PRIVATE AND SOCIAL PROFITABILITY OF MAJOR LAND USE SYSTEMS IN

LOWLAND SUMATRA - INDONESIA & MAE CHAEM WATERSHED - NORTH THAILAND

Large-scale land use systems Small-scale land use systems

Poster prepared by Mr Suseno Budidarsono, Dr Thomas P. Tomich & Dr David E. Thomas

Methodology

Policy QuestionsProduce comparable economic analyses of the most important land use systems in two ASB benchmark areas:• the lowlands of Sumatra in Indonesia• Mae Chaem watershed in Northern Thailand.

To assure assure comparability across sites and systems, a course was held in Chiang Mai, Thailand, 1-14 June 1997.

Research Objective

Intensified paddy production

Fixed upland field cultivation

(with soil conservation practices and fruit

agroforestry)

Permanent, community-managed

forests

Upslope encroachmentfor field crop productionin lowland zone

Rotational forest fallow with shortened fallow periods in middle zone

Shifting cultivation with temperate vegetablesin highland zone

Transmigration project : continuous annual crops (cassava and maize) degrading to imperata cylindrica grasslands

Shifting cultivation of upland rice with bush fallow rotation

Smallholder agroforestry: rubber agroforests ...

… or monoculture?

Large-scale estates for oil palm or industrial timber

POSSIBLE ‘BEST BET’

ALTERNATIVES

Forest extraction of NTFPs and small-scale timberLarge-scale logging

Private profitability measures the incentives for production and investment given current technologies, prices, institutions, and policies. Private prices are the actual prices prevailing in local markets.

Tradable DomesticInputs Factors

Private Prices A B C DSocial Prices E F G H

Divergences due to policy & market imperfections

Revenues Profits

I J K L

Social profitability measures comparative advantage or efficiency of the land use system. Efficiency is achieved when an economy’s resources are used in activities that create the highest level of output and income. Social prices are intended to reflect social opportunity costs. For example, prices in world markers usually are used as the social prices for outputs and inputs that are traded internationally.

Net Transfers, L = I - J - K, shows the extent of inefficiency in an agricultural system. It is also the difference between private profit and social profit, hence L = D - H. The Net Transfer is the sum of all divergences that cause private profit to differ from social profit.

Factor transfers, (K = C-G), are defined as the difference between the costs of all factors of production (land, labor, capital) valued at actual market prices and their social opportunity costs. Divergence in factor markets result from underlying market failures and from distorting policies.

Output transfers (I = A-E) and input transfers (J=B-F) arise from two kinds of policies that cause divergences between observed prices and the world market: commodity-specific policies (a wide range of taxes, subsidies and trade policies) and macroeconomic polices, especially exchange rate policy.

The ’PAM’ is a matrix of information about agricultural and natural resource policies and factor market imperfections that is created by comparing multi-year land use system budgets calculated at private and social prices.

1. How profitable are agroforestry and other major land use systems in ASB benchmark areas from a private perspective?2. What is the social profitability of the major land use systems? 3. What causes differences between private profitability (financial incentives to invest) and social profitability (comparative advantage) of these systems? 4. How do the major land use systems differ regarding labor requirements and contribution to household food security?

Funded by :

• The Asian

Development

Bank

This research involvesscientists from FORDA, CASER, LATIN and Lampung Universityin Indonesia and from the Royal Forest Department, Chiang Mai University and the national planning agency, NESDB, in Thailand.

Photo by T.TomichPhoto by M.Sirait

Photos by T.Tomich

Photo by T.Tomich

Large scalealternatives

Small scalealternatives