribute to watershed conservation. Its effectiveness in contributing to watershed conservation will depend, among other things, on how this plantation is to be managed.

Box A1.2. - Considerations in valuation of recreational services

- Recreational services of the forest tend to be more valuable and have a greater appeal to urban people, particularly in affluent societies, whereas forest-dependent people will have a different scale of values;

- Recreation may benefit foreign tourists more than local people;

- A forest used as a recreational area may prevent the impoverishment of biological diversity. However, a recreational site does not necessarily mean an area of great biological diversity. An increase in diversity may even lead to impaired recreational experiences;

- Too many visitors can damage a forest. The income must then be offset against the value of damage (i.e., the cost of repair);

- Use of the forest for recreational purposes (often termed "ecotourism") has become very popular and has been assumed to be a way to save forests, particularly tropical ones, with the advantage of being able to be an income generator. However, if a forest is put aside for recreational purposes and local people are denied their access to it, this constitutes an opportunity cost to them and should be considered as such;

- Recreational activities include hunting for sport, but more emphasis has been put on hiking, camping and so on. Such pursuits can have different impacts on the forests: for example, camping, boating and fishing can be considered as activities with minor impacts whereas hunting and off-road vehicle travel can be classified as activities with major impacts. This is not a fixed classification: any of the negative impacts will depend on how the activities take place;

- Statistics on recreation, particularly in developing countries, are incomplete or non-existent. The travel cost method (TCM) and contingent valuation method (CVM) have been widely used to estimate recreational values. In many instances, values from one area or country have been extrapolated to another to produce estimated values. The estimated values do not necessarily have the same importance in different contexts, e.g. tourists and local people will have different perceptions and, consequently, entirely different figures will be reached;

- Income generation has been assumed to be one of the major benefits of recreational activities. However, this should be taken into account with caution. There can be hidden revenues for hotels, travel agents and so on that are not always paid for within the country; the income is made abroad and does not necessarily return to the country with the forests;

- Revenues obtained from licences, permits and fees to visit or to hunt for sport are not always channelled back to the local manager to promote improvements in the area. These revenues often go to the central government and only a small proportion returns to the recreation area concerned.

A1.5.2 Elements of watershed values

Watershed conservation has been advocated on the basis of its contribution to conserve soil and water, thereby yielding local, national and transnational benefits. Deforestation has been assumed to impose externalities on watersheds: (i) increased soil erosion entailing on-site and off-site sedimentation costs; (ii) accelerated water run-off leading to localized flooding; and (iii) reduced hydrological cycling and recharge of groundwater and water courses (CSERGE, 1993).

However, it is not just deforestation that may have negative effects on a watershed. Contrary to a common belief, afforestation with exotic species may also contribute to a decrease in stream flow. An example of this is the case study from South African fynbos ecosystems presented by Van Wilgen et al. (1996). Unfortunately, hydrological benefits from forest preservation are not yet fully understood (Chomitz and Kumari, 1996).

A1.5.3 Basis for assessing watershed values

The costs of mitigation or reparation of damages have been used as a basis for assessing watershed values. They provide a first-order surrogate measure to estimate the value of protective forest functions. Note that such estimates are site specific.

A1.5.4 Benefits and costs

The benefits and costs of watershed conservation are not perceived equally. For example, the interests of upland inhabitants may not coincide with those of downstream communities. The cost of erosion may be largely external to watershed inhabitants. A separate political jurisdiction in the upper watershed may not find it advantageous to cooperate in a project that largely benefits downstream areas: different watershed management alternatives determine the share of costs and benefits for each locality.

Throughout the world watersheds are being overgrazed and farmed to such an extent that acute erosion and sedimentation has taken place. This, in turn, imposes high costs in irrigation, hydroelectric power generation and provision of water catchment for domestic use. Thus, implementation of a variety of land use practices, such as terracing and afforestation, may bring benefits.

A1.5.5 Constraints to realization of watershed values

There are various constraints to the realization of watershed values. Three are discussed briefly to illustrate the subject.

One is of a political nature since political boundaries and landholdings seldom coincide with watershed boundaries. However, the physical world has little respect for political boundaries and so inappropriate upstream land use practices cause devastation downstream regardless of the political boundaries. Nevertheless, because political jurisdictions effect change, it is advisable to plan and act in terms of such political boundaries.

A second sort of constraint is related to lack of knowledge of the many events that occur in a watershed, for instance, the timing of sedimentation. In most valuation studies it is assumed that sedimentation will be reduced in the first year after watershed forestry interventions take place, and that benefits occur in the near future. That means their net present value (NPV) becomes significant. However, many soil stabilization benefits take place only after many years, if not decades. Thus, the NPV can become small or even negligible (Chomitz and Kumari, 1996). Also not fully understood are the biophysical impacts of tropical deforestation on water yield (Aylward et al. 1995). Flood events are more likely to be closely linked to major climatic and geomorphic factors than to land use per se.

The third constraint recognizes that many of the derived benefits cannot be readily priced in the marketplace. Watershed conservation may result in outputs that cannot be directly valued. Others can be estimated indirectly, e.g. crop increases made possible by erosion prevention. Given this

characteristic, watershed conservation is generally one of the components of other projects with a more direct production orientation, e.g. a fuelwood production project.

One of the greatest challenges that developing countries face is how government and farmers can agree on better land use in the watersheds, i.e. where there is not only less erosion but also a balance between sufficient income going to farmers and a government’s need for foreign exchange earnings. These points are summarized in box A1.3.